Taxes are a funny thing. They are just like death I was once told: you can’t escape them. This year I knew our tax bill would be quite a bit different from last year’s due to the new laws passed by our leaders, but I wasn’t expecting the jump that came to be.
If you know me by now, you should know I do my taxes the first weekend in February. I love to get a jump on them, even if it means I owe (my checks don’t get mailed until April anyway!). Usually, we end up bringing in a refund from the Federal Government and turn around and pay that to the State. I haven’t gotten a refund from the state since I was a teenager… Is that even a thing? Do you get a state refund?!
You can’t compare tax refunds or owed amounts dollar for dollar. As each year, many new situations arise, incomes change, and well, they seem to change or tweak the laws on a regular basis to squeeze a little more out of you. One year you may get $1,000, then the next owe $500 even without any major life changes or income changes. How’s that for easy planning?
The new law provided a headache for those in my higher cost of living areas, as the limits on deducting property taxes + income taxes ($10,000 max) was going to shift the tax bill quite a bit. Our property tax alone comes quite close to that ceiling, which meant I knew we’d most likely have to file with the standard deduction. With the increase in child credits, I thought we’d be iffy, but turns out I truly just didn’t care to adjust any withholding to provide any interest-free loans. The interest I made all year from what we owe beats any penalty (plus, we make irregular income so usually any penalty on owed is minimal if anything).
What is important to take a look at when you’re doing your taxes from year to year is the effective tax rate. This is the rate you’re being taxed overall on your income. The past year, Chris picked up a little extra income from his second job and I picked up another lucrative side gig. Therefore, we did bound over the next income bracket (boo!) to another tax level. Overall, our effective tax rate did go up over .25% as per our tax software which is a bummer. We owe a heck of a ton of money this year, and that stinks, too.
I never plan to get much back, but I also don’t plan to pay as much out of pocket either at the end. Breaking even is always my goal. No interest free loans, no losing out on money that should’ve been ours in the first place…
In the end, taxes will always be there to drive us all crazy.
How have your taxes driven you nuts lately?
Do you file early or wait as long as you can?