In which we pay an estimated tax penalty

So, last year, with DH’s unemployment and our various deductions, we ended up getting $500 back from the government at tax time, even though we hadn’t paid in estimated taxes.  So this year we figured we weren’t required to pay estimated taxes because Turbo Tax said we hadn’t last year.  We were wrong.  Why?

1.  One of my legacy stock funds (American Century Trust from back when my father took care of my investments) decided to sell parts of itself and cause a capital gain of 6K which it then reinvested in itself.  It did this last year but only for 2K and hadn’t done it for the previous 12+ years so I thought last year was an aberration.  I was wrong.  Now I want to sell the entire thing so I don’t get these surprises each year.  (On the plus side, when I investigated last year, this capital gains thing they do lowers the capital gains that will accrue when the stock is actually sold.  Still, unlike my father, I prefer my investments to be simple and predictable.)

2.  I was stupid and made major charitable donations Jan 2015 instead of Dec 2014 because I didn’t understand our state tax situation for next year because … yes I know I have a phd in economics don’t judge me.  (I suspect Brigitte Madrian thinks I’m stupid too.  This is one of my great sorrows in life.)

3.  The stupidest of the stupids… I ridiculously assumed that if we claimed 0 deductions on withholding that the government would take out about the right amount of tax for our income so I wouldn’t have to think about taxes on the wage part, just the non-wage income income.  That is apparently seriously untrue.  Yes I know we are how old and never realized this before… but we never had to stop paying estimated taxes for a year and then start up again (and we had bigger mortgage tax deductions…).  Gov’t withholding  on your wages is not enough once you hit a high enough income.  I don’t know why I assumed it would be… it’s not like they can take out larger percentages of your paycheck as your income goes up.  [Update:  The gov’t DOES take out the appropriate amount of income if you’re single (and work steadily).  And the way it does it is by taking a larger % out of larger paychecks (unlike Social Security which takes out the same % and then just stops when you hit the cap).  The gap between monthly payments as a single vs. as a married is substantial and at my income level seems to be assuming that the spouse is earning less.  Which, in this case, he really isn’t.]

4.  We’ve never actually made more than 150K/year before and hit the tax penalty.  So we thought we only had to pay 100% of last year’s tax, which we were sure we’d do because DH has been employed all year instead of unemployed half the year… turns out we actually needed to pay 110% of last year’s tax.  And somehow we paid something like 108% of last year’s tax, give or take.

Add to that are the things we knew were changing, like less housing interest, and it turns out we both owe the government a pretty hefty 4 figure check and have incurred a penalty of $31.  It’s a good thing we’ve been saving up.

By the time we figured this all out, I was basically like, $31?  Screw it.  (Should we figure out if we can pay estimated taxes for 2014 now to eliminate the penalty?  Whatever.  Screw it.  It’s $31.  Which feels like nothing when you’re already writing a check for over $6K.  Even though it really isn’t nothing, I’d pay $31 not to have to think about taxes anymore this year.)

Apparently if we pay our tax bill early, we can cut the penalty to $21.  At least according to TaxAct.

Now to figure out the estimated taxes for next year… because there’s nothing like following up a huge check with another huge check.  But hey, rich people problems.  If only I didn’t feel so dumb.

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