Okay, so we didn't make as much in 2012 as we did in 2011 since Mr. BFS leaped into self-employment too. But we paid about the same amount in taxes anyway thanks to having to pay the self-employment taxes on everything, which is the employer's part of social security taxes and whatnot. YUCK!
We Knew It Was Coming
Yep, we knew we'd be paying a butt-load in taxes. That's why we send in very healthy payments for our estimated quarterly taxes (and will continue to do so). But it still hurts to see what you just wave goodbye to every year. Specifically, we made about $100,000 in taxable income in 2012 after expenses and deductions. We ended up owing about $33,000, but we paid in about $35,000 over the year. So we're getting about $2000 back. And the crowd goes wild (yay…feel the sarcasm).
I guess I should be way more excited that we at least don't have to pay the IRS any additional cash for 2012, but that slight bit of relief is pretty much extinguished for me since we have to send in our estimated quarterly taxes anyway. Poop.
What We're Doing Now
Oh well, in happier news, we have just wired out more than $22,000 to pay off the rent house mortgage (just waiting for an official confirmation of some sort before writing that happy post, lol). Though some mortgage refinance companies are making that option really tempting right now. That combined with more than $8000 going out for estimated quarterly taxes just makes me feel broke. I mean, I think anyone would probably feel a $30,000 hit to their savings accounts, right?
That said, our 2012 refund is going directly into savings – do not pass Go, do not collect $200. We borrowed $3000 from our savings account that we planned to invest in our Roth IRA's, so this $2000 is being used to pay ourselves back. By the way this is one of the best ways to invest money in your 20s too so don't ever think you're too young for IRA stuff. Whatever extra we make in April will be used to build up that account even more since we do need $11,000 by the end of the year. When we hit that goal, we'll have to look at our priorities and see how we want to proceed…
If we want to pay less in taxes for 2013, we could open a SEP-IRA (Simplified Employee Pension). We can contribute up to 25% of our total salary or 20% of our adjusted annual income, up to a limit of $51,000 in 2013. So we'd be pretty safe from over-contributing if we keep it around $15,000 to $20,000. And those would be pre-tax contributions like a 401k. So we would not be taxed on the money we pay in, but we would be taxed when we make withdrawals in retirement. We can balance those withdrawals in our golden years with the non-taxed ones from our Roth IRA's and be set.
BUT, saving an additional $20,000 a year for retirement would probably mean putting any further rent home ideas away for a while…stupid choices. Nothing seems super easy when it comes to money after the basics, lol.
We may just use this year to re-pad all of our accounts. We haven't been adding to our car account for a while even though both of our cars are mid-life at best – mine is a 2005 Chevy Aveo with 55,000 miles on it but it's always had issues, and hubby's is a 2007 Toyota Prius with 102,000 miles on it already. Also, our fun money and vacation accounts have been hearing crickets since mid-2012.
Anyway, our taxes are done thanks to some of the best tax preparation software, our rent house is paid off, and I will do a proper happy dance as soon as I have that deed in hand, lol.
How were your taxes this year? Did you check out our review of the best online tax filing services? If you received a refund, where are you putting it? Here to help with any tax related questions though I won't claim to be an expert.