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.

Ask the grumpies: Why did they stop taking social security taxes out?

High earner asks:

I just noticed that for the last few months of 2014, there was no social security tax deducted from my salary, and then in January, it went back up to where it was before that. Does that make any sense???

then a follow-up:

I think I just figured it out. Do they deduct the standard percent each month of the calendar year until you reach the maximum based on the annual taxable limit of $117,000, and then they stop deducting?

We at grumpy rumblings thank high earner for answering hir own question.  (Note:  In 2015, the maximum amount of taxable earnings is $118,500.)  When policy makers talk about eliminating the tax cap on Social Security, this is what they’re talking about.

We are pro- this tax cap elimination because it comes as a surprise to most people the first time they hit it!  (And it’s a lot more progressive than cutting Social Security benefits for people who need them, though some cuts make sense given longer working lives.) In the mean time, though, we wish we earned more money so we could take advantage of it…

How do raises work where you work?

I work at a university.  Every year, the university decides what % raises each department will be able to give on average (usually ranging from 0% to 3%).  The department decides whether or not to top up.  Sometime in the summer raises are determined (initially we all got COL raises that exactly matched inflation, then we got 0 raises because recession, now there’s a seriously awful “merit” formula that makes no sense).  In any case, raises are determined at exactly the same time each year and we know when to expect them.  We don’t have to talk to anybody to get them, they just happen.  (Though complaining about equity at step increases such as promotions might help.)

We can get out of cycle raises by getting outside job offers.

My DH is working a real job right now.  We have no idea how raises are supposed to work.  He was going to ask at his annual review, but unfortunately his annual review got cut short (to about 10 min) because there were delays and it got pushed up right to his flight time.

He doesn’t know, is he supposed to ask?  Is he supposed to make a case?  Is there an automatic COL increase?  Does he only get raises when there’s an outside offer?  We don’t know.  So he’s asking.  He doesn’t want to ask, but he will at some point because without cost-of-living increases, one’s real salary erodes.  (Plus the company is doing well, partly because of his efforts!)

In the mean time, that got me curious, how does it work most places?

How does it work for our readers?  Are raises automatic?  Are they tied to something?  Do you have to ask about them?  Do they happen annually?

How do you get your raises?


When to replace a car?

Just got a $1000 repair estimate for my $3000 blue-book value car.  ($500 in absolutely necessary to turn the check engine light off repairs, $500 to replace a couple of axles that cause vibration.)  The car is 10 years old with 36,000 miles on it.  (It’s also all shiny and clean because DH had it detailed for me as a Christmas present.)  To get a newer model of our current car would be about $15,000.

Since we’re only taking one car with us to paradise next year (this is one of those sacrifices people make in paradise if they want to continue saving for their kids’ college, but there’s public transportation so it’s not so bad), if we do decide to get rid of the car, this summer would be a good time to do that so we don’t have to find a place to store it.

In the past, my rule had been to replace a car when the cost of repairs was greater than the value of the car, but that was easy when we had a single major repair cost.  When they start coming in in drips and drabs like this it’s harder to make that comparison.  At the same time, the drips and drabs are annoying when each one means we’re down to one car for a week (I end up having to do all pick-ups and drop-offs and don’t have as much work flexibility, unless DH plays chauffer which means extra driving).  Time is money!

It’s still a good little fuel efficient car.  And it looks all shiny and new on the inside right now.  I’m a bit attached to it.

So we’re paying the $1000 now, and we’ll rethink this after the next repair bill or it’s time to go to paradise, whichever comes first.

How do you decide when it’s time to replace a car?

Employee initiative or employee management?

DH had separate conversations with his brother and his cousin this break in which they both said the same thing.

Whenever each asked his boss how he was doing, the boss said, you’re doing fine.  When asked to elaborate, the boss would say, you do what we ask you to do.

However, at end of the year evaluation, each was told that just doing what was asked isn’t enough to excel.  It’s enough to do ok.  But to excel each needs to show initiative and to figure out what to do before being asked to do it.

DH’s brother maintains that that’s just not his way, and if his manager were a good manager he’d manage DH’s brother so that DH’s brother would excel without having to show initiative (though he didn’t use the words “initiative”– that’s me not knowing how else to describe it) — he’d be told what to do and he’d do it and he would excel.

DH’s cousin’s situation is a bit more dysfunctional in that he actually gets in trouble for showing initiative and is thus getting severely mixed signals.  DH’s cousin’s boss sounds a lot worse than DH’s brother’s boss.

This made me think about education levels and management and what makes a good employee.

DH and I kind of agree with the brother’s boss.  We have PhDs.  We’re trained to have initiative.  We couldn’t do our work without a lot of self-direction.  We both supervise people without PhDs for whom we do the vast majority of the direction.  And it’s great when we get an employee who shows some initiative because they’re closer to the work and often see things that we don’t and it decreases our mental load (though it’s good when they ask before going off on a wild goose chase).  The PhD, in essence, is valuable in the work world because we don’t think there’s anything wrong with being asked to do self-direction and we expect to do it and we know how to do it.  Hopefully that translates over for humanities PhDs and other areas where supply outstrips academic demand.  That ability to work independently is worth money to industry and government.

DH’s brother has an MS (masters of science).  DH’s cousin has an AS (that’s the practical version of a 2 year community college degree– associates of science).  DH’s brother’s boss is fine.  DH’s cousin’s boss is pretty bad.  Why should you get education?  To make it easier to avoid terrible bosses.  And maybe each extra degree really does make you more productive– there’s a lot to be said for independent thinking and independent work skills.  Sure, there’s something to be said for being able to be a cog, but right now there’s a lot of people able to be cogs and not as many able to direct the gears on their own.  So gear direction is worth something.

So what do you think– should employees show more initiative even if they don’t want to or should good bosses be better micromanagers?  (That’s a loaded framing– perhaps you have a way to load it the other direction?)  Is higher education worth something?  Does it really teach thinking and self-direction?

February Mortgage Update: Moving Money Around

Last month (January):
Years left: 2.25
P =$1,079.06, I =$135.34, Escrow =$788.73

This month (February):
Years left: 2.083333333333
P =$1,091.24, I =$123.16, Escrow =$788.73

One month’s prepayment savings: $7.90

Still pre-paying the mortgage.  But I did make one other big change right before the New Year.

Usually I do all my retirement stuff from September to September, ignoring the tax year.  But 2015 (and 2016) we’re going to be paying half of our taxes in a state with super high income tax.  So it makes sense to get our taxable income down a bit.  So I’m switching to 100% traditional 403b instead of half Roth.  On top of that, the 403b/457 amounts that you can save went up by $500, so I’m increasing the amount saved.

I was thinking about how on half my salary next year, we may [will] not be able to max out retirement *and* pay for health insurance and benefits simply because my gross pay once taxes are taken out may not be enough to cover all of that.  (DH’s retirement options suck.  Though our income might be down enough next year to be able to do a Roth again, something to keep in mind.)  So here we are making extra money now that we don’t need right now, but next academic year we may not be making enough to bring home any take-home pay from my paycheck if we keep things as they are now.

We already have a lot of cash just sitting in savings waiting to be turned into rent and deposits and daycare payments and state sales tax payments and all those things that we can’t afford on DH’s salary alone next year.  It doesn’t make any sense to just keep stock-piling in there when we can pile extra money into retirement savings *this* (school) year and keep money in the paycheck *next* (school) year.

So that’s what I’m doing.  I sent in the form to completely max out my 2015 403(b) from January to May (18K/5 = 3.6K/mo for the rest of the school year).  I still haven’t sent in my 457 plan increase because I’m not sure we’re going to be able to afford to do both plans for 2015– it’s going to depend on housing and schooling options.  If it turns out we *can* afford to keep adding to the 457 for 2015, then we should still be able to pay just it (and health insurance etc.) and still have at least some take-home pay left over.

So… from Jan [Feb paycheck] to May we will be:  Prepaying the mortgage, maxing out my 403b in the traditional option, saving to (but not maxing out) the 457 (half Roth/half traditional), and putting any extra $ in cash.  In May we will stop any substantive mortgage prepayment.  In September we will re-evaluate the 457 situation and decide whether or not we can afford to save to that option or not while we’re living in paradise.

I had been planning on having >80K in savings before we moved to Paradise (because we are going to be spending more than we earn this next school year), but now it is going to be less than that.  However, I will be getting half-salary (yay!) and (as of this change) won’t be making any 403b contributions during that time period, so our monthly take-home pay will be higher next year than I had been planning on when I set that savings target.

So, go me for shifting things around some.  I hope I’m making the right decisions and doing the right things.  I think we’ll be getting some pretty significant tax savings for the year from putting all this money in a traditional 403(b).  And I think we’ll still be in pretty good shape, so long as DH doesn’t lose his job.  (And if he does lose his job, Paradise is probably the best place for him to be to find a new one right away.)

[UPDATE:  I may be doing completely the wrong thing– I had assumed we would be counted as residents because of someone’s previous experience, but it looks like there are significant differences between that experience and this one (namely that I will not be getting any Paradise income during this time frame).  If I’m only temporary, then I should be funneling all our money into the ROTH choice to take advantage of lower tax rates.  If I’m a part-year resident, then I should not be maxing out my retirement now, but trying to make my take-home pay as low as possible when we’re in Paradise.  I think we need to talk to an actual tax professional about this stuff.]

UPDATE 2:  Talked to the Paradise tax board.  They are very confident that we will be nonresidents.  “You are not planning on a permanent move, it’s temporary.”  Which means a lot of the choices I’ve made (like timing donations, changing the IRA), were not great choices.  But hey, maybe one of my grants will hit and I’ll get summer salary.  I wonder if I should change the 403b back…

UPDATE 3:  Talked to someone in almost my exact situation from two years ago, and ze didn’t have to pay Paradise state income tax either.

What are your 403b/401K/457/IRA plans for the year?

Privileged people can give and take bad financial advice

Get Rich Slowly has been going downhill.  I had been excited when they rehired Robert Brokamp, but the vast bulk of his posts since starting have been pretty terrible.

The most recent that I read was discussing what to do when you absolutely must buy a house you cannot afford for which you haven’t saved a downpayment because you’ve gotten married and your wife is about to have a baby.

I will let you digest that.

Assumption:  You must buy a house when you are about to have a child.  Because… I’m not really sure why.  Perhaps Muffy and Chaz would shun you if you’re still living your penthouse.

Ok, so then he goes on to give his advice.

“#1 Get help from family. My dad pitched in $10,000 as an advance on my inheritance.”

Because… your dad has an extra 10K.  That he can just give you.  And isn’t going to need for say, unplanned end of life care.

Right there, that first line indicates that Brokamp is coming from wealth.  If he screws up, his parents can, and WILL, bail him out.  He can afford to do risky things like buy a house with no real money down.  Most people can’t!  And of those who can, many of them would not want to put their parents’ money on the line like that.  DH and I make a lot of decisions because we don’t want to have to ask family to bail us out, even though they probably could.  And we have far more security than people whose families couldn’t!

#4  Use your IRAs.”  Because tapping into your retirement savings to buy a house is a good idea for anybody who doesn’t have a large income flow that can make up the difference later.  (It isn’t.)

“#6. Get help from your boss. If you are a valued employee, you might be able to ask for a raise or an advance on your bonus or paycheck…Feel free to play the ‘we’re having a baby!’ card if you work for a family-friendly company.”  As one of the commenters pointed out, this only works when you are a WHITE GUY.  @$@$# @%@#$@#$ @$@#$@# $%^$^$.

Another example of how the rules are different for one segment of society (upper middle class white men with wealthy parents) than for the rest of us.  @$@# you, GRS.

What are other examples of one set of rules for the privileged and another for everyone else?


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