Making Sure I Never Owe on Taxes Again

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Making Sure I Never Owe on Taxes Again

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Tax time has not been a fun time for me for several years. I remember a time when I looked forward to a nice refund, and being able to use it to buy or do something fun. 

Note to self: Be wiser when receiving large sums of money in the future.

As our finances spiraled downward, one of the things I did was to increase our number of withholdings to decrease the amount of taxes taken out of my paycheck. In 2009, the year our finances reached crisis mode, we owed a couple of hundred dollars. 

Not bad, but things got worse from there.

Our adjustable rate interest mortgage adjusted downward, which really is a good thing, but it decreased our mortgage interest deductions. That combined with Vonnie's job change, in which we discovered zero federal or state income taxes were being taken out of her check, really hit our next couple of tax returns hard.

Each April since then we have owed a hefty amount to the government.

Most years we have been able to cover our tax bill with a performance bonus given by my employer in March. However, that bonus is not guaranteed, and the year that I did not receive one we had to take advantage of a government payment program to eliminate our tax bill

We know we should have made changes. I know we should have changed our withholdings to increase the amount of taxes taken from each paycheck. In Vonnie's case we may have had to dictate a specific amount to be taken out of each check. 

But when you're in the process of paying off debt, you are trying to maximize the amount of money you have available, and it's extremely difficult to purposefully reduce your monthly income by changing your tax withholdings.

Now that we're done with our debt consolidation program, we're finally making the necessary changes to eliminate that huge tax bill each year.

  • Based upon how much we owe this year, we've calculated how much more federal income tax needs to be deducted from our paychecks each month.
  • We're filling out the needed forms to adjust our tax withholdings to the recommended value for each of our jobs.
  • If the adjustment does not result in the amount per month increase in taxes withheld, we will specify an additional amount to be withheld from our paychecks to make up the difference.
  • Taking these actions should result in a much less stressful tax season in the beginning of 2015. With our taxes taken care of, the performance bonuses will again ours to do with as we please.

What was that I said about being wiser with large sums of money again?

Have you owed taxes while enrolled in a debt consolidation plan? What did you do about it?

Related Links:

Help, I Can't Pay my Tax Bill!

How Adjustable Rate Mortgages Can Affect Your Taxes

Changing Jobs While Enrolled in the Debt Management Plan

 

Travis Pizel, debt management plan customer with leading provider of debt relief, CareOne Services, Inc. Travis Pizel

Travis is a contributing writer for the A Straight Talk on Debt blog. He is also a very active member of the CareOne community forums. Travis is currently enrolled in a CareOne Debt Management Plan (DMP). Travis candidly shares his personal journey to pay off his debt and the tips he's learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family in Minnesota. You can also read more from Travis on the Enemy of Debt blog, where he is a featured blogger. Compensated Blogger for CareOne Debt Relief Services.

To connect with Travis on Google+ click

You can follow Travis on Twitter @DebtChronicles

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  • We used to be so foolish with income tax refunds. We would figure out what our refund would be, and then spend it before we received it. And then when we received it, we'd spend it again. Ugh! That's just one of the many ways we ended up in so much debt.

  • I know how that feels, Prudence...and then you wonder exactly where the money went, right?

  • Travis -  I also reduced my withholding at work in order to focus on paying off my debt (and to help with student loan monthly payments)...  

    Last year was the first year we owed the IRS and the School District tax (our community has a School district income tax of 1% of earned income) - we were able to pay the school tax, but are paying monthly to the IRS.  I owe again for this year, but it was expected.  I actually planned to owe the IRS, as their penalties and interest rate were much less than my debt interest!

    Luckily, I will be paying off an installment loan in June.  I plan to use that "extra" $180 per month to increase my federal withholding - hopefully that will be enough to cover our taxes moving forward...

  • Proactively taking control of another part of your financial picture is a great idea. I must feel wonderful to know your cashflow in the new-post DMP world can withstand the slight income reductions throughout the year so you don't have that giant payment looming every spring. In reality, underpaying your taxes all year and owing it in April is like running up a credit card bill and hoping you'll have the funds available when the bill comes due. Not a situation you want to be in after clearing so much debt from your life. Getting a giant refund is also less that ideal - it just means you were giving the govermnent an interest free loan all year. I guess in a perfect world if you wind up getting a very tiny refund then you've done it right.

  • That's one thing that I don't think everyone understands, ondecker....if you get a huge tax refund, it means you gave the government too much money and they were just holding on to it for you....interest free.  If I could have my taxes come out as exactly ZERO (none owed, none returned), that would be perfect.  That shouldn't be that hard to do....but this is our government we're talking about here. LOL.

  • That's exactly what it felt like, JMK...running up a bill and hoping we could figure out how to pay it.  So glad to be able to get off that train!

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