Author Topic: Overheard at Work 2  (Read 1199479 times)

Metalcat

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Re: Overheard at Work 2
« Reply #4050 on: July 04, 2024, 06:20:30 AM »
I can confirm that also in a couple of countries where I have lived people do not understand the concept of marginal tax rates, and that it's not just because of losing benefits such as those listed above.

Yeah, I'm not in the US and I can confirm that people just don't understand marginal tax rates and they really are just ignorant enough to believe that if their income jumps to the lower end of a new tax bracket, that they will take home less money.

Obviously there are informed folks who analyze more complex factors like social programs, and we have plenty of those folks here who have posted about such stuff for ages.

But those are not the folks I'm talking about. I'm talking about the folks who don't understand the BASICS of personal taxes or even simple math.

I worked for years as a consultant for highly educated small business owners, and the majority lacked even basic personal finance knowledge.

LennStar

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Re: Overheard at Work 2
« Reply #4051 on: July 04, 2024, 08:13:55 AM »
(Which also means a lot of people who could really use them and do qualify for them but for one reason or another can't handle the sometimes pretty complex information lose out...)
That is often a feature, not a bug.

LaineyAZ

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Re: Overheard at Work 2
« Reply #4052 on: July 04, 2024, 09:17:03 AM »
I'm retired but was asked by a still-working friend why her car insurance premium was so high.

Turns out she didn't understand the difference between coverage for comprehensive vs. liability.  She was paying comprehensive coverage for her 14 year old car which has over 280,000 miles on it.  She even shopped for auto insurance with a broker and he never suggested dropping comprehensive - malpractice IMO. 

As with so many things in this thread, I wish there was a business where a non-judgmental, non-profit would review a person's finances for things like this; unfortunately, I think most options are for-profit where they want to sell you something. 

Villanelle

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Re: Overheard at Work 2
« Reply #4053 on: July 04, 2024, 12:31:49 PM »
I can't tell you how many times a week (and it would be more if I had the patience), I explain to people that 22% withholding is NOT the same as "taxed at 22%".  this is in regard to an incentive pay the military gives if people move themselves instead of using military-contracted movers.  It's wthheld at 22%, but when you file your taxes, you pay whatever % those dollars are at, the same as if you got a raise in that amount.  And yes, more than once, I've also explained that there are buckets, and we all get the same buckets, no matter how much we make, and that's how taxes work (and that there are also ways to prevent some of your money from every going into a bucket).  It's a revelation to a lot of people.  It's a 2 minute explanation, and makes sense to pretty much everyone.  Surely, there are 2 minutes to spare in any school curriculum. 

SwordGuy

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Re: Overheard at Work 2
« Reply #4054 on: July 04, 2024, 01:24:10 PM »
It's a 2 minute explanation, and makes sense to pretty much everyone.  Surely, there are 2 minutes to spare in any school curriculum.

I can assure you that the same people who couldn't be bothered to learn why 2 + 3 x 2 = 8 despite years of math education would be unlikely to pay attention for those two minutes either. :(

Fomerly known as something

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Re: Overheard at Work 2
« Reply #4055 on: July 04, 2024, 06:00:03 PM »
It's a 2 minute explanation, and makes sense to pretty much everyone.  Surely, there are 2 minutes to spare in any school curriculum.

I can assure you that the same people who couldn't be bothered to learn why 2 + 3 x 2 = 8 despite years of math education would be unlikely to pay attention for those two minutes either. :(

Yes, I’ve given up explaining that bonuses do not make our taxes higher and that it all gets washed out with tax returns.

Sibley

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Re: Overheard at Work 2
« Reply #4056 on: July 04, 2024, 07:36:00 PM »
It's a 2 minute explanation, and makes sense to pretty much everyone.  Surely, there are 2 minutes to spare in any school curriculum.

I can assure you that the same people who couldn't be bothered to learn why 2 + 3 x 2 = 8 despite years of math education would be unlikely to pay attention for those two minutes either. :(

Yes, I’ve given up explaining that bonuses do not make our taxes higher and that it all gets washed out with tax returns.

I'll tell them, but I have the advantage of being an accountant. So people are more likely to believe me, or at least not say they don't believe me.

LennStar

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Re: Overheard at Work 2
« Reply #4057 on: July 04, 2024, 11:59:48 PM »
I explain to people that 22% withholding is NOT the same as "taxed at 22%". 
Is the income tax not done this way in the US?
Germany: From your monthly wages you pay "pre-tax" as high as if you earned the same monthly amount for the whole year.
If your wages change during the year, you pay more (or less) in the actual tax declaration (ignoring the 99% other stuff).

In case of taxable bonuses it's very similar to a raise, you pre-pay the amount as if you had the higher end-year income.

Taran Wanderer

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Re: Overheard at Work 2
« Reply #4058 on: July 05, 2024, 01:02:35 AM »
I explain to people that 22% withholding is NOT the same as "taxed at 22%". 
Is the income tax not done this way in the US?
Germany: From your monthly wages you pay "pre-tax" as high as if you earned the same monthly amount for the whole year.
If your wages change during the year, you pay more (or less) in the actual tax declaration (ignoring the 99% other stuff).

In case of taxable bonuses it's very similar to a raise, you pre-pay the amount as if you had the higher end-year income.

In the U.S., tax withholding for a bonus is typically done at the highest marginal federal tax rate + the highest marginal state tax rate (if your state has income tax).  In addition, social security and medicare taxes are taken out at ~7.5%.  This can be 45% to 55% withheld for tax depending on on what state you’re in.  If you take out money for a 401k, or if you have some siphoned off into an investment or other savings destination, a $10,000 bonus can quickly become $4,000.  It’s almost European!  (heaven forbid…). At the end of the year, you file a tax return, and if the actual marginal rate on the bonus would have been less, you get a refund.  As noted above, it all washes out in the end, but people get all bent out of shape because they don’t understand.  I think there is also a psychological hit to getting a sizeable “extra” in a bonus and then seeing how much it gets reduced by taxes (and maybe savings also).

pasadenafr

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Re: Overheard at Work 2
« Reply #4059 on: July 05, 2024, 06:09:56 AM »
In the U.S., tax withholding for a bonus is typically done at the highest marginal federal tax rate + the highest marginal state tax rate (if your state has income tax). 

For most employers, the withholding is a flat percentage (22% in most cases, I believe 37% if you make above $1M or something like that).
The actual tax rate is your marginal tax bracket, the difference being taken (or paid back) when you file your taxes.

Tigerpine

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Re: Overheard at Work 2
« Reply #4060 on: July 05, 2024, 06:13:22 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

JAYSLOL

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Re: Overheard at Work 2
« Reply #4061 on: July 05, 2024, 07:17:01 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

I’ve mentioned this in the original overheard at work thread a long time ago, but there was a guy I worked with who told me when he worked a higher paying job he asked them to do an extra $500 of withholding on every paycheck “because he liked getting a $20k cheque” at tax time… even though the guy had high levels of consumer debt like credit cards 🤦‍♂️

LennStar

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Re: Overheard at Work 2
« Reply #4062 on: July 05, 2024, 07:22:16 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

I’ve mentioned this in the original overheard at work thread a long time ago, but there was a guy I worked with who told me when he worked a higher paying job he asked them to do an extra $500 of withholding on every paycheck “because he liked getting a $20k cheque” at tax time… even though the guy had high levels of consumer debt like credit cards 🤦‍♂️
Until the last sentence I was "well, if he likes it, better than casino gambling"

Frugal Lizard

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Re: Overheard at Work 2
« Reply #4063 on: July 05, 2024, 09:05:33 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

I’ve mentioned this in the original overheard at work thread a long time ago, but there was a guy I worked with who told me when he worked a higher paying job he asked them to do an extra $500 of withholding on every paycheck “because he liked getting a $20k cheque” at tax time… even though the guy had high levels of consumer debt like credit cards 🤦‍♂️
Until the last sentence I was "well, if he likes it, better than casino gambling"
my in-laws think of the return as an "unexpected bonus". Not all folks are like my Dad who liked to pay a big lump tax bill so he knew/felt just how well he was doing financially. Brains are weird.

JAYSLOL

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Re: Overheard at Work 2
« Reply #4064 on: July 05, 2024, 10:12:05 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

I’ve mentioned this in the original overheard at work thread a long time ago, but there was a guy I worked with who told me when he worked a higher paying job he asked them to do an extra $500 of withholding on every paycheck “because he liked getting a $20k cheque” at tax time… even though the guy had high levels of consumer debt like credit cards 🤦‍♂️
Until the last sentence I was "well, if he likes it, better than casino gambling"
my in-laws think of the return as an "unexpected bonus". Not all folks are like my Dad who liked to pay a big lump tax bill so he knew/felt just how well he was doing financially. Brains are weird.

Yep, brains sure are weird. I prefer to know I’m going to get a bit back rather than owe something, just for ease of budgeting since I run pretty lean to keep as much invested as I can (I do keep 3 months aside in high-yield, but not much above what I’m going to use for everyday spending in my checking account). I definitely wouldn’t want to be paying 30% credit card interest while loaning my money to the government for free, that’s absurd. 

TheGrimSqueaker

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Re: Overheard at Work 2
« Reply #4065 on: July 05, 2024, 12:49:49 PM »
I can confirm that also in a couple of countries where I have lived people do not understand the concept of marginal tax rates, and that it's not just because of losing benefits such as those listed above.

In my experience, the people who actually get lots of support through these kinds of programs are hyper aware of how they work and what the limits are, because they really truly need them and their livelihood depends on understanding them. (Which also means a lot of people who could really use them and do qualify for them but for one reason or another can't handle the sometimes pretty complex information lose out...)

You have to be quite a bit below middle income to get most of these here. It's the middle income and above people who can afford to not really understand finances (including marginal tax rates) who spout stupid stuff like "everyone in this country pays 60% tax" (or whatever the highest rate of marginal tax is).

Much depends on location. I was using numbers from New Mexico, USA.

I just pulled up the DoJ 2024 census results for New Mexico, which asserts that the median income for a single earner is $56,766 gross for a single earner and $83,592 gross for a family of 4. The IRS doesn't use gross income but AGI to determine eligibility. For the Earned Income Credit the cutoff is $56,838 for a single or head of household filer with 3 dependents and $63,398 for married filing jointly.

At first that might look like the cutoffs are way lower than what households are earning, but keep in mind it's AGI, not gross. Student loan payments, retirement contributions, and HSA contributions are deducted. A single earner of the median income with 3 dependents is already under the cutoff for the EIC cutoff. A married couple would need $20,196 less, however if they are paying down student loans, contributing to an employer 401(k), and putting money in a HSA, they might make it and it's worth their while to try.

The couple with a median income still qualify to deduct student loan income up to $2.5k. In NM, free childcare was recently expanded to couples grossing less than 400% of the federal poverty level, so the median-earning couple could still get that here.

Food stamps or SNAP eligibility stops at $39k/year gross, and Medicaid stops at $41,496/year for a household of 4. The median income earner won't qualify for those, however most NM children do in fact rely on Medicaid (56.5% according to a Georgetown University study). Most children live in households below the median income. Well below the median.

partgypsy

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Re: Overheard at Work 2
« Reply #4066 on: July 06, 2024, 09:10:48 AM »
Do you think most Americans understand that the money they receive in their tax refund is a return of taxes previously overpaid?

I mean this in the most general case, ignoring any refundable tax credits, which really muddy the waters for this concept.

I’ve mentioned this in the original overheard at work thread a long time ago, but there was a guy I worked with who told me when he worked a higher paying job he asked them to do an extra $500 of withholding on every paycheck “because he liked getting a $20k cheque” at tax time… even though the guy had high levels of consumer debt like credit cards 🤦‍♂️

not to that level but I do have my withholding be higher than my taxes, because I do my own taxes and it's like a little Christmas to get like a 2K refund one time a year. Then again I don't have credit card debt.

Wolfpack Mustachian

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Re: Overheard at Work 2
« Reply #4067 on: July 06, 2024, 06:15:10 PM »
I'd say this is a situation where I'm an emotional human vs cold hard financial rationalist that I try to be on other things. I really don't want to pay more than a few hundred bucks, so I end up getting a couple/three thousand back because I don't want to cut it close and end up paying. Also, my life situation keeps changing regularly. If I felt confident I could get it lower because I knew what it should look like, I would probably do a little more work. I still don't want to pay though.

Metalcat

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Re: Overheard at Work 2
« Reply #4068 on: July 06, 2024, 06:19:18 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

Villanelle

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Re: Overheard at Work 2
« Reply #4069 on: July 06, 2024, 07:19:17 PM »
It's a 2 minute explanation, and makes sense to pretty much everyone.  Surely, there are 2 minutes to spare in any school curriculum.

I can assure you that the same people who couldn't be bothered to learn why 2 + 3 x 2 = 8 despite years of math education would be unlikely to pay attention for those two minutes either. :(

IDK about that.  Several people have responded very, very favorably to the explanation and profusely thanked me.  I'm sure some people don't believe me and some don't bother to read and process it, but it's gotten through to more than 1 person.  I suspect a discussion in school would have had similar results.

The particular "bonus" being discussed is when the military pays someone an "incentive payment" if they decide to move themselves, rather than have the military pay a contractor to move your stuff.  You get a set amount based on the details of your move and the weight tickets you provide.  If that's $10,000, you get $10,000, regardless of how much you spend.  Certain authorized expenses, like a rental truck, can be used to offset the amount of that $10k that is taxed as income. So if you submit receipts for $4k in authorized expenses, then come payment time, you get that $4k tax-free, and then the remaining $6k is considered income and withheld at 22%. 

There are the usual crazy things like, "Can I ask them to pay me less than the full amount because if they withhold at 22%, I'll end up with less money because that's a higher tax bracket," or equally convoluted things.  And many, many, "it's not fair that they take 22% of that money when we are super low income and much of that was spent on our move [on non-authorized expenses for the move, like maybe buying a dolly, for example], so it actually costs us money to move ourselves."  When I take the time to explain 1) that is is withheld at 22% but when they file their taxes they will pay the same amount on it that they would pay if they got a $6k, and 2) that we all get the same tax "buckets" whether we make $5000/yr or $1m/yr, I really do get a lot of positive responses.  It clicks for a lot of people. I often add the fact that withholdings are just money that goes into kind of an annual savings account that goes toward your taxes each year, and that if there's extra in the account, you get it back.  If there's not enough, you owe. 

That's usually as deep as I go, but it's new information to many people, and plenty of them are receptive and grateful. 

AlanStache

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Re: Overheard at Work 2
« Reply #4070 on: July 06, 2024, 07:23:05 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

Taxes are communism and I dont want my money to be given to someone who did not work for it where I punched a clock wrangling cattle on a ranch with my f150 in the hot sun all day with my only big manly reward for the job well done being a cool beer with a bunch of fellow hardworking real-wink-wink americans at the local watering hole where everyone knows me and the smoking hot waitress smiles at me because I am such a stud.

Remember how few people could come up with 1k in an emergency, well ending up having to pay something after filing is sort of like that.  The 'shit an "extra" bill I did not expect to have to pay this month', probably like you car needing a repair.  I was just getting recovered from the last surprise expense now this!

One of those things that would be a lot different if the wider world were half as good at math as the average MMM reader.  <shrug>

Villanelle

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Re: Overheard at Work 2
« Reply #4071 on: July 06, 2024, 07:27:58 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

This is correct in the US, too, unless you significantly underpay.  Underpayment is less than 90% of the current year’s taxes owed, 100% of the previous year’s taxes owed, or 110% of the previous year for high earners. You can request to have the penalty waived though, and my impression is it's pretty easy to get as long as it is an explainable, one-time thing. 

Our tax bill this year is going to be massive, thanks to LTCG and depreciation recapture on the sale of a home (if my math is correct, we are talking $50k+ in taxes on the house).  We increased withholdings to make sure we were paying at least 110% of what we paid last year, just to be safe.  We will have withheld less than 90% of the taxes due for the year since nothing is withheld on the home sale.  We are still going to owe a boatload of money when we file, but there shouldn't be any penalties. 

Wolfpack Mustachian

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Re: Overheard at Work 2
« Reply #4072 on: July 06, 2024, 07:47:54 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

My best guess is it goes back to my younger libertarian days when all taxes were the worst. DW does our taxes. I don't really like even dwelling on how much we pay. When it's taken automatically, I don't have to think about it. All I think about is how to minimize it as much as possible. Writing a check to the government is annoying even though that's irrational. All of this still holds true though I now even support people who would raise my taxes.

All that to be said, if it were going to make a big impact, I would force myself to change in a heart beat. Since the money I would make on the interest on those $150 extra per month is a rounding error in the big picture, I'm ok with my poor logic :-).

Taran Wanderer

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Re: Overheard at Work 2
« Reply #4073 on: July 06, 2024, 11:28:03 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

This is correct in the US, too, unless you significantly underpay.  Underpayment is less than 90% of the current year’s taxes owed, 100% of the previous year’s taxes owed, or 110% of the previous year for high earners. You can request to have the penalty waived though, and my impression is it's pretty easy to get as long as it is an explainable, one-time thing. 

Our tax bill this year is going to be massive, thanks to LTCG and depreciation recapture on the sale of a home (if my math is correct, we are talking $50k+ in taxes on the house).  We increased withholdings to make sure we were paying at least 110% of what we paid last year, just to be safe.  We will have withheld less than 90% of the taxes due for the year since nothing is withheld on the home sale.  We are still going to owe a boatload of money when we file, but there shouldn't be any penalties.

When I first prepared my taxes this year (for 2023), it looked like I was going to pay a penalty for under-withholding of my federal taxes. After some more iterations through TurboTax, eventually I still had to pay extra to the Feds while getting money back from the state, but even if I did have to pay a penalty, it was only going to be $17 or something.  I was much better off paying taxes and a penalty by April 15 than over-withholding and getting a refund.

This is something that I find really obnoxious. Congress makes the tax code so complex it’s nearly impossible to get your taxes just right, an then if you don’t over-withhold, you can potentially be penalized.  Meanwhile, if you do over-withhold, you don’t make any interest on the money.  It is discouraging proper mustachian behavior!

Fomerly known as something

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Re: Overheard at Work 2
« Reply #4074 on: July 07, 2024, 08:42:40 AM »
For me it’s the annoyance of I think I have it down and then something weird happens.  I either owe a ton or I get back a ton.  The middle doesn’t seem to exist.

farmecologist

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Re: Overheard at Work 2
« Reply #4075 on: July 09, 2024, 11:22:31 AM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

This is correct in the US, too, unless you significantly underpay.  Underpayment is less than 90% of the current year’s taxes owed, 100% of the previous year’s taxes owed, or 110% of the previous year for high earners. You can request to have the penalty waived though, and my impression is it's pretty easy to get as long as it is an explainable, one-time thing. 

Our tax bill this year is going to be massive, thanks to LTCG and depreciation recapture on the sale of a home (if my math is correct, we are talking $50k+ in taxes on the house).  We increased withholdings to make sure we were paying at least 110% of what we paid last year, just to be safe.  We will have withheld less than 90% of the taxes due for the year since nothing is withheld on the home sale.  We are still going to owe a boatload of money when we file, but there shouldn't be any penalties.

When I first prepared my taxes this year (for 2023), it looked like I was going to pay a penalty for under-withholding of my federal taxes. After some more iterations through TurboTax, eventually I still had to pay extra to the Feds while getting money back from the state, but even if I did have to pay a penalty, it was only going to be $17 or something.  I was much better off paying taxes and a penalty by April 15 than over-withholding and getting a refund.

This is something that I find really obnoxious. Congress makes the tax code so complex it’s nearly impossible to get your taxes just right, an then if you don’t over-withhold, you can potentially be penalized.  Meanwhile, if you do over-withhold, you don’t make any interest on the money.  It is discouraging proper mustachian behavior!

I actively trade stocks, right up to the end of each year, and have no idea how I even could prepay taxes throughout the year.  Depending on stock windfalls, tax loss harvesting, etc... the situation can change drastically on a dime.  Because of this I never prepay, and just pay the penalty if there is one.  Like you said, I have been really surprised at how little the penalties have been, so I will continue to do what i have been doing.


Laura33

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Re: Overheard at Work 2
« Reply #4076 on: July 09, 2024, 01:38:10 PM »
my in-laws think of the return as an "unexpected bonus". Not all folks are like my Dad who liked to pay a big lump tax bill so he knew/felt just how well he was doing financially. Brains are weird.

Me and DH every tax season:

DH:  "Look at how much money we're paying in taxes!  Dammit, why am I even working so hard if they're just going to take that much of it?"

Me:  "Look at how much money we're paying in taxes!  Cool -- we must have made a shit-ton of money this year to owe that much in taxes!!"

Sibley

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Re: Overheard at Work 2
« Reply #4077 on: July 09, 2024, 06:13:44 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

This is correct in the US, too, unless you significantly underpay.  Underpayment is less than 90% of the current year’s taxes owed, 100% of the previous year’s taxes owed, or 110% of the previous year for high earners. You can request to have the penalty waived though, and my impression is it's pretty easy to get as long as it is an explainable, one-time thing. 

Our tax bill this year is going to be massive, thanks to LTCG and depreciation recapture on the sale of a home (if my math is correct, we are talking $50k+ in taxes on the house).  We increased withholdings to make sure we were paying at least 110% of what we paid last year, just to be safe.  We will have withheld less than 90% of the taxes due for the year since nothing is withheld on the home sale.  We are still going to owe a boatload of money when we file, but there shouldn't be any penalties.

When I first prepared my taxes this year (for 2023), it looked like I was going to pay a penalty for under-withholding of my federal taxes. After some more iterations through TurboTax, eventually I still had to pay extra to the Feds while getting money back from the state, but even if I did have to pay a penalty, it was only going to be $17 or something.  I was much better off paying taxes and a penalty by April 15 than over-withholding and getting a refund.

This is something that I find really obnoxious. Congress makes the tax code so complex it’s nearly impossible to get your taxes just right, an then if you don’t over-withhold, you can potentially be penalized.  Meanwhile, if you do over-withhold, you don’t make any interest on the money.  It is discouraging proper mustachian behavior!

I actively trade stocks, right up to the end of each year, and have no idea how I even could prepay taxes throughout the year.  Depending on stock windfalls, tax loss harvesting, etc... the situation can change drastically on a dime.  Because of this I never prepay, and just pay the penalty if there is one.  Like you said, I have been really surprised at how little the penalties have been, so I will continue to do what i have been doing.

Have you looked at the safe harbor rules? Might be worth it to do estimated taxes to cover that amount, then true it up when you file.

Villanelle

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Re: Overheard at Work 2
« Reply #4078 on: July 09, 2024, 07:52:42 PM »
I'm curious what the aversion is to owing taxes??

I've been self employed my entire career, I've always owed taxes because filing my taxes was essentially making an installment.

As long as they aren't late, don't you have no penalties for owing?? So I'm confused why anyone would care if they owe taxes?

Or do taxes work differently in the US where owing is somehow a bad thing?

This is correct in the US, too, unless you significantly underpay.  Underpayment is less than 90% of the current year’s taxes owed, 100% of the previous year’s taxes owed, or 110% of the previous year for high earners. You can request to have the penalty waived though, and my impression is it's pretty easy to get as long as it is an explainable, one-time thing. 

Our tax bill this year is going to be massive, thanks to LTCG and depreciation recapture on the sale of a home (if my math is correct, we are talking $50k+ in taxes on the house).  We increased withholdings to make sure we were paying at least 110% of what we paid last year, just to be safe.  We will have withheld less than 90% of the taxes due for the year since nothing is withheld on the home sale.  We are still going to owe a boatload of money when we file, but there shouldn't be any penalties.

When I first prepared my taxes this year (for 2023), it looked like I was going to pay a penalty for under-withholding of my federal taxes. After some more iterations through TurboTax, eventually I still had to pay extra to the Feds while getting money back from the state, but even if I did have to pay a penalty, it was only going to be $17 or something.  I was much better off paying taxes and a penalty by April 15 than over-withholding and getting a refund.

This is something that I find really obnoxious. Congress makes the tax code so complex it’s nearly impossible to get your taxes just right, an then if you don’t over-withhold, you can potentially be penalized.  Meanwhile, if you do over-withhold, you don’t make any interest on the money.  It is discouraging proper mustachian behavior!

I actively trade stocks, right up to the end of each year, and have no idea how I even could prepay taxes throughout the year.  Depending on stock windfalls, tax loss harvesting, etc... the situation can change drastically on a dime.  Because of this I never prepay, and just pay the penalty if there is one.  Like you said, I have been really surprised at how little the penalties have been, so I will continue to do what i have been doing.

If I understand correctly, all you'd have to do is make sure you pay 110% of the previous year's tax burden, and no penalties.  (Might be 100%, depending on your income.)

lifeisshort123

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Re: Overheard at Work 2
« Reply #4079 on: July 12, 2024, 07:38:43 PM »
For many Americans the amount of taxes you are are just never ending... The idea that Americans don't pay taxes is such a myth...

And they are all scheduled to go up in 2025... we shall see what happens there with politics - will be especially interesting since whoever is the president will likely be in their second term and not have to face the voters in reelection.

Sandi_k

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Re: Overheard at Work 2
« Reply #4080 on: July 13, 2024, 02:21:32 PM »
For many Americans the amount of taxes you are are just never ending... The idea that Americans don't pay taxes is such a myth...

And they are all scheduled to go up in 2025... we shall see what happens there with politics - will be especially interesting since whoever is the president will likely be in their second term and not have to face the voters in reelection.

.....scheduled to go up on January 1, 2026....

zolotiyeruki

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Re: Overheard at Work 2
« Reply #4081 on: July 14, 2024, 09:15:53 AM »
For many Americans the amount of taxes you are are just never ending... The idea that Americans don't pay taxes is such a myth...

And they are all scheduled to go up in 2025... we shall see what happens there with politics - will be especially interesting since whoever is the president will likely be in their second term and not have to face the voters in reelection.

.....scheduled to go up on January 1, 2026....
FWIW, we didn't see our taxes affected much when the current rates went into effect, but I *did* appreciate the (marginal) simplification of the tax forms.

pasadenafr

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Re: Overheard at Work 2
« Reply #4082 on: July 14, 2024, 11:19:20 AM »
The idea that Americans don't pay taxes is such a myth...

I think the idea is that Americans pay (much) lower taxes than a lot of others, not that they don't pay them at all.

Wintergreen78

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Re: Overheard at Work 2
« Reply #4083 on: July 14, 2024, 05:23:03 PM »
The idea that Americans don't pay taxes is such a myth...

I think the idea is that Americans pay (much) lower taxes than a lot of others, not that they don't pay them at all.

You don’t even have to guess! This is easily available information.

Total tax revenue in the US is 27% of GDP. The average for the OECD is 34%, so the US has a relatively low tax rate compared to other high-income countries.

https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally

I got curious and found this other way to look at it, what would a single worker making an average wage pay in taxes in each country. Same story here, US is near the bottom:

https://taxfoundation.org/data/all/global/tax-burden-on-labor-oecd-2021/

« Last Edit: July 14, 2024, 05:40:40 PM by Wintergreen78 »

Gerard

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Re: Overheard at Work 2
« Reply #4084 on: Today at 12:16:13 PM »

I got curious and found this other way to look at it, what would a single worker making an average wage pay in taxes in each country. Same story here, US is near the bottom:

https://taxfoundation.org/data/all/global/tax-burden-on-labor-oecd-2021/

Wow, I'm surprised that Canada is barely above the US on that chart (and actually lower for ppl with kids), given the amount of extra stuff we get that's paid for out of taxes.

Metalcat

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Re: Overheard at Work 2
« Reply #4085 on: Today at 01:06:11 PM »

I got curious and found this other way to look at it, what would a single worker making an average wage pay in taxes in each country. Same story here, US is near the bottom:

https://taxfoundation.org/data/all/global/tax-burden-on-labor-oecd-2021/

Wow, I'm surprised that Canada is barely above the US on that chart (and actually lower for ppl with kids), given the amount of extra stuff we get that's paid for out of taxes.

Yeah, in my early years here a whole bunch of Americans disabused me of the notion that we pay a lot less taxes than they do.