Author Topic: 2014 Filing Status & random taq questions + investing  (Read 2410 times)

danb

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2014 Filing Status & random taq questions + investing
« on: January 08, 2015, 12:19:35 PM »
Hello,

I just noticed that my Paystub says

"Status (Fed/State)
Married/Married using Single Rate

My wife and I are both allowed and willing to file "jointly" I thought my paystub would have indicated this, but I guess it doesn't. Can we still file "jointly" for 2014 even though the paystubs said "Single rate".  I don't understand the relationship on the paystub, to the filing status claimed on tax returns.

Another fact that I'm not sure how will affect is that My wife has her own LLC which net's around $10k/year.

What's the most mustachian way for us to prepare for next years returns.
Should we contact my employer and update the status to jointly?

Currently this year we had 10.5K withheld federaly, and my net was $63k, so ((63k - 18k)*.15 )+ 1815 = 8565, meaning we will get a return around $1935. Next year I plan to try to max my 401K, HSA, and a roth, which should make my taxable income $35850, yielding closer to 5K. Knowing this, can't i change my tax form somehow to not withold that 5k early on, and instead let me invest it knowing that it should even out to $0 owed?


ShoulderThingThatGoesUp

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Re: 2014 Filing Status & random taq questions + investing
« Reply #1 on: January 08, 2015, 12:40:53 PM »
Probably an option you checked on your W4. Just fill out your W4 again and make sure what you're putting in makes sense.

seattlecyclone

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Re: 2014 Filing Status & random taq questions + investing
« Reply #2 on: January 08, 2015, 12:46:16 PM »
Yes, if you're married you're allowed to file jointly, regardless of the paycheck withholding. These are two completely separate things.

The "single rate" thing is an option on your W-4 form. Some people find it beneficial to check this box if the normal withholding is too low for some reason (if they have investment income, two high-earning spouses, etc.). If you find that you paid too much tax when you fill out your 1040 this year, you should consider filing a new W-4 without the "single withholding" option selected.

Freedom2016

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Re: 2014 Filing Status & random taq questions + investing
« Reply #3 on: January 08, 2015, 12:50:51 PM »
Do you have an HR dept you can ask?

I interpret "Married/Married using Single Rate" as "you are filing either as 'married' or as 'married using single rate'." The "/" in there might be important.

Also if your wife has an LLC is she getting a K-1 statement? Are you setting aside estimated taxes and remembering that you have to pay self-employment tax on her earnings?

danb

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Re: 2014 Filing Status & random taq questions + investing
« Reply #4 on: January 08, 2015, 12:57:17 PM »
Course, This is our first year she is trying to do her own business. She has set aside 50% of her income for taxes, although we think it will likely be less. Do you think that's enough?

oldfierm

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Re: 2014 Filing Status & random taq questions + investing
« Reply #5 on: January 08, 2015, 01:06:00 PM »
Short answer:  Yes, you can change your paystub.  Your payroll people can change it for you. 

Long answer:  The paystub "withholding" is simply your best guess as to how much money you will owe in taxes at the end of the year.  You have that amount "withheld" as a means of prepaying your taxes.  Rather than saying, "I want $400 withheld because I think I will owe $4800 in taxes," you just withhold based on your status (married with 2 kids, for example).  If you guess wrong, you either owe money or get a refund, depending.  "Married using single rate" means that even though you are married, you have chosen to withhold as if you were single.   

As an example:  When I got married, I forgot to update my paystub.  So this meant that even though I got married in 2014, for several months I was withholding at the single rate, just like you and your wife.  For my wife and I this means I was having WAY too much withheld.  She doesn't work, so when we file our taxes, we will get to use the married deduction but there's no additional income, since she doesn't make any money, so we will get a big refund.
 
Many people on this forum purposefully manipulate their paystub withholding for various reasons, just as you are imagining doing.  For example, a single person with rental property operating at a loss (say, -$10,000) would have a an "adjusted gross income" for tax purposes that is $10K lower than their actual salary.  That means that if that person wanted to get their refund to $0, they could change their paystub to withhold less money.  How do you do this?  By saying you are "married" instead of single.  Or, if married, you might reduce the withholding by claiming an additional exemption for a dependent you don't actually have.

It can be a tricky game, because the IRS doesn't trust people to just pay all of your taxes at the end of the year, and they will actually penalize you if you estimate wrong and end up owing too much.  So you wouldn't want to change your withholding to "married with 10 kids" and then pay all of the taxes at the end of the year.  The goal really is to get as close to "0" as possible. 

In your case, it seems like you may have done the "right" thing by withholding at a higher rate by accident, since your wife will have additional income from her LLC for which no estimated taxes were paid throughout the year (I'm guessing).  I don't know the rules off the top of my head, but usually businesses are required to pay estimated taxes quarterly, in the form of just writing a check to the IRS.   This equates to withholding from a paystub when you work for someone.  Again, if you don't do this and end up owing too much money at the end of the year, you are penalized.  It's possible that your accidental extra withholding will balance this out.     

One other thing - my employer (and I'm guessing most) adjusts my withholding to account for my 401K contribution.  So when I get a paycheck, the amount of withholding isn't based on my gross, it's based on my gross minus the amount I put in the 401K.  For example, if my gross is 6K, and 1K of that goes into my 401K, my employer only withholds based on 5K.  So your math might be wrong. 

I know most folks around here are EXTREMELY adverse to paying for financial advice.  But in your case it may make sense to go to a fee only financial advisor to discuss your tax situation.  You don't seem to be super-educated about how taxes work, and filing taxes with an LLC can get pretty complicated - is this the first year you've done it?...  You CAN do it (it's not that hard) but you have to educate yourself, either by talking to someone or reading up.  You don't want to end up paying penalties because she was required to pay estimated taxes and didn't.  If you want to try to educate yourself, go to irs.gov, click "forms and publications" and start reading publications that align with your situation.  If you've never filed taxes for her business, I would start with that one. 

Good luck!!  For full disclosure, I am not a CPA.  I'm a Navy JAG (lawyer) and ran the free tax center for military members several years ago.  I made myself smart enough to do that by reading tax publications.  If I can do it, you can, too!! 

oldfierm

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Re: 2014 Filing Status & random taq questions + investing
« Reply #6 on: January 08, 2015, 01:11:32 PM »
One more thing...the extra withholding you are doing might make up for her business income.  But it might not.  It's possible even if you are getting a refund over all, because she ran a business she would still have been required to pay estimated taxes.  The IRS might not think of it as coming from the same pot of money.  You might get penalized this year.  Lesson learned.  READ UP and educate yourself so it doesn't happen again (or so that you know for sure, and aren't guessing like I am). 

Freedom2016

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Re: 2014 Filing Status & random taq questions + investing
« Reply #7 on: January 08, 2015, 01:56:09 PM »
Course, This is our first year she is trying to do her own business. She has set aside 50% of her income for taxes, although we think it will likely be less. Do you think that's enough?

I'm not a tax professional, but I can tell you that I set aside 33% of my distributions (this is gross revenue minus business expenses) to cover my taxes and that amount has worked pretty well for revenue that is quite a bit higher than $10k.