Taxes Are Done !

[QuarterMillionMan]

We all lack confidence in our own capabilities and rather pay the professionals who are sometimes less capable than ourselves. Hence why I do my own taxes and a lot of other DIY projects. A plumber recently installed a new toilet in my apartment and the caulking job he did at the base on the floor looks like a child did the job. I would have made it look very nice. Or the hair stylist who messes cutting your hair, or the cook who adds too much salt or drowns the food in oil and grease. I cut my own hair and cook my own meals. Or pay to wash your car, I use a 5 gallon bucket of water and wash my own car. The only thing that everyone here agrees not to pay is financial advisors and make our own financial decisions.

[disneysteve]

We are both W2 workers, which makes up the vast majority of our income, and claim zero deductions. We still owed $18k in federal taxes

Why such a discrepancy? It sounds like you don't have your withholding set properly from your jobs.

[disneysteve]

We all lack confidence in our own capabilities and rather pay the professionals who are sometimes less capable than ourselves.

I don't think that's a fair assessment in all cases. I'm confident enough that I could do our taxes. I choose not to. I also recognize that our accountant is required to attend hundreds of hours of continuing education to stay on top of the ever-changing tax laws. The online services (TurboTax and the like) probably update to reflect all of those changes, but I think this is one of those "you don't know what you don't know" situations. I trust our accountant to ask questions that I wouldn't have thought of and to catch errors that I may have missed. I'm happy to pay a pro about 1/2 of 1 percent of our income to do it all for us.

[jenn_jenn]

Why such a discrepancy? It sounds like you don't have your withholding set properly from your jobs.

You’re right, we don’t. I need to calculate what our estimated federal income taxes will be and have additional withholdings. I just double checked and for last year, we had ours each set to single filing status, no additional deductions or credits so you'd think it wouldn't be that far off. I assumed we were being hit with the marriage tax penalty but this wouldn't have resulted in us owing that much extra.

As for the large state refund, this is due to city income tax and my husband’s job insisting they have to withhold this (even though it doesn’t apply to us and my work is able to figure it out). It’s never really bothered me though, in my mind it just helps offset what we’ll owe for federal.

I knew we’d owe a good chunk and was prepared for it. I don’t love having a big tax bill but it doesn’t bother me. We owe the taxes one way or another - just changes when we pay it!

ETA - Removed the marriage tax penalty explanation. I was misinformed, it wasn't the problem this year.

[ua_guy]

Ah...well, this sucks.

https://apnews.com/article/irs-direct-file-tax-returns-free-trump-4bb0bca02fab9b3d06ae6f45ac67b7ab

[Jluke]

You’re right, we don’t. I need to calculate what our estimated federal income taxes will be and have additional withholdings. I just double checked and for last year, we had ours each set to single filing status, no additional deductions or credits so you'd think it wouldn't be that far off. I assumed we were being hit with the marriage tax penalty but this wouldn't have resulted in us owing that much extra.

As for the large state refund, this is due to city income tax and my husband’s job insisting they have to withhold this (even though it doesn’t apply to us and my work is able to figure it out). It’s never really bothered me though, in my mind it just helps offset what we’ll owe for federal.

I knew we’d owe a good chunk and was prepared for it. I don’t love having a big tax bill but it doesn’t bother me. We owe the taxes one way or another - just changes when we pay it!

ETA - Removed the marriage tax penalty explanation. I was misinformed, it wasn't the problem this year.

I always thought the explanation was something like this.

you each make 200k.

Individual payroll taxes are calculated on the tax bracket scale and then your status (single or married).

the tax withheld math would work like you said if you didn’t file together.

I believe the problem is that for one income the entire 200k is really taxed at the highest tax bracket when combined on the tax return.


max 401k’s if available and you aren’t already.
otherwise have an additional amount taken out like you plan.

[jenn_jenn]

I always thought the explanation was something like this.

you each make 200k.

Individual payroll taxes are calculated on the tax bracket scale and then your status (single or married).

the tax withheld math would work like you said if you didn’t file together.

I believe the problem is that for one income the entire 200k is really taxed at the highest tax bracket when combined on the tax return.


max 401k’s if available and you aren’t already.
otherwise have an additional amount taken out like you plan.

We were advised to put single and withhold zero additional deductions to get the most taken out of our paycheck by default (meaning without adding on additional withholdings) so that is what we did.

Also I realized I didn’t have the best understanding on the marriage penalty, I’d previously taken that explanation at face value before but I did some Googling to better understand it. The marriage penalty was some but not all of our “problem”. For federal income taxes, the marriage penalty doesn’t kick in until income above $731k. We didn’t reach taxable income that high last year and shouldn’t this year either. However, for our state, the marriage penalty starts at income above $323k. Additional Medicare & Net Investment Income tax (which is included with your federal filing), kicks in at just $250k. Obviously the latter doesn’t apply to W2 earnings but did apply to some our investment income.

We do max both 401ks and jointly our HSA but because this is done through our employers, they’re already accounting for that to be non-taxable income so it doesn’t help on the withholdings front.

I’m going to assume this year is going to be pretty similar to last year so I just used this recent tax bill to inform how much extra withholdings are taken out going forward.

[Like2Plan]

We were advised to put single and withhold zero additional deductions to get the most taken out of our paycheck by default (meaning without adding on additional withholdings) so that is what we did.

Another resource for you: The IRS has a tax withholding estimator that takes total income from all sources into consideration. https://www.irs.gov/individuals/tax-...ding-estimator
(I always recommend running your numbers through the withholding calculator twice--once at the beginning of the year and again at mid year to see how things are going).

I can't say I totally understand how alternate minimum tax works, but they didn't get rid of this tax with TCJA and I believe it comes into play for 2026 income (unless something is done by congress). The tax rates from TCJA are supposed to sunset after the 2025 tax year (unless legislation is passed. (Example of tax brackets for 2026 if there are no changes: https://www.efile.com/2026-tax-year-changes-tcja/ )
Even if legislation is passed on those two things, there could be other changes.

Anyway, getting withholding to come out right can be really tricky. (Thank goodness for safe harbors to avoid penalties).

[jenn_jenn]

Another resource for you: The IRS has a tax withholding estimator that takes total income from all sources into consideration. https://www.irs.gov/individuals/tax-...ding-estimator
(I always recommend running your numbers through the withholding calculator twice--once at the beginning of the year and again at mid year to see how things are going).

I can't say I totally understand how alternate minimum tax works, but they didn't get rid of this tax with TCJA and I believe it comes into play for 2026 income (unless something is done by congress). The tax rates from TCJA are supposed to sunset after the 2025 tax year (unless legislation is passed. (Example of tax brackets for 2026 if there are no changes: https://www.efile.com/2026-tax-year-changes-tcja/ )
Even if legislation is passed on those two things, there could be other changes.

Anyway, getting withholding to come out right can be really tricky. (Thank goodness for safe harbors to avoid penalties).

This is so helpful. Thank you!! I’ll run our numbers through that calculator in a few months to see how we’re tracking!

I’ll have to read more on AMT but at first initial review, I don’t think applies to us. We’re in this fun category of having decently high W2 income and having limited ways to reduce our taxable income so we definitely pay our fair share of taxes!

We looked into ways to reduce taxable income before and there’s really only so many strategies one can employ for people like us where the majority of our income is W2.

Not too get too off topic but I’m really hoping the SALT cap is increased. We itemize and so any SALT increase would be meaningful.

[LivingAlmostLarge]

This is so helpful. Thank you!! I’ll run our numbers through that calculator in a few months to see how we’re tracking!

I’ll have to read more on AMT but at first initial review, I don’t think applies to us. We’re in this fun category of having decently high W2 income and having limited ways to reduce our taxable income so we definitely pay our fair share of taxes!

We looked into ways to reduce taxable income before and there’s really only so many strategies one can employ for people like us where the majority of our income is W2.

Not too get too off topic but I’m really hoping the SALT cap is increased. We itemize and so any SALT increase would be meaningful.

I think personally you should depending on what you do have a year where you pay someone. Use the CPA that someone who is super savvy and smart uses and checks their tax return like if you knew steve in real life. I got the name from DH's coworker and I figured I easily could catch a mistake. I didn't because well life happens and I didn't have time to review the return. I was too busy with funerals literally. So now that things are calm I am doing my own tax return and fixing it. I can't take it. I just seriously am beyond upset.

Unfortunately for me my 2022 affects all successive years. Also see if anything changes if someone else helps you. Next year go do it youself but pay for it once.

[Like2Plan]

I’ll have to read more on AMT but at first initial review, I don’t think applies to us. We’re in this fun category of having decently high W2 income and having limited ways to reduce our taxable income so we definitely pay our fair share of taxes!

We looked into ways to reduce taxable income before and there’s really only so many strategies one can employ for people like us where the majority of our income is W2.

Not too get too off topic but I’m really hoping the SALT cap is increased. We itemize and so any SALT increase would be meaningful.

Here are some links:

https://smartasset.com/taxes/what-triggers-amt-tax

https://www.harnesswealth.com/articles/what-is-amt-alternative-minimum-tax/

https://turbotax.intuit.com/tax-tips/irs-tax-return/alternative-minimum-tax-common-questions/L50YotKHP

It most likely won't affect you with 2025 income. But the changes put in place by the TCJA tax law will sunset* for income earned after 2025. TCJA raised the amount of the exemption In 2017 it was a much lower figure before TCJA came into play. Also, there was a big time marriage penalty with AMT in 2017--(The exemption amount was reduced for incomes above 160,900 MFJ and above 120,700 filing Single ).

With AMT you get to figure out your taxes twice. The second time on Form 6251 (the worksheet for AMT). Some deductions/income are added back in. TCJA allows you to take the full exemption amount for incomes below 1,218,700 (MFJ). (And below 609,350 for single). The exemption amount is deducted and then you figure your tax based on 26% or 28% of the remaining income (depending on how high it is) Also, there is an adjustment for capital gains that are normally taxed at a favorable rate..

The above is a simplification, but even in 2017 you could run afoul with AMT if you had income over certain levels (above 160,900 MFJ in 2017) with higher SALT deductions. Anyway, you get to pay the higher of the AMT calculation or the regular tax schedule. The thing I dislike about this tax the most is how complex it is in trying to figure out taxes and withholding.


*edited to add: The current tax law for the exemption is going to sunset unless congress acts. The result will be AMT will impact a lot more folks in much lower tax brackets, so we will see.