Big tax bill

[disneysteve]

Did our taxes yesterday. The good news is we're not getting a refund. The bad news is we owe almost $2,300. That is the result of a couple of factors. One of my taxable mutual funds had a large capital gains distribution and I sold some stock at a profit. The other problem is that in 2011, our synagogue had an offer to prepay dues for 3 years and avoid a couple of dues increases. We took advantage of that and got a big deduction that year but that meant no dues deduction in 2012 (usually $2,000/year).

So I need to scrape up $2,300 for that plus the $1,340 I can put in my SEP-IRA.

Fun, fun, fun.

[bjl584]

Hey Steve, I owe Uncle Sam $1700 this year. I'm in the same boat as you. Horray!!!

[disneysteve]

I'm in the same boat as you. Horray!!!

There's something wrong with us.

[woodie96]

Steve and BJL, sorry to hear about that..

This year is the first time the DW and I are getting a refund since around 2005 or so. So what will I do with that bigggggg $86.00 check......LOL

[Like2Plan]

So I need to scrape up $2,300 for that plus the $1,340 I can put in my SEP-IRA.

Fun, fun, fun.

That's not too bad (unless you have to pay penalties for underwithholding )

One of my taxable mutual funds had a large capital gains distribution....

That is one thing that I have always disliked about mutual funds is getting a large unexpected capital gain distribution in December and not have any control over it and not be able to plan ahead for it. Yay--for the gains, though.

I sold some stock at a profit.

Yay--for the profit! DH sold some stock at a profit last year and we did withholding. For some reason, the company would only withhold at a 28% rate. I got to thinking about it--that is just crazy--Even the highest LT capital gain rate is only 20%. We won't be doing that again. I figure if it comes to it, we'll do estimated taxes.

[disneysteve]

That's not too bad (unless you have to pay penalties for underwithholding )

Nope, no penalty, but my accountant said it was close.

That is one thing that I have always disliked about mutual funds is getting a large unexpected capital gain distribution in December and not have any control over it and not be able to plan ahead for it. Yay--for the gains, though.

Exactly, but what can you do. The market had a great year and there were profits to be shared. I can't really complain about that.

My accountant did suggest I consider changing my withholding a bit just to prevent this from happening again. The problem is the bottom line is really unpredictable.

[Robert742]

Nope, no penalty, but my accountant said it was close.


Exactly, but what can you do. The market had a great year and there were profits to be shared. I can't really complain about that.

My accountant did suggest I consider changing my withholding a bit just to prevent this from happening again. The problem is the bottom line is really unpredictable.

I feel your pain, Steve.

I'm going to do my taxes next week. I've been putting it off, because I'm going to owe, and I want avoid paying as long as possible.

I've never owned index funds outside of a qualified account, but they are supposed to be more tax-efficient, and less likely to surprise you with unexpected capital gains at the end of the year. Though, that's probably not a compelling argument to switch from a winning mutual fund.

[KTP]

I was expecting to get back the usual $1000 or so, especially since we had over $10,000 in capital losses so $3000 of that could be deducted against normal wage income. Unfortunately that Europe 3 month business trip(remember we went on that jan-mar 2012) expenses were declared as income on my spouse's W2...ouch! The crappy thing also is they paid some high price accountant $1500 to prepare a tax statement for us and charged that on the w2 as wage income. This bumped our adjusted gross up enough that we owe $1100 instead of getting back $1000. We can't deduct the expenses as moving expenses on form 3903 because even though they pass the distance test by thousands of miles, they fail the time test of 39 weeks. We can't deduct the expenses as business expense because they don't meet the 2% floor.

Why is there a 2$ floor if you are employed by a company but no floor if you are self employed? There is just no fairness or common sense in taxes...

[snafu]

Canadians pay w-a-y higher rates on capital gains, dividends, investment income and salaries. This year both DH and I will be transferring about $6K ea. to our BIG TAX guy. I'd done a rough calculation in early March but needed to wait for all the official tax slips. Now they are sending 'amended' slips so it'll be a bit more.

I'm not complaining because I'm thrilled with the snap-back value of holdings, reinvested dividends and took some profit when some stocks got ridiculously over priced. Actually, I'm starting to worry about how fast holding have escalated 2013.

[QuarterMillionMan]

Every year I know that I'll have to end up paying as well so I too wait towards the end. I'm single and have no kids (and glad). Love my independence, peace and quiet, king of my own remote, and don't have to wait to use my bathroom (lol), but I digress. This was my final tally for 2012;


Federal, owe $920
California, refund $220
Hawaii, owe $117

[kv968]

That is one thing that I have always disliked about mutual funds is getting a large unexpected capital gain distribution in December and not have any control over it and not be able to plan ahead for it.

Not that you can really plan for it, but you can see how much potential capital gains exposure a fund has. If you look up the fund in Morningstar and go to the "tax" tab it will show you approximately what percentage of a fund's assets are realized or unrealized gains or losses (most I looked at were ~20-35%). Granted you won't know when or if they'll be distributed but at least you can get an idea of how much gains or losses a fund is holding.

It'll also show you the past tax cost ratio (how much taxes have reduced the returns) of the fund over the past years.

That'll at least give you a ball park figure of what you might be able to expect tax-wise if there's a big redemption in the fund.

[MonkeyMama]

I just wanted to add to all the comments about waiting: You can file your tax return earlier. The payment is not due until April 15th. I usually file in January and pay in April. (Our taxes are simple - I could generally file January 1 - I don't have any tax forms that I need to wait for. Obviously anyone with a taxable brokerage account is wise not to file before April 1 - corrected forms galore).

[Kircheis]

I just wanted to add to all the comments about waiting: You can file your tax return earlier. The payment is not due until April 15th. I usually file in January and pay in April. (Our taxes are simple - I could generally file January 1 - I don't have any tax forms that I need to wait for. Obviously anyone with a taxable brokerage account is wise not to file before April 1 - corrected forms galore).

That's a great idea. I filed my return electronically in February and owed about $2000. I sent the check in last week (I guess I could have waited a little bit longer...)

[KTP]

I just wanted to add to all the comments about waiting: You can file your tax return earlier. The payment is not due until April 15th. I usually file in January and pay in April. (Our taxes are simple - I could generally file January 1 - I don't have any tax forms that I need to wait for. Obviously anyone with a taxable brokerage account is wise not to file before April 1 - corrected forms galore).

Hah! so true. Optionshouse sent me 3 corrected 1099B forms detailing mistakes they made in calculated wash sales...the latest corrected 1099 I received March 25!!!

[Like2Plan]

Not that you can really plan for it, but you can see how much potential capital gains exposure a fund has. If you look up the fund in Morningstar and go to the "tax" tab it will show you approximately what percentage of a fund's assets are realized or unrealized gains or losses (most I looked at were ~20-35%). Granted you won't know when or if they'll be distributed but at least you can get an idea of how much gains or losses a fund is holding.

It'll also show you the past tax cost ratio (how much taxes have reduced the returns) of the fund over the past years.

That'll at least give you a ball park figure of what you might be able to expect tax-wise if there's a big redemption in the fund.

kv968,
That's good to know. I thought ETF's were a way around that for tax efficiency, but maybe not? I was comparing VTSAX and VTI, but I'm not sure I totally understand it.