So we just finished our 2013 taxes. We have always gotten a tax return, but not this year. We have a tax bill of about $700.
In mid-2012 we decided to have less money withheld for taxes out of my husband’s check. (You can adjust how much is taken out for income taxes on your W-4. The fewer the “allowances” the more will be withheld.) We went from claiming zero (where they take out the most) to claiming 5. We looked at a few tax calculators to figure out what we think we will owe in taxes for the year. We took that number divided it by 24 to get an estimate of what they should be taking out per paycheck to get to our estimated tax bill per year. We did have to fiddle with it for a few weeks until we got close to the number we were looking for.
Doing this means bigger paychecks and a smaller tax return.
Since we did that in the middle of the year we still got a tax return on our 2012 taxes, because they had been taking too much for the first half of the year.
Our 2013 taxes was going to be the first real test of our new tax situation. However, I messed it up. I got a job and therefore made way more money than I have in previous years. I worked as a W-2 employee for about 3 months. (W-2 employees are what most people are… their job takes taxes out of their checks) I claimed zero on my W-4 because at the time I wasn’t sure how this new income was going to affect our taxes and I knew that was a safe bet to not have to owe taxes later. I figured we could tweak it later if we wanted to.
Then after 3 months things changed and I started working 1099. Which means I’m now considered an independent contractor and they do not take taxes out of my paychecks. I figured that with the extra taxes they had taken previously I was probably pretty close to even on the income tax front.
And I guess I was. $700 isn’t too bad of a tax bill. We can handle it. Although if I’m honest, I do wish we were getting a big ole’ tax return. :)
Since I’ll be working 1099 all year our tax bill next year is going to be pretty significant. To help prepare for this we are saving 20% ($600 a month) of my income for taxes. In fact, I should probably be making quarterly estimated tax payments. You know, the government doesn’t like to wait for it’s money. I’m going to have to look into that.