Crazy Tax Return Stories??

[Dances With Fire]

About this time each year I tend to hear some of the most outrageous stories from coworkers at the office as well as from family members and friends.

...waiting for their "fat" tax return check so they can go out and BUY, big screen t.v.'s, i-phones, cars, cruises, and other forms of vacations.

Am I the only one in the office that thinks this is absolutely nuts?

One person informed the office that he is not getting as much back this year. "So what about the T.V."? we ask.
"Maybe next year...the government screwed us this year."

Really?? The ONLY savings you have is your tax return. I thought to myself...And it's the governments fault????

This person is in their upper 50's with NO retirement savings. While yet another is waiting for his check so he can "go to Vegas." While he complains about his clown-car payments. This is crazy!! Yet, I don't say anything...just listen.

Cheers! Dances With Fire

[Donovan]

I think you lost control of your bold there ;)

I am getting a massive tax return this year thanks to getting married half way through (yay lower tax bracket!) However, mine is going straight into student loans.

However, I have a cousin who is notorious for this. All year, every year, they go on about how they can buy big things (despite having no money), because they're spending it out of their tax check in X months. By the time the tax check comes, they have typically spent about 2-3x their actual return money and are just farther in debt than ever...

[MNBen]

I've always wondering what percentage of people even realize that if my taxable income is the same as your taxable income, and we filed the same (single, married, etc.) then basically our tax paid will end up being the same amount.   (Yes - I realize a few things can change that number on the tax form, but on this forum I assume everyone knows what I mean.)

So if our tax paid is $3,000 you can pay in $3,500 and get a $500 refund, you can pay in $5,000 and get a $1,500 refund, or you can pay in $3,000 and get $0 refund, but either way, it all ends up with $3,000 paid in taxes.

The reason I bring it up is people always talk about taxes, as if getting a refund was just good luck, or having to pay in was just bad luck.  My mother always asks if I got a big refund, and when I say no she seems so disappointed for me because she got a big refund and is really excited.  I have tried numerous times to explain that it's because I adjust my withholdings so I don't get a refund.  I still pay the same amount of tax though.  And I always get that same confused look and so I just quit talking.

[darkadams00]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

[Dances With Fire]

I've always wondering what percentage of people even realize that if my taxable income is the same as your taxable income, and we filed the same (single, married, etc.) then basically our tax paid will end up being the same amount.   (Yes - I realize a few things can change that number on the tax form, but on this forum I assume everyone knows what I mean.)

So if our tax paid is $3,000 you can pay in $3,500 and get a $500 refund, you can pay in $5,000 and get a $1,500 refund, or you can pay in $3,000 and get $0 refund, but either way, it all ends up with $3,000 paid in taxes.

The reason I bring it up is people always talk about taxes, as if getting a refund was just good luck, or having to pay in was just bad luck.  My mother always asks if I got a big refund, and when I say no she seems so disappointed for me because she got a big refund and is really excited.  I have tried numerous times to explain that it's because I adjust my withholdings so I don't get a refund.  I still pay the same amount of tax though.  And I always get that same confused look and so I just quit talking.

^ This! Thanks Ben. This is kind of where I was going with this.(Just for fun.)

Seems that many have this "lottery mentality" like the money is somehow free or new found money.

[jmusic]

I've always wondering what percentage of people even realize that if my taxable income is the same as your taxable income, and we filed the same (single, married, etc.) then basically our tax paid will end up being the same amount.   (Yes - I realize a few things can change that number on the tax form, but on this forum I assume everyone knows what I mean.)

So if our tax paid is $3,000 you can pay in $3,500 and get a $500 refund, you can pay in $5,000 and get a $1,500 refund, or you can pay in $3,000 and get $0 refund, but either way, it all ends up with $3,000 paid in taxes.

The reason I bring it up is people always talk about taxes, as if getting a refund was just good luck, or having to pay in was just bad luck.  My mother always asks if I got a big refund, and when I say no she seems so disappointed for me because she got a big refund and is really excited.  I have tried numerous times to explain that it's because I adjust my withholdings so I don't get a refund.  I still pay the same amount of tax though.  And I always get that same confused look and so I just quit talking.

This.  I volunteered for VITA a few years ago and it amazed me how little people knew about withholding and tax refunds.  I tried in vain to explain a few times, then gave up.  A lot of people actually were reluctant to work overtime because they were afraid of paying extra taxes. 

I have my allowances set up this year so that I'll owe a pretty large amount (probably over $10,000) in April 2016. I won't have to pay any underpayment penalty as underpaying by this much is still enough to avoid the penalty for me.

I'm curious about this... Could you tell us more?

[Eric]

There's a thread in the Anti-Mustachian section as well to poke fun at the large refund people

http://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/the-official-tax-return-facepunch-thread/

[AlwaysBeenASaver]

It looks like I'm going to owe somewhere around 4K :-(  Also not eligible for ROTH and company put a 10% limit on my 401K contributions for 2014...really bummed about all this but gives me yet more incentive to FIRE.

[teen persuasion]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

[jmusic]

It looks like I'm going to owe somewhere around 4K :-(  Also not eligible for ROTH and company put a 10% limit on my 401K contributions for 2014...really bummed about all this but gives me yet more incentive to FIRE.

Roth:  Look up the "backdoor Roth."  Basically involves making a nondeductible contribution to a traditional IRA and then rolling over to Roth.

Limit on 401K:  I didn't know companies could even do this!  Maybe it's a 10% limit on matching contributions?

[EDIT]:  Just read up about HCE rules...  I had never heard of this before, and it sounds pretty archaic that they're penalizing higher earners just because joe paycheck refuses to put money away.

[jmusic]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

How to get the biggest refund possible:  Claim 0 deductions and increase additional withholding by as much as you can stomach.  You'll be broke for the year, but you'll have a gargantuan refund (of your money)!

[MDM]

I have my allowances set up this year so that I'll owe a pretty large amount (probably over $10,000) in April 2016. I won't have to pay any underpayment penalty as underpaying by this much is still enough to avoid the penalty for me.

I'm curious about this... Could you tell us more?

See http://forum.mrmoneymustache.com/ask-a-mustachian/exemption-from-federal-withholding-on-w4/ for some discussion about this.

[AlwaysBeenASaver]

It looks like I'm going to owe somewhere around 4K :-(  Also not eligible for ROTH and company put a 10% limit on my 401K contributions for 2014...really bummed about all this but gives me yet more incentive to FIRE.

Roth:  Look up the "backdoor Roth."  Basically involves making a nondeductible contribution to a traditional IRA and then rolling over to Roth.

Limit on 401K:  I didn't know companies could even do this!  Maybe it's a 10% limit on matching contributions?

[EDIT]:  Just read up about HCE rules...  I had never heard of this before, and it sounds pretty archaic that they're penalizing higher earners just because joe paycheck refuses to put money away.

I had never heard of this before either until I got a note that my 30% contribution was changed to 10%. I'm not what I would consider a particularly high earner, but the limit was $115K and I made $116K due to a $2K bonus. We have a lot of low paid employees here and many don't do the 401K at all. Seems unfair that I'm punished for their decisions. I was really mad about this a couple weeks ago but now it's just another straw on the camel's back.

I'll have to read up on backdoor ROTH..the idea kind of scares me though...like I might regret it later for reasons I don't understand right now.

[caliq]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

How to get the biggest refund possible:  Claim 0 deductions and increase additional withholding by as much as you can stomach.  You'll be broke for the year, but you'll have a gargantuan refund (of your money)!

teen persuasion was talking about people who actually get money from the government -- not a refund of their money, but brand new money. 

DH and I had a federal effective tax rate of -3.65% this year...it does happen.  Ours was due to him becoming 100% disabled half way through the year and therefore earning a very low amount, plus my education credits. 

I paid off a credit card balance we ran up last summer when he'd been out of work for months and we'd exhausted our emergency fund -- it's still at 0% interest until November, but it's better to just get rid of it now.

[Donovan]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

I need to figure out how to do this at my work. Last year was my first year out of college working full time, so I didn't try to deal with the fact that I knew ahead of time that my marriage was going to drop the taxes I owed by about $3,600. However, I had not realized the additional credits that I would be getting (like the ones for my wife's current grad school costs), would raise the amount they owed me by an additional obscene amount. I've fixed the withholding to account for my marital status now, but I'm not sure how best to compensate for the ~3500 extra that popped up from other credits.  I'm going to be looking into increasing my allowances this week to compensate.

[MNBen]

A lot of people actually were reluctant to work overtime because they were afraid of paying extra taxes. 

Oh, don't even get me started on tax brackets... comments like "Why would you want to earn more money?  It'll just put you in a higher tax bracket!"

[OldDogNewTrick]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

How to get the biggest refund possible:  Claim 0 deductions and increase additional withholding by as much as you can stomach.  You'll be broke for the year, but you'll have a gargantuan refund (of your money)!

I'm not in the business of loaning my money to the IRS for 0% return. :-) Ideally, you should try to break even... $0.00 refund, none owing.

[teen persuasion]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

How to get the biggest refund possible:  Claim 0 deductions and increase additional withholding by as much as you can stomach.  You'll be broke for the year, but you'll have a gargantuan refund (of your money)!

Lol, yep that would be one way to do it.

We've got five kids, gradually going off to college and out of the nest.  I discovered that increasing DH's 401k contributions increases the EITC we are eligible for, since we are in the phaseout range for EITC.  On the 3 kids still at home, the phaseout range is ~21%  so $100 in the 401k results in $21 more EITC.  Our state matches EITC at 30%  so another $6.30.  Avoids fed tax of $10 and state tax of $4, for a total of $41.30 refundable credit or avoided tax for putting $100 in the 401k.  Then there is the child tax credit of $1k per kid under 17 (last year at $2k), which my state matches at 33%.  American Opportunity credit for DD3, another $1k refundable, and a state version.  DH gets a state credit for being a volunteer EMT.  Unfortunately, we can't make use of the retirement savers credit, since we don't owe fed tax, and that one is not refundable!

[Mississippi Mudstache]

I started a new job this year, and the signing bonus was (as is typical) "netted up for taxes". In other words, I get $X, and they pay $Y directly to Uncle Sam to cover my taxes. Of course, given how little I pay in income tax, it looks like I'll be getting back the $Y that they chipped in for the bonus. So I will indeed be getting a big refund, and I don't even have to feel guilty about giving out an interest-free loan :)

[chicagomeg]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

I need to figure out how to do this at my work. Last year was my first year out of college working full time, so I didn't try to deal with the fact that I knew ahead of time that my marriage was going to drop the taxes I owed by about $3,600. However, I had not realized the additional credits that I would be getting (like the ones for my wife's current grad school costs), would raise the amount they owed me by an additional obscene amount. I've fixed the withholding to account for my marital status now, but I'm not sure how best to compensate for the ~3500 extra that popped up from other credits.  I'm going to be looking into increasing my allowances this week to compensate.

Try the IRS's W-4 Calculator. It's quite good & will let you account for all credits, etc. you plan to claim.

[PeachFuzzInVA]

My wife and I planned our wedding around her tax return and financial aid. She has 2 children from her previous marriage and as an LPN and full time student in RN school, fell right into that sweet spot for a huge earned income tax credit. She gets ~ a $10,000 annually, so we waited until January 2nd of this year to get married. Once she graduates this May, her income will be too high to qualify for the EITC anymore, and with my income, she wouldn't have qualified for that or any of the grants and scholarships she got, which essentially paid her to go through RN school. This years return is going to pay off the remaining balance on our mortgage. Everyone else around my work is doing the same as what's being described here...buying ridiculous luxury items they don't need and probably won't use 2 months down the road.

[jmusic]

This conversation happens by too many people to list. When I tell people I intentionally set my withholding so that I will owe a small amount every year (<$500 most years), they think I'm crazy. I tried to explain that owing a small amount that I easily cover with a check gives me the maximum cash during the year, and there is no interest on a small balance owed. Instead, I can use the maximum amount of income as I wish--spend or save--throughout the year rather than at some government-mandated time in Q1. Having access to more of my cash throughout the year is a better proposition to me than giving the government an interest-free loan for the same period.

If you owe little to no tax, and are eligible for refundable credits, you have no choice but to wait for that fat refund.  That said, I have no idea why people don't use that refund in ways that better their finances.  When we had our heating system replaced, we were offered 0% for a year, and I knew we'd have that coming from our refund within the year, so didn't have to raid savings for it.  After that, I always used our refunds to pay down principal on our mortgage (with an ugly 9.75% rate).  Once that was gone, I have used our refunds to fund Roths for DH and me.  It isn't a surprise or windfall, it is a planned part of our annual income, just like owing taxes would be.  Then again, I don't live paycheck to paycheck and spend whatever is left over, either.

It is amazing to me that people don't want to figure out how to pay the least taxes / get the biggest refund possible, by learning the rules and quirks of the tax code as it applies to them.  They are willing to shop on black Friday for a deal.

How to get the biggest refund possible:  Claim 0 deductions and increase additional withholding by as much as you can stomach.  You'll be broke for the year, but you'll have a gargantuan refund (of your money)!

teen persuasion was talking about people who actually get money from the government -- not a refund of their money, but brand new money. 

DH and I had a federal effective tax rate of -3.65% this year...it does happen.  Ours was due to him becoming 100% disabled half way through the year and therefore earning a very low amount, plus my education credits. 

I paid off a credit card balance we ran up last summer when he'd been out of work for months and we'd exhausted our emergency fund -- it's still at 0% interest until November, but it's better to just get rid of it now.

I know, I was being sarcastic.  My fault for not making that clear. :)

[jmusic]

My wife and I planned our wedding around her tax return and financial aid. She has 2 children from her previous marriage and as an LPN and full time student in RN school, fell right into that sweet spot for a huge earned income tax credit. She gets ~ a $10,000 annually, so we waited until January 2nd of this year to get married. Once she graduates this May, her income will be too high to qualify for the EITC anymore, and with my income, she wouldn't have qualified for that or any of the grants and scholarships she got, which essentially paid her to go through RN school. This years return is going to pay off the remaining balance on our mortgage. Everyone else around my work is doing the same as what's being described here...buying ridiculous luxury items they don't need and probably won't use 2 months down the road.

I'm doing this too.  My GF and I were planning to get married last year, but we'll save $4k on taxes by putting it off.  Mostly because of her homeowner's deduction wouldn't be high enough to put a joint return in to itemize territory, and my increasing my 401K to now qualify for tIRA (we wouldn't jointly).

[HazelStone]

It looks like I'm going to owe somewhere around 4K :-(  Also not eligible for ROTH and company put a 10% limit on my 401K contributions for 2014...really bummed about all this but gives me yet more incentive to FIRE.

Roth:  Look up the "backdoor Roth."  Basically involves making a nondeductible contribution to a traditional IRA and then rolling over to Roth.

Limit on 401K:  I didn't know companies could even do this!  Maybe it's a 10% limit on matching contributions?

[EDIT]:  Just read up about HCE rules...  I had never heard of this before, and it sounds pretty archaic that they're penalizing higher earners just because joe paycheck refuses to put money away.

I had never heard of this before either until I got a note that my 30% contribution was changed to 10%. I'm not what I would consider a particularly high earner, but the limit was $115K and I made $116K due to a $2K bonus. We have a lot of low paid employees here and many don't do the 401K at all. Seems unfair that I'm punished for their decisions. I was really mad about this a couple weeks ago but now it's just another straw on the camel's back.

I'll have to read up on backdoor ROTH..the idea kind of scares me though...like I might regret it later for reasons I don't understand right now.

Question: Does your employer offer a match on its 401k? If not, the low paid workers who qualify for the saver's credit may elect to do a Roth instead. If this is indeed the case, give "joe paycheck" a little more credit. Also, how's the turnover rate among the low paid employees at your company?

[AlwaysBeenASaver]

It looks like I'm going to owe somewhere around 4K :-(  Also not eligible for ROTH and company put a 10% limit on my 401K contributions for 2014...really bummed about all this but gives me yet more incentive to FIRE.

Roth:  Look up the "backdoor Roth."  Basically involves making a nondeductible contribution to a traditional IRA and then rolling over to Roth.

Limit on 401K:  I didn't know companies could even do this!  Maybe it's a 10% limit on matching contributions?

[EDIT]:  Just read up about HCE rules...  I had never heard of this before, and it sounds pretty archaic that they're penalizing higher earners just because joe paycheck refuses to put money away.

I had never heard of this before either until I got a note that my 30% contribution was changed to 10%. I'm not what I would consider a particularly high earner, but the limit was $115K and I made $116K due to a $2K bonus. We have a lot of low paid employees here and many don't do the 401K at all. Seems unfair that I'm punished for their decisions. I was really mad about this a couple weeks ago but now it's just another straw on the camel's back.

I'll have to read up on backdoor ROTH..the idea kind of scares me though...like I might regret it later for reasons I don't understand right now.

Question: Does your employer offer a match on its 401k? If not, the low paid workers who qualify for the saver's credit may elect to do a Roth instead. If this is indeed the case, give "joe paycheck" a little more credit. Also, how's the turnover rate among the low paid employees at your company?

My employer does a small % match on 401k. The low paid workers are living paycheck-to-paycheck in general from what I can tell, and have no interest in saving for retirement - they are counting on working until 65 then living on SS. The turnover rate is very low, almost non existent.

BTW I read a few articles about the backdoor ROTH but from what I can tell it wouldn't be an advantage to me. It sounds like I would be taxed based on the percentage I was rolling over compared to the total amount I already have in traditional IRAs. I have lot in traditional IRAs so as far as I can understand it, the majority of my conversion amount would be taxed. I'm in a high tax bracket at the moment, so will save this idea for after I FIRE and lower my tax bracket. Good to know about though.

[Miss Prim]

When I read the subject line, I was thinking along the lines of crazy tax return stories when doing people's taxes!  I am not an accountant, but  I did work 1 season for a tax return company after taking the H&R tax course.  I had one lady that had been on unemployment for about half of the year and she owed quite a bit in taxes.  She started yelling at me because she thought she would be getting money back because she had every year.  I calmly explained to her why she had to pay and she yelled at me some more and stormed out of the office.  Needless to say, she didn't pay for the return and I had wasted my time (we worked on commission). 

I only worked one season, that was enough for me of dealing with people and I continued on with my regular job of dealing with bacteria and microscopes and stuff! 

                                                                                 Miss Prim

[Chuck]

A lot of people actually were reluctant to work overtime because they were afraid of paying extra taxes. 

Oh, don't even get me started on tax brackets... comments like "Why would you want to earn more money?  It'll just put you in a higher tax bracket!"

Oddly enough, with the recent changes to how long term capital gains are taxed, this is now a relevant concern (if you have capital gains).

I was veeeeery close to the cutoff this year. And it made a good 600 dollars worth of difference.

[DaMa]

Me:                               How much tax do you pay?
Almost Everyone Else:  I got $ return.
Me:                               But how much tax did you actually pay?
Almost Everyone Else:  I got money back.

[robotclown]

Oddly enough, with the recent changes to how long term capital gains are taxed, this is now a relevant concern (if you have capital gains).

And the dividends, too!  Don't forget those.
----------
Be best part about the W-4 is that it comes with a single page of instructions, that nobody seems to remember.  It is a very straightforward list of boxes to check and count.

Can nobody claim you as a dependant?  1 check.
Do you work only one job? 1 check.

So, most adults should be checking at least two boxes, yet it seems 95% are still claiming zero for some reason.  And it's not so they get a bigger refund, because most don't even make the connection between the W-4 and the refund amount, or remember filling it out in the first place.

[RWD]

Me:                               How much tax do you pay?
Almost Everyone Else:  I got $ return.
Me:                               But how much tax did you actually pay?
Almost Everyone Else:  I got money back.

Asking how much tax someone actually paid is pretty much asking what their income is...

[wtjbatman]

True confessions time. Here's a spoiler... I wasn't always mustachian! About five or six years ago when I got the largest tax return of my life (and I thought that was awesome), I went out and bought a motorcycle. While holding thousands in credit card debt.

After discovering MMM a couple years ago I sold the motorcycle and paid off a huge chunk of that debt.

I still miss the motorcycle sometimes. But I don't miss the CC debt at all.

[Cromacster]

Be best part about the W-4 is that it comes with a single page of instructions, that nobody seems to remember.  It is a very straightforward list of boxes to check and count.

Can nobody claim you as a dependant?  1 check.
Do you work only one job? 1 check.

So, most adults should be checking at least two boxes, yet it seems 95% are still claiming zero for some reason.  And it's not so they get a bigger refund, because most don't even make the connection between the W-4 and the refund amount, or remember filling it out in the first place.

The W-4 form instructions are very simplistic and do not take income into account.  The W-4 calculator on the IRS website is probably the 2nd best option.  The best option is to figure out how much taxes you expect to owe, then figure out with W-4 withholding tables in IRS pub 15-e.  Granted this is simple to figure out for W-2 wage earners.

[Cromacster]

Asking how much tax someone actually paid is pretty much asking what their income is...

I would disagree.  I paid about 9,000 in federal taxes last year.  Whats my income?  I'll help ya a little and say I am married filed jointly.

[MandalayVA]

What drives me nuts is that stores and car dealerships actually advertise that they'll accept tax refund checks as payment. 

I know Mr. Mandalay pays taxes throughout the year.  I generally just show up to sign the paperwork.  Between paying our mortgage off this year and getting our share of my late father-in-law's estate I have no idea how it's going to affect our taxes.

[RWD]

Asking how much tax someone actually paid is pretty much asking what their income is...

I would disagree.  I paid about 9,000 in federal taxes last year.  Whats my income?  I'll help ya a little and say I am married filed jointly.

Of course everyone's tax situation is different, but you can get a ballpark estimate. With standard deduction and two personal exemptions $9,000 in federal taxes would equate to about $86k gross income. If you're maxing your 401k and can itemize deductions I would guess maybe $110-130k for gross income.

[frugalnacho]

As far as I know, there are no scenarios relevant to long-term capital gains and qualified dividends where earning more money causes you to end up with less money than if you hadn't earned the additional money.

I don't believe this is completely true.  This year I qualified for the non-refundable tax savers credit.  The AGI cut off line for the 0.5 multiplier was $36,000.  The following is a hypothetical example that was close to my situation: If I dumped the max into my 401k, and my the max into the traditional IRA for me and my wife, and that reduced my AGI to exactly $36,000 so I qualify for the 0.5 multiplier, which works out to a credit of 0.5 x $2,0000 x 2 people = $2,000 credit.  If I earned a single dollar more in dividends my new AGI is $36,001 and the multiplier to use is 0.2 x $2,0000 x 2 people = $800 credit.  A $1200 difference in a non-refundable tax credit for a single dollar in extra income.  Luckily I wasn't actually this close to the line and had a few thousand extra to play with in tIRA and roth to adjust my AGI to the level to qualify, but if I made a few thousand more I could potentially hit this cliff and would be far better off not earning that extra $1 (or possibly up to the first $1200)*.

I believe there are also ACA subsidy cliffs that happen with income, where a single dollar more of income loses you thousands of tax subsidies, but I am not familiar enough will all of the details to explain it fully.


* In reality this number is not totally true, because MFJ with AGI of #36k only has taxable income of $15,700 using standard deductions and exemptions, which is within the 10% bracket meaning they only have a tax liability of $15,700 * 10% = $1,570 (which means they cannot fully utilize the $2,000 refundable credit, they can only use enough to reduce liability to $0, or $1,570 of it).  But a $1 increase in AGI reduces that $1,570 credit to $800, which is still a significant penalty for earning a single dollar more.

[teen persuasion]

There are other cliffs that can cut you off abruptly from a credit.  The EITC, for example.  Make $1 over $3350 in investment income and you are ineligible for a credit of up to $6143.  My state matches EITC at 30%, so the one dollar extra could cost nearly $8k.

FAFSA cutoffs could be costly as well, if it means they are suddenly including taxable accounts in the formula (no asset test), or adding back in retirement contributions (auto zero EFC).

[Cromacster]

Asking how much tax someone actually paid is pretty much asking what their income is...

I would disagree.  I paid about 9,000 in federal taxes last year.  Whats my income?  I'll help ya a little and say I am married filed jointly.

Of course everyone's tax situation is different, but you can get a ballpark estimate. With standard deduction and two personal exemptions $9,000 in federal taxes would equate to about $86k gross income. If you're maxing your 401k and can itemize deductions I would guess maybe $110-130k for gross income.

Haha touche.  Still, $86-130k is a pretty large window.

[RWD]

Asking how much tax someone actually paid is pretty much asking what their income is...

I would disagree.  I paid about 9,000 in federal taxes last year.  Whats my income?  I'll help ya a little and say I am married filed jointly.

Of course everyone's tax situation is different, but you can get a ballpark estimate. With standard deduction and two personal exemptions $9,000 in federal taxes would equate to about $86k gross income. If you're maxing your 401k and can itemize deductions I would guess maybe $110-130k for gross income.

Haha touche.  Still, $86-130k is a pretty large window.

I agree. The more you know about a person the more you could narrow down the window.

[MDM]

Haha touche.  Still, $86-130k is a pretty large window.

For 2015, assuming standard deduction, if all the income is from
 - salary/wages with no pre-tax deductions, you would be making $86,750
 - qualified dividends, you would be receiving $155,500

Of course, you'd have to have quite the invested assets to get that much in dividends....