Sunday, April 10, 2011

Doing Taxes Gets Less and Less "Fun" Every Year

For the second year in a row, my mortgage interest does me no good.  I don't pay enough mortgage interest to exceed the standard deduction anymore.  (Or another way of looking at it, I don't make enough money anymore.)  It may be time to pay off the mortgage instead.

My part-time employers (teaching) calculate the amount of federal and state income tax to withhold as though the pitiful wages they pay me is a full-time position--so they withheld nothing at all for the IRS.

This is going to be a very painful check to write.  The temptation to stop doing any work except my daytime job is getting very strong.  At least it would simplify my taxes.


  1. I thought that they could only withhold based upon your W4?

    And the W4 is easy (and legal) to game so that they will withhold more.

    You should probably be claiming whatever allowances you are entitled to on the
    Form W-4 for the highest paying job and then submit revised W-4 forms claiming zero allowances on the others.

  2. Douglas - claiming zero allowances on a second, part-time, job isn't enough. If the second job will pay $10,000 a year, they'll withhold as if you were making *only* $10,000 a year, which is, even with zero allowances, approximately $0. You need to write in a larger amount to be withheld - if you're in the 28% bracket, probably about 28% of the gross pay from your paycheck. Which gets difficult if your pay from that job isn't constant from week to week.

    I'm facing my own special brand of tax fun. It may be worth my while to *not work at all* in 2012. I might make more money that way. How? My wife and I own rental property. We're not "real estate professionals" - running the three rentals does *not* take 750 hours a year - and we make (combined) more than $100k. Therefore we are *not* allowed to deduct all our tax losses from our income. However, the difference is deferred, and so, if I didn't work, we'd get to deduct the deferred losses that year. The difference might be greater than my after-tax income minus some expenses we could avoid if I didn't work.

  3. Why don't you get a copy of the 1040 ES for paying estimated taxes? Rather than trying to manipulate the withholdings so you come out more or less even at the end of the year, assess at 4 times during the year what you have made, and what the taxes are if you made that much all year. Then see what you have paid, and write a check for the difference. It avoids penalties and there is no unpleasant surprise on April 15th.

    As far as the mortgage deduction, would you pay $10,000 to save $2500 (assuming a marginal rate of 25%)? It's just silly.

  4. These are among the reasons (in addition to the fact that you have to send in a lot of personal information) that I consider the income tax to be one of the greatest banes to freedom. If I could ban the income tax, I would do it overnight--and I would ban it for all federal, state, and local governments.

  5. I'm in a similar situation. I have to have my primary employer withhold about $200 extra per paycheck to make sure I don't fall too far behind on my tax withholding.

    Fortunately, the W-4 form provides a place for just that, so the paperwork side of it is fairly painless.

    On another note, the reduced withholding from last year has expired, so this year the withholding should be closer to the correct amount.