obnoxious ramblings on income, unearned income, taxes, and so on
April 30, 2018 — nicoleandmaggie
We made 17K (!) in non-W2 income last year. Some of that was honorarium and consulting (1099) and some of that was dividends and unwanted capital gains (I really need to do *something* about American Century Trust and its irritating habit of creating capital gains which it then reinvests in itself. It didn’t used to do that. But now it does. Just selling it all will create an unpleasant tax situation come tax time, but maybe I should bite the bullet.)
I don’t know what the breakdown between stocks and 1099 income is because DH mentioned this to me while he was trying to figure out our estimated tax situation for next year.
He told me that our estimated taxes for next year would be 17K and I almost had a heart attack.
Then I was like, wait… that can’t be right. What was our non-W2 income? We can’t be paying 17K in taxes on 17K of estimated non-taxed income.
Then I said, on top of that, I switched all our Roth 401K/457 stuff to traditional (even though I know that’s not the optimal money thing to do, it’s part of my #resisting), so we should be paying lower taxes on top of the fact that we’re in a lower tax bracket despite higher income because congressional Republicans and their oligarch overlords are evil.
Taking that into account brought down our estimated excess tax burden to something like $6K.
We decided to take $500 out of each of my 9 paychecks and also send the government a check for $1000. (They also have a small credit from this year’s taxes because we’d missed a bunch of charitable giving the first time we went through taxes and paid the bill. Correcting that mistake put us into itemizing range and we saved something like $100, which we applied to next year’s taxes.)
Our dividend income may be lower next year because PG&E which provides the bulk of my dividend income is having money problems (specifically, they’re waiting to see how much they owe for the CA wildfires) and has not been paying out quarterly dividends. That’s about $700/quarter we will not be getting. This has happened before– when I first got these stocks PG&E was bankrupt (but I still had to pay taxes on money I never got with money didn’t have… long story, but the dividends since have made up for that stress).
I did the same thing with my Roth 401(k) contributions. Even though it’s really not optimal, I switched the majority of my withholding to traditional to avoid getting hit really hard on the tax front when I file for 2018 next year.
Another “sub-optimal” thing I’ve been doing for years is getting a tidy refund that I then use for home maintenance and improvements. (This year I got a new water line to the house since the original 1940 main line was in not so great shape, and I replaced the nearly 14-year old water heater with a tankless.) Based on my discussions other home owners, I suspect that next year won’t be so rosy for the trades in this area. Many people use their tax refunds for home projects, and since so many of us in CA will get smaller (or no) refunds, I’m thinking there will be a reduction in the amount of spring home improvement work.
Actually, I don’t know that it was sub-optimal to get a refund, as much as just the nature of having big deductions for things like mortgage interest and property taxes and not wanting to play around with withholding near the end of the year. Anyway, 2017 was the last year I get to enjoy a refund, thanks to the new tax law. I’ll end up paying something next year, but I’m trying to keep it around the $1k range through my withholding and the few adjustments I can make with my pre-tax options.
That’s a great question! Another irritating thing is that apparently when they changed withholding, they screwed a ton of stuff up, so many people (especially married people) will end up owing money they didn’t expect to owe. (I’m sure this was timed to be after the midterms so dems get blamed for it.)
One nice thing about our irritating new university-wide software is that I can make changes myself rather than tracking down a form and the right office address and then keeping the payroll people on task.
We’ve mostly chosen to have all of the taxes come out as withholding from my husband’s paychecks. I never had much in taxable myself, so I never really thought about the taxes on the stuff there. But last year, we had 8K in investment income and that’s only going to get larger. That plus the fact that his employer underwithholds on his bonuses means we are paying an extra $500/month out of his paychecks to cover all of these extra taxes. At least today is the last paycheck they take social security taxes out of, so that’ll mean a decent raise next month. I tried to suggest that we could sell some taxable if we ended up finding a house and he was like what about the taxes – turns out we have enough capital gains on it all that we would end up paying almost 10K in taxes if we sold it all?
We changed his withholding and direct deposit 12/30, but his employer must have reversed that change because it didn’t go into effect 1/31 and disappeared entirely? We were super confused.
You could try turning off American Century Trust’s ability to reinvest things? That would at least stop you from getting any more shares in the future.
In the category of money that we don’t see but we get to pay taxes on – in almost all cases I’m at the point mentally where I am willing to take the tax hit now to make sure I don’t have to see, hear, or deal with it again. If it’s not a guarantee, then I might keep dealing with it but I am so done with dealing with other people’s BS. (Invariably those money situations are someone else’s BS.)
You’ve got me thinking over what other income I have to account for in the coming year to make sure our withholdings are accurate. We usually withhold very close to the right amount but earned income this year could certainly change that if we’re not careful.
I’m a little bit worried that they won’t even let me sell since this is one of those investments my father made. When I did a search online, this seemed to be a big problem specifically with American Century Trust– the minority had to pay all taxes upon reaching majority but only the person who initially bought the trust could sell the shares. This wasn’t a problem when it was just holding and not selling, but it is now. But I keep kicking the can down the road.
It looks like some kind of law was passed in the mid-2000s to at least make it easier to access the money if the custodian is deceased(!) There’s a bunch of BBB complaints about people wanting to access $1K after attaining their majority, but Grandma had passed on. Apparently American Century Trust told them they’d need to get a lawyer if they wanted access– which may not be worth it for 1K.
As soon as the new tax law came into effect, my take-home pay went up noticeably. I immediately turned around and increased my contribution to my 401(k) and whittled the take-home pay back down. Checked my W4 because I thought I had no allowances, and that’s correct.
I don’t *think* I’ll need to have more withheld … but after we get back from vacation, will get back into the 401(k) thingy* and bump up that contribution again. I’d much rather divert the money to 401(k) than send it to the @&#! Feds to pay for &#*%! Pruitt’s @%&#! first-class travel.
*it’s in a blackout period because they are changing plan administrators.
I ran some scenarios through the 2018 Withholding Calculator to figure out what I should do to lessen the sting of being single, well-compensated, and living in a state the current admin hates and wants to punish as much as possible. For someone with my income who is SINGLE I jump from what was a 28% tax bracket to a 32% tax bracket. Since I would also lose the full SALT deduction, my tax burden was going to increase substantially. I just couldn’t stomach the amount of taxes I would need to pay to a bunch of crooks, so adjusting my retirement vehicle withholding to go into a traditional (pre-tax) 401(k) instead of the Roth 401(k) was the best I could do to minimize the pain. Here’s the calculator link if you want to try it: https://apps.irs.gov/app/withholdingcalculator/