Good Old Uncle Sam Will Be Getting Our Money This Year

The e-mail arrived this past week from our CPA (and family friend), and it started “Welcome to the world of No Tax Refunds.”  I knew it was coming as I had done a back-of-the-envelope calculation before turning our stuff over, but hearing the confirmation still was not something I really wanted to hear.

Our Normal Two-Part Refund

We typically get a refund from Uncle Sam.  For simple years, we have the proper amount taken out of my paycheck that would normally lead to a balanced return, but things like itemized deductions (mortgage interest, etc.), credits for having children, and other various components usually push us to get a refund.mb-money201308

On top of it, we always have a ‘refund’ fund running in our savings account.  Whenever we make any side income, we put a percentage aside.  In addition, if we sell stocks, or do other things that we know will be counted as income, we’ll put a percentage aside.

Typically, the two of these together makes for a nice chunk of change, though usually it just goes toward savings goals, having funded our new roof, built our ‘one day new’ car fund, car repairs, vacation funds, and things like that.

This Year, We Technically Still Get A Refund

Looking at the two part method above, this year we have our savings, and it more than exceeds what we will have to pay, as we’ve faithfully set aside money at every turn.  So, in the end we will still have money ‘left over’.  In all respects, it’s probably better that we did it this way as we basically took a loan from Uncle Sam and earned (paltry as it is) some interest, as opposed to the usual method which gives them an interest free loan until we’d get our refund back.

Still, the net size is smaller, so it’s still a bit less exciting!

One Other Gotcha

Since we had to pay this year, we’re now on the hook to make sure that we don’t underpay again for a second year.  As such, our guy advised that I bump up our contributions from each paycheck to make sure we hit the required amount so that we would avoid the possibility of an underpayment penalty when next year rolls around.

Why We Had To Pay This Year

A few things happened this year that were outside of our normal tax related activity.

  • Savings Bonds – I had some savings bonds that had been purchased years ago that had fully matured.  They were cashed out and re-invested, but the interest earned over the years was taxable income.
  • HSA Deductions – The plan that had previously allowed me to contribute to a health savings account was no longer offered.  The HSA contributions in the past were able to reduce our stated income, but we didn’t have that benefit last year.
  • Stock Market Gains – We have a small trading account that did well for a majority of the year, allowing for some capital gains.
  • Wash Sale Losses – Although we came out positive for the year, we had some losses as well that reduced our income, but because of silly (I could use a stronger word, but will refrain) rules, we couldn’t claim the losses.  Eventually we will once we close out the positions, but effectively, the IRS defers allowing you to claim losses regardless if you actually suffered the loss.  This is effectively what made us end up with a lesser net amount when adding together what we owe and what I had saved, as I did not ‘pay ourselves’ the tax on the losses, though in essence, not being able to claim the losses raised what the IRS sees as income.

What 2015 Holds

We should have a much easier 2015.  I don’t foresee us having to cash in bonds this year.  We’re back to contributing to an HSA plan, though that should really be negligable as my employer coordinates the deductions, thus capturing the effect on our tax rate.  And, as far as our investments, assuming I clear out the ‘wash sale’ stock, we’ll be able to capture all or least a portion of the effect of our deferred loss.  Combine that with the fact that we’re contributing even more via payroll deduction, and we could end up with a hefty return a year from now.

Readers, how did your 2015 tax return shape up?  If you got a refund, what are your plans?

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