Are you the type of person that absolutely loves this time of year? I mean, the whole processing of the tax return can be a pain but many people get money back so it can be pretty great. Or do you dread the April 15th (or 18th this year) deadline as you know this means you have to write a big check to the good old US of A? For us I don’t look forward to tax time but I also don’t really dread it.
For people who have the inability to save money on a regular basis overwithholding on their paychecks can be a way to automate saving some money which is returned once their tax return is filed. Some people might even suggest this as a strategy to help someone save. But my question is, how many of these people actually take this tax return and put it in a savings account or create maybe a much needed emergency fund with it? If I were to guess, the majority of people who get a nice big tax return blow it on buying some big ticket item. I mean, just listen to any advertisers this time of year and they ask you to come spend this new found money at their wonderful establishment. I will admit it is always nice to get some money back during tax time but we do not go this route.
Hopefully you are not one of those people who ends up owing a ton of money to the government as that is never fun. If you are not a regular W-2 employee where your employer takes out money for you, it can be hard to estimate how much you might owe. And if do don’t withhold enough you might even get penalties imposed on top of what you owe. Super not fun. Since Mr. SFF and I have been married we have only had one tax bill that was more than $1,000 and we made sure that the following year this didn’t happen to avoid any extra penalties.
So what is our strategy? We try to get as close to $0 as possible. If you are getting a big tax return then this means you are giving the government a free loan throughout the year. Personally, I would rather have this extra money in my paycheck as I am diligent enough to save and invest it. Some years we get a small return and others we owe a little and I am OK with either of these scenarios, although of course I would rather not write a check.
This past year was the first full year that Mr. SFF was self employed. In 2014 he was laid off but he did have regular W-2 income for about 5 months out of the year so making estimates wasn’t all that bad. He currently has contracts with two employers plus his side business that he has had for 10 years now. One of his contracts is W-2 income so they do take out taxes. The other job as well as his side business are both 1099 income, meaning that he has to make estimated quarterly payments to the government. The estimated payments are calculated based on what you think you will be earning so they should in theory be pretty close but you never do know.
Thankfully though the estimates were pretty close. We ended up owing $203 to the US Treasury and $41 to the state. In my opinion this isn’t all that bad. And part of the reason we owed might have to do with some long term capital gains in our investment account as we sold one of the stocks we have held for years.
Mr. SFF has picked up some extra hours for his 1099 job so he will have to make some adjustments to his quarterly payments but hopefully we can get this pretty close again for this tax year.
What is your strategy? Do you look forward to that tax return every year or do you keep things close to $0 like us?