It’s Tax Time!

As everyone knows, tax time is my favorite time of year! I’m using TaxAct again and I’ve been anxiously awaiting all of my tax forms. I have a checklist of all the forms I need and in my income taxes folder for 2014, I have text files with filenames saying things like “Need HSA Bank.txt” and “Need 1099-B.txt”. Before we left for New Zealand, I had: two 1099-INTs, my one W-2, my 1098, my 1099-R for my Backdoor Roth IRA, and 75% of my charitable donation receipts. I made a donation in January of last year and they still hadn’t sent my receipt! I was still waiting on my HSA form and my 1099-B for my RSUs.

I always make a “W-2 Estimate” spreadsheet in which I estimate my W-2 numbers based on my last paycheck. In another worksheet, I estimate how much of my Vanguard Total International Stock Index Fund’s dividends were qualified/ordinary and how much of a foreign tax credit I should get, based on the 2013 numbers. I was spot on with my W-2 estimates this year and only off by a dollar on my qualified dividends estimate.

Usually I wait to do my taxes until I have all of my forms, but this year, I decided to start on TaxAct and then stop at any point that I needed a form I didn’t have yet. It’s kind of fun this way and means that I only spend ~5-10 minutes at a time entering my taxes. Since I haven’t entered any of my deductions yet, it still thinks I owe taxes. It’s so fun watching the refund/owing amount change as I enter new numbers!

The last two forms came in while we were gone, so I filed my taxes last week! My refund was the exact $ amount that my tax spreadsheet had calculated :) I have a spreadsheet in which I input all of my paychecks, deductions, bonuses, interest income, dividend income, capital losses and gains, and an estimate of the foreign tax credit. I then use those numbers to calculate based on the marginal tax brackets, ordinary vs qualified dividends, etc. how much income tax I’ll need to pay that year vs how much my employer will withhold and I use it to set my allowances throughout the year.

I expect to get a larger refund than usual. Normally, I update my allowances on my December paycheck to plan on getting ~$50 of a refund, but since I was unsure of how much I was going to get paid in December until just before Christmas, I couldn’t do that. Oh well. I’ll get the money back soon and it’s “only” around $1,000, which will help with the negative cash flow for February pay/March spending. I’m looking forward to saving again instead of living paycheck to paycheck! That should happen with my March paycheck, so only one more month to go…

Readers, are you getting ready to file your taxes?


It’s my favorite time of year!

No, not super bowl. Or winter. Or the new year. Or Christmas or Valentine’s Day or summer. It’s time to file my income tax return! And also to pick my health insurance options for the next year. I am pretty glad though that tax return filing and open enrollment happen when it’s not summer out and I want fun outdoor activities!

I’m still waiting on one last form to come in and then I’ll be done with my income tax return :) Last year, I fidgeted with and finally gave up on that in early March and tried It was magical. It didn’t cost ~$60 like TurboTax did – it was free. So this year I just rolled on over to since I have most of my tax documents and it was pretty easy. Within an hour or two, I was pretty close to done. Despite the fact that I had two W-2s, three 1099-INTs, one 1099-DIV, one 1099-B, a 1098, property taxes, charitable donations, and the state sales/income tax deduction.

Oh, don’t you worry. I totally did my return on paper 4 weeks ago, before was available. I will never stop doing my return on paper, even if I don’t paper file because e-file is magical. I underestimated a couple of deductions, but was otherwise pretty close to the result. I had estimated I was going to get about a $200 refund and with’s help, it’ll be just under $400, which will go directly to the mortgage.

What about 2014? I’m still unsure exactly what I’ll do for taxes in 2014. It all depends on what my bonuses end up looking like. I’ve set my W-4 allowances to 0. I’ll either make some estimated tax payments to offset the difference or increase my W-4 withholdings. I’m putting that decision off until at least when I get my first bonus though since I really won’t have a precise estimate of how much it will be until the day of. Making an estimated tax payment might be the easiest way to deal with this. What do other people with large bonuses do?

My employer made our insurance premiums marginally more expensive for the next year, but that’s okay. The premiums are still incredibly low. The deductible and out of pocket maximum are staying the same. I’m debating how much money to add to my HSA (Health Savings Account). Some of you might think this is dumb of me, but I see it somewhat as a glorified FSA (Flexible Spending Account) that I can roll over from year to year and employer to employer and that my employer puts some money into. Last year, I put the maximum in, which worked out to just over $200/month on my part. My goal is to have a full year’s deductible and out of pocket maximum in it at most, so I may only put $90/month into it this year. My employer will let me change that at any point in the year, so I’m not stuck with “only” a $90/month contribution. Plus, this will help in my quest to pay off the mortgage ASAP.

Happy tax fun everyone!

2012 Income Tax Return Status: Refund Pending

It appears that the third try was the charm with filing my taxes this year!

Since I’m reasonably comfortable with the tax forms, having done my taxes myself on paper back when I just had a W-2, my first attempt was to use Free File Fillable Forms. It’s a service that is provided by the IRS for taxpayers of any income level and it is completely free. The catch was that there is no help whatsoever and I was getting XML parse errors when I tried to file my taxes. I tried quite a few things and eventually gave up on it.

My second try was with TurboTax. I’ve heard mostly good things about it from other people, so I thought I should give it a try. It was able to import my W-2 and my Vanguard forms, but not my RSU sales or any of my 1099-INTs or 1098s (mortgage interest). That wasn’t the end of the world since I didn’t have very many, but then I realized that I was too cheap to pay $30-50, so I gave up on it too. I was very close to just printing the forms out and paper filing again when Bichon Frise suggested I try Win! It was free AND there were no XML parse errors. I am so glad that I am finally done with this – I had originally started them back in early February and left them alone for a bit to breathe.

Last year, I used a CPA and decided to do them myself this year. How do I feel about that decision? I definitely think it was the right choice. I know enough about the tax code (and ended up using software in the end), that it actually cost me less time and money to do it myself, since I was double checking what the CPA did anyway since he/she didn’t necessarily know to file form 8606 (non-deductible Traditional IRA) and some others.

I was a bit cautious with my W-4 allowances after purchasing my condo last year, since I was unsure of how much I would end up actually itemizing. Back in November, I updated my calculations on how much income tax I owed for the year and realized that I’d already overpaid as of my November paycheck, meaning that I didn’t need to pay anything on my December paycheck and I adjusted my withholdings accordingly. Since I didn’t know I could itemize the origination fee I had paid on the purchase loan or the state income/sales tax, I had thought I wouldn’t itemize (or that it wouldn’t be worth much) for the 2012 tax year since the other items summed up to slightly above the $5,950 standard deduction for single filers. So my income tax refund, which I should hopefully receive by the end of March, is the tax savings from itemizing plus the approximately $400 that I had been expecting. A summary of what I ended up itemizing:

  1. Charitable donations (expected)
  2. Mortgage interest (expected)
  3. Origination fee on purchase loan (unexpected!)
  4. Real estate taxes (expected)
  5. Part of my vehicle tab renewal fee (unexpected, though < $100)
  6. State income or sales tax (unexpected!)

Now I have a better idea of what itemizing will look like for 2013. I’ll pay property taxes for the whole year instead of just half and I’ll pay a bit more in interest, but I don’t have the origination fee to itemize. So I expect that I will itemize about $1,000 more in 2013 than in 2012. I’ve set my W-4 with my employer to 2 allowances for now because my itemized deductions aren’t forecasted to surpass the standard deduction until I have paid my property taxes in full late in the year. At that point, I’ll calculate my remaining income tax to pay and adjust my W-4 allowances accordingly. I have developed a spreadsheet now, but if you’re looking to adjust your W-4 withholdings, I would suggest searching for “IRS Withholding Calculator” in your favorite search engine – it was quite helpful for me in the past.

What will I do with my refund? Exactly what I would have done with it had I had it earlier in the year – an extra payment on the mortgage.

Readers, how is your tax season going? Have you received your refund or filed yet?

Calculating total federal income tax due for 2012

We’re far enough along in the year that I’m reasonably confident in my total income for the year, so I’ve calculated how much federal income tax I should pay overall for the year.

Excel Calculations

To follow along, open up a new Excel spreadsheet.

In cell A1, enter the sum of your federal taxable earnings for the year. This isn’t your total gross earnings because you could have pre-tax deductions. My paychecks each month actually show what my federal taxable wages are.

In cell A2, enter your standard deduction (or the sum of your itemized deductions, if you plan on using those when filing instead). Personally, I prefer to do this calculation as it relates to the amount of federal income tax deducted from my paycheck using both the standard deduction and the sum of my itemized deductions to have a better margin of error. For 2012, this is [1]:

  • $5,950 for singles and married individuals filing separately
  • $11,900 for married couples filing a joint return
  • $8,700 for heads of household

In cell A3, enter the number of personal and dependent exemptions you can use. If you’re single, this is only 1.

In cell A4, enter:


where $3,800 is the value of each personal and dependent exemption [1].

In cell A5, enter the sum of your interest and ordinary dividends.

In cell A6, enter:


This is an approximation of your total taxable income. Disclaimer: I’m excluding more complex cases that don’t apply to me. You should do your own figuring if you have further income that I haven’t covered here.

In cell A7, enter:


This formula will calculate your total tax due if the amount in cell A6 was less than $178,650.

My situation

I ran this calculation with both the standard deduction and an estimated sum of my itemized deductions. I estimate the sum of my itemized deductions to be higher than the standard deduction, so I should owe a bit less tax (< $1,000 less) if I itemize.

I will have paid more federal income tax than the amount in A7 assuming the standard deduction with my November paycheck, which means that, mathematically, I don’t need to pay any income tax on my December paycheck to cover all of my tax owing for the year.

I did a similar calculation last year and didn’t really believe that I didn’t need to pay as much income tax with my December paycheck as my employer had been taking off each month. I ended up with the refund that I expected. But this year I’ve calculated that I even if I skip paying federal income taxes with December’s paycheck, I will still overpay by about $400, assuming that I take the standard deduction, which makes my margin of error in skipping paying federal income taxes with December’s paycheck about $1,000.

A resource that has helped me quite a bit in estimating my federal income taxes due is the IRS Withholding Calculator. Running the calculator this past Sunday, it seemed to think that I had already received my November paycheck, so I had to include the taxes I expect to be withheld from November’s paycheck in the field labelled “Enter the total Federal income tax withheld to date in 2012 (including amounts withheld from bonuses or which you expect to have withheld for bonuses):”. You can double check where it thinks you are in the pay year by looking at the amount under “Projected withholding for rest of year:” on the concluding page. If that is equal to “Total tax withheld from last check:” and you’re paid monthly, then it thinks you’ve already seen your November paycheck.

This year, I’m going to trust the math. I’m going to take the IRS Withholding Calculator’s suggestion of setting my W-4 allowances to 23 in early December so that my employer doesn’t withhold any federal income tax from my last paycheck of the year. That means that I’ll have a huge paycheck in December, since I’m also done with paying Social Security taxes and my 401(k) contribution will be less than other months.

Next year? I’m going to set my W-4 allowances to 2 instead of the 1 that I had been using this year and I’m going to adjust my RSU vests to have only 28% withheld instead of the 35% I had set it to to offset only 25% being withheld from them earlier in the year. I’ll continue to take a look at these calculations several times a year. I’ll need to evaluate whether I want to have less federal income tax withheld from each of my paychecks to take into account my itemized deductions now that I own a place, but for the first part of the year, I’m going to assume just the standard deduction on my paychecks. I would, after all, rather have too much withheld than end up paying penalties because I didn’t pay enough federal income tax throughout the year.


Why I will do my taxes myself next year

A few weeks ago, I talked about why I re-hired my CPA to do my taxes this year. I definitely think that was the right move for me with the stress of moving this year.

However, I have found a few mistakes in the way my CPA did my tax return this year which have taken me almost as long to investigate and verify as it would have to just do the taxes myself from start to finish. I think I have a pretty good handle now on how to deal with the reasons I had him doing my taxes in the first place. So next year, I am going to do my taxes myself. Hopefully, January/February/March will be a little less stressful for me in 2013 and then I will not be stressed out about doing my taxes.

This year, in my test runs, I used TurboTax, but I think it’s a bit more confusing than it needs to be. So here is my plan for doing my income taxes next year:

  1. Collect all of my tax return forms (mostly 1099s and my W-2).
  2. Print out a copy of Form 1040, Schedules A, B, and D, the stock transactions form (8949), and the non-deductible IRA form if necessary (8606).
  3. Sit at my computer with a pencil and all of the paper forms collected in steps 1 and 2.
  4. Go through and fill out the paper forms and schedules based on the income forms I received from the various companies, doing the math myself using my computer.
  5. Type up all of the information from my forms into Free File Fillable Forms to double-check my math.
  6. Go through my return with TurboTax to make sure that I didn’t miss anything and that the refund is the same amount as with the forms myself.

That sounds like an awful lot of work, doesn’t it? I think it’s worth it because I’m guessing that with filing Schedule A next year (assuming that I do find another condo to buy), my CPA would charge me over $500 next year to prepare my tax return, which means that if it takes me less than about 8-10 hours to prepare my own return, it was time well spent. I’m reasonably confident with the process and I love playing around with numbers, so hopefully this will work out next year.

Readers, do you do your taxes yourself? Why or why not?

Why I Re-Hired my CPA to do my taxes this year

Last year, there were some minor complications with my move the prior year, so I hired a CPA to prepare my taxes. The CPA I hired also provides tax advice. He was really helpful at helping me figure out how I wanted to split my investments (between my 401(k), what type of IRA, and taxable accounts) to achieve the best taxation and helping me see how amazing contributing to the traditional 401(k) is for my income tax liability!

One thing I learned last year is that it makes the process a lot easier for both sides (client and CPA) when you have all of the documents required to prepare your income tax return before sending any off to your CPA. Last year, I really had no idea where to expect documents from, so I thought I had them all, but then more kept on showing up in the mail. I didn’t know that Vanguard was going to send me a form for contributing to a Roth IRA or that having stocks vest really counts as buying and selling stocks, so the brokerage firm would send me a 1099.

After that experience last year, I was on the ball this year. I made a list of every institution that paid me interest throughout the year and made a task to check for a 1099-INT from each one on January 31st. I made a reminder to check for my W-2. I also made reminders for Vanguard and for the brokerage firm where I receive my stock vests. As each document came in, I checked it off. When they had all arrived, I scanned in the paper ones and emailed all of the documents to my CPA with several questions about my tax situation.

Regardless of whether I use my CPA again next year or I use TurboTax (or some other software), I will definitely be using the same checklist system and waiting until all documents come in before starting any preparation other than back-of-envelope calculations on my refund status.

Readers, do you use a CPA? Why or why not?