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How Not Working Paid Off – Can You Say Tax Refund?

March 23, 2011 · 32 comments

in Personal Finance

So, I finally sat down to do my taxes last night.  I have used Turbo Tax for years, and importing data from the previous year makes life so much easier.  I have been dreading doing the taxes because we have owed money for years, and I hate paying taxes.  (Who doesn’t?)

However, this year was different.    As I was getting near the end of inputting my data, the amount I owed was getting lower and lower, and actually nearing zero!  I was in shock. Last year we owed over $6000 in federal taxes, and this year, it looks like we are only going to owe $17.  I was unbelievably happy (and still am).  Not to mention we are getting a refund from State, so we will actually come out ahead this year!  (And I didn’t even have to rely on Google’s tax tricks like the “Dutch Sandwich” or “Double Irish”!)

So why are we not in debt to the government this year?

I barely worked last year!  I worked in January, and then November and December.  Since almost all of the money I did make was put toward retirement, my taxable income was negligible.  I have never been so happy to have so little income! Part of the problem when I do work is that they never take out enough Federal Taxes, even though I claim zero.  I don’t know how the formulas for taxes work, but the system that deducts taxes must only look at my taxable income.  Since I work part time and have so much go toward retirement, it must seem like my annual income is pretty darn low, so the government does not take much from my check.  However, when it is tax time and my income is combined with my husband’s, we are no longer in a low tax bracket.    I know I should request additional money be taken out, but I would rather just pay it at the end of the year.

I am back to work again this year, so I know our minimal tax bill is an anomaly.  However, this just confirms what many people have said- it can cost money to work!  In my situation, I work from home and do not have any commuting or wardrobe costs.  Plus I have zero daycare costs.  However, most people are not so lucky, and so the cost of working may be much greater than just what has to be paid in taxes.

Have you done your taxes yet?  Any surprises?

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{ 29 comments… read them below or add one }

The Biz of Life March 23, 2011 at 7:55 am

I wasn’t as fortunate as you. I owed a tidy sum to the Feds, got back a small refund from the state…. all in all thousands of dollars poorer.

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Kris March 23, 2011 at 10:02 am

Biz, I am usually thousands poorer too! I cannot tell you what a pleasant surprise this was. I knew we wouldn’t owe as much, but I had no idea a refund was on the horizon.

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First Gen American March 23, 2011 at 8:08 am

Kris, I know there’s a way to deduct a fixed amount from your check every week. One year when I had to pay, I just had my company deduct an extra $20/paycheck to make sure I was covered for the following year. Makes tax season a whole lot nicer.

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Kris March 23, 2011 at 10:04 am

First Gen, I do know I could deduct extra, but I don’t want to. I would rather set it aside myself somewhere and earn some interest. What is depressing is I would have to set aside an extra 500 or so each month when I work, and I don’t want the govt to have that money any sooner than I have to.

Why am I working again???

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Nicole March 23, 2011 at 8:39 am

It’s pretty easy to set up extra withholding like FGA says. We always also pay estimated taxes.

I was happy that our capital losses balanced out our capital gains. (Though I know we’d be better off with the gains.) It looks like our super complicated tax year is resulting in a 7K refund from the feds (a good lump of which will go straight back to estimated taxes). We haven’t done the state yet, but last year we had to pay in. But this year we estimated-taxed the state, so I don’t know.

Next year we should be back to having to pay a small amount, unless I sell a whole lot of loser stocks again in my effort to get to 100% indexation (except my favorite dividend bearing stock).

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Kris March 23, 2011 at 10:06 am

Nicole, I sold a couple losers this year too, which really helped. (Although I did hate having that loss…) Congrats on having a nice refund this year! Any plans for it?

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Nicole March 23, 2011 at 2:29 pm

Why yes, paying estimated taxes! Possibly also state taxes.

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Jacq @ Single Mom Rich Mom March 23, 2011 at 9:14 am

Ugh at being in a 39% rate bracket. Woohoo – here’s a $20,000 bonus… BTW you get $9,800 of it. That’s one of the reasons why I’m working less. But I’d have to earn less than $17k/year to drop it below 25% and that’s my dream. I don’t think I’ll ever get there, but I’ll try. 🙂

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Kris March 23, 2011 at 10:09 am

We are nowhere near a 39 percent tax bracket, although I guess the huge income would be pretty sweet. (As long as you didn’t work yourself to death to make the money.)

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Carrie March 23, 2011 at 9:58 am

i usually try not to get a refund but i was on disability leave which is untaxed for 8 months and the months i did work my withholdings were at my regular rate so i got a sizeable refund this year since my overall taxable income was only about 40% of normal

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Kris March 23, 2011 at 10:27 am

Carrie, that is great that even though your disability wasn’t taxed, you still came out ahead. Sorry you had to be on disability in the first place though.

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DoNotWait March 23, 2011 at 10:01 am

Taxes not done yet, but will surely be in a couple of days. Since I’m married, I pay a lot more taxes than before. Actually, I used to receive some, and I mean like $800 or something. Those nice days are gone I bet. Our “family” income is apparently too high for that to happen again, although we both have a lot of deductions on our pay check (and do not consider ourselves has being rich!!). I too don’t really understand how the taxes system work, but I guess I will have to get used to it!

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Kris March 23, 2011 at 10:26 am

You will have to let us know how being married affected your tax payment/refund. One thing I have found is some life event will happen (marriage/kids/new job/job loss) and your taxes shift. You get used to the new tax rate for a few years, and then the next event comes along, and you have to adjust once again.

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DoNotWait March 23, 2011 at 10:42 am

Kris, I am not sure how much it is different here, in Canada, than in US. So maybe my explanation does not apply as much to you. But let’s try! Things happen quite fast for us. I was working for many years already but was a student for some years as well. So, of course, I could deduct school expenses and all that so I ended up receiving instead of paying. Then, after school, I worked full-time but didn’t have a high income at all and a lot of living expenses. So I received again. After that, I met the loved one! A couple of months later only, we moved together. Still, we were not considered as a “common-law couple” towards the law. So, tax reports separated. Then, we had to “declare” the other’s income as our family revenue. Since the loved one makes more money than I do, it completely ruined my returns! I started to pay! So now, we’re both paying. Hopefully, the taxes rate won’t change for worse for a couple of years… please, please (fingers crossed)! 😉

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Kris March 24, 2011 at 1:48 pm

Good luck DNW!! (Also, good job finding someone that makes more money than you! 🙂 )

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Jeff @ Sustainable life blog March 23, 2011 at 10:46 am

I have already completed my taxes this year, and I knew I would owe, so there wasnt much surprise there. I havent filed them yet because I need to make some changes, but I’ve got to wait for my old job to tell my 401k people that I dont work there anymore so that I can roll it into a roth IRA.
Hopefully I’ll make the deadline to have this count as a 2010 contribution, but if I dont, it’s not a big deal.

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Kris March 24, 2011 at 1:43 pm

Jeff, no need to rush to file if you owe! That is when you wait until the last minute!

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Linda March 23, 2011 at 11:41 am

I thought I was all done, then today I looked at the forms a bit more closely and had to shoot a question to the accountant. We’ll see if it changes my filing. If it does then I may get a bit more money back, although I’d have to file an amended return with one of the states I worked in since I already mailed the dang thing off yesterday. Doh!

I am getting a refund, but I think of it more as a wash since I’m getting back about the same amount I donated to charities last year. I know that may not be the best way to look at it, but it’s true. I could have not made donations and received no refund, or I could give donations and get the money back.

Regardless, at least I don’t have to pay; that’s nice!

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Kris March 24, 2011 at 1:43 pm

Linda – just think of all those you are helping by donating to charity though! That is a great thing you are doing.

I hate when I realize a mistake after the forms have already been sent off. I did that once, but I was only going to be out 20 bucks or something, so I let it go. I just hate the task of reviewing it all after I have done all the work of putting the data in. By that time, I just want to be DONE.

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retirebyforty March 23, 2011 at 12:37 pm

I’m almost done with our taxes and we are going to owe the IRS quite a bit of money.
I put all my retirement contribution in ROTH 401k. This mean no tax deduction so that is hurting us this year. I also took some profit from stocks unlike previous years where I can deduct losses.
Ugh!! This year, I’m moving all my contribution to regular 401k so I can get some tax deduction.

ps. I added Baby RB40’s picture, come back and take a quick look. 🙂

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Kris March 24, 2011 at 1:41 pm

RB40 – that picture is absolutely adorable. He sure has a lot of hair and he is cute as can be. I know the first months are tiring, but you will forget about it. (That is how nature works so that you end up having more and more kids.)

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Khaleef @ KNS Financial March 23, 2011 at 4:14 pm

That is probably the best looking tax return you could have! Actually getting back $1 is my dream!

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Kris March 24, 2011 at 1:40 pm

You are right Khaleef, I do have a good looking tax return now that you mention it! Now, getting it down to a dollar would be an amazing feat!

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Lindy Mint March 24, 2011 at 3:26 pm

What a nice break to not have to owe this year!
My husband has the same issue with the amount that gets taken out of his checks since he works two part-time jobs. But he also has an S-Corp status, so that helps balance everything out to zero.

We haven’t even gotten our stuff to our friend who does our accounting yet. They usually file an extension anyways, but I’d really love to get it out of our court.

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Financial Samurai March 26, 2011 at 12:08 am

I’m waiting til I get back from my trip next week to file. I’m surprised to see I am getting a decent refund from the state of CA, which is broke. HALLELUJAH! I love refunds, no matter what people think. It’s always a nice surprise!

Sam

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101 Centavos March 26, 2011 at 9:15 am

Our filing appointment is next week. This weekend we’ll spend some time collecting all our info and papers, and hope for the best.

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Ken @ Spruce Up Your Finances March 28, 2011 at 8:54 pm

I finished my taxes already and am receiving a nice refund. Thanks for the education credit that my wife is claiming. She does not work yet so this refund really helps as for this year.

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Kris March 29, 2011 at 9:32 am

Ken – What a pleasant surprise, an extra deduction!

The good thing about filing taxes nowdays is refunds seem to arrive pretty quickly. (Maybe you are too young to remember the olden days of waiting for weeks for a refund…)

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