Uncle Sam will be a little richer when he gets my check.
A few weeks ago, I told you our sordid tax story. To make a long story short, for those who missed it, we received an inheritance last year. It was in the form of an annuity, and before we cashed out, we consulted an accountant about the tax ramifications.
The accountant told us we’d only be liable for taxes on the interest the annuity had earned. When I filled out our tax forms, it turns out he was wrong, and we owed taxes on the whole thing.
Since we didn’t hold any taxes out when we cashed out the annuity, we got hit with a huge tax-to-pay. Between our federal and state taxes, we owe…….are you ready for this? $5300. Yeah, that’s what I said. Actually, I almost cried.
In our pre-frugal days, my husband and I would have probably counted this as an emergency and turned to the credit cards. But last year we made the commitment to stop using credit cards. We felt so strongly about it that we shredded our cards all together.
This was our first major financial challenge since we cut up the cards. I’ll be honest and tell you that for a brief moment I panicked and wished we still had the cards. But then I remembered a post I had written for Gibble a while back. Did I want to trust the cards? Or did I want to trust God? I chose God.
And God was faithful. My blog income in February was higher than it’s ever been…almost double my March income, which is closer to normal. Between blog income, our small savings account, and the account where we put the last part of the inheritance we received, we had just enough to cover the tax bill.
In addition, we’ll have about a half a month’s worth of expenses left in our checking account, so we won’t be completely back to paycheck-to-paycheck living. And my goal is to have a Dave Ramsey style $1000 emergency fund in savings by the end of May. And hopefully we can do it without tapping into our economic stimulus rebate. That would make my husband happy. :)
So that’s where we stand. I was busy making balance transfers yesterday, and as soon as they go through, I will be writing my checks to the IRS and the State of Oregon, and I’ll be done with my tax drama for the year.
I’m not anticipating any weird income events this year, so hopefully next year we’ll come close to breaking even on our taxes, which is always our goal.
Do you have a tax story to share? Feel free to leave a comment! And head over to My Investing Blog to tell your story there, too. Hank has a great contest going on with some pretty nice prizes!
Photo by tinou bao.
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Like you, I had to pay the IRS this year the sum of $1695. Also, like you, I almost cried. I usually do a good at estimating my taxes so I do not receive a large refund or pay too much. But, a few things happened, I lowered my 401K contributions in order to pay off credit cards and I cashed out an ESPP as well. Both actions, in concert with higher capital gains on mutual funda, resulted in more taxable income and I didn’t adjust my withholding allowances to make up the difference. Hopefully, this year I will be back on track.
Eee! I hope that accountant will refund the fees you had to pay to him or her. That’s a costly mistake on their part!
My freshman year of college, I was audited and it was determined that I owed an extra $200 in taxes. I cried, as I did not have $200.
I think I’d fall on the floor, stunned, if I owed $5k, even today!
I’m so glad you’re leaning on your faith, and I’m glad that God is faithful right back to ya.
We, like you, had to pay the IRS a little under 4500K!!! UGH! We had anticipated that we would owe something but we didn’t think it would be quite this month. We are supposed to receive our stimulus check at the beginning of May, but we are going to pay the difference between the amount we owe and the amount of the stimulus check to the IRS and then let them put the stimulus towards the balance. We still have to write a check for $1300, but I feel a lot better about this than if we would be responsibe for the entire 4500K. I’ve been praying on this for awhile, trying to figure out how to pay the balance. For us, the stimulus was a blessing.
Hi Lynnae!
I feel your pain – we went through something similar a couple of years ago. It’s scary, but God is faithful to help us through when we trust Him. You did the right thing! You go girl!
Blessings!
I thought my bill was rough…that’s a biggie. But at least you owe taxes on money you received and not money you didn’t have, right? :-)
“For your Heavenly Father knows what you need all these things. But seek first the kingdom of God and His righteousness, and all these things shall be added to you.”
Matt. 6:32b-33
Thank you for modeling for the rest of us complete trust in God as our provider. My mom always said that our paycheck comes from God. It’s so true isn’t it? Keep the faith! Your example means a lot to people like me!
Lynnae..good post. I am curious though, how do you make money blogging? I’d love to know!
Glad to hear God provided to pay for your taxes. He will bless you even more because you trusted Him. More blessings to you.
Liza
Shannon: Beware that, because you are not paying the full amount that is due to the IRS by April 15, you will have an additional penalty and interest added onto the amount you owe, even after your stimulus check is credited to your account.
To All: If you’re seeing an ‘accountant’ about tax matters, make sure he or she has had CURRENT training in taxation – not all do. If you’re looking for tax advice, better to seek our an Enrolled Agent (an IRS certification).
I feel your pain. In 2005, I was still getting the hang of self-employment, and didn’t understand the ins and outs of self-employment taxes. We didn’t pay anywhere near enough in estimated payments that year, and when I did our taxes in 2006, we owed the IRS $7000. We had been diligently paying off debt throughout 2005, and thought we were doing great, so it was a huge disappointment when I did our taxes. I absolutely remember crying about the whole thing. Luckily I did our taxes in January that year, and we saved every penny we earned for the next three months and were able to write a big ugly check to the IRS in April. We did fall back on our credit card for those three months, and it took us until June that year to pay them off. Painful tax lesson learned. Good for you for being able to come up with the money without going into debt!
Yea, that one is a killer; I’m on Kacie’s boat (comment #2) did you get a refund from the accountant at least? What a crappy way to find out, but glad you were able to pay it off!