Tricky Taxes Trips And Traps

Thanks, Elizabeth. It was time to file my taxes, and some fluky results in TurboTax were nicely resolved by Elizabeth from their help desk. Thanks to all my friends I called while fighting off anxiety attacks as I struggled through the process. Thanks as well for the offers of loans and such. My apologies to everyone else whose work was postponed, and my apologies to not making it to dance practice. As much as I enjoy dancing, taxes, even with impressive support, drain me emotionally and financially. I suspect I’m not the only one.

My tax history has been playing out in this blog for the last few years. It heightens the experience I’ve had going from Middle Class to Millionaire to Muddling By. Once a year I am reminded of how much less I paid in taxes were when I was rich, and how I have fewer options as I have less money to spend. The more I had, the more ways I could offset shifts in assets to income. Holding stocks for years has its benefits. I’ve lived frugally for years, by choice; and now I live even more frugally by necessity. The less I spend, the fewer deductions I have available, and the taxes don’t budge. Income and wealth inequality are built into our tax code.

General statements about taxes and their impact on people’s lives are so common and so important that they are part of the political debate. I’m fascinated by this election episode of the dismal comedy that is the 2016 US Presidential race, but the grand philosophies aren’t being resolved there, so I’ll skip them here. Instead, I decided to write about specifics, to chronicle the process of filling out my taxes, to chronicle the logical hurdles, and the emotional and physical costs. If this isn’t helpful to anyone else, I understand. Sometimes, though, it is nice to know that there’s someone else who’s gone through the same emotional and financial swings. Maybe TurboTax can use this as a test of their software. Whatever. It helps me remember what it’s like to dive into the anxieties and fears inherent in the mystery of calculating that final number.

My first step was to wait for the last bill from the IRS from last year’s payment schedule. I didn’t have enough to pay them then, so I took them up on their option to spread the payments out over a year. Paying that last bill was a nice closure to that episode, and a reminder that I hoped this year would be better and easier because of what I’ve learned and done.

If you want to skip the details, scroll to the bottom for a conclusion. I understand.


Chronology
Friday morning, April 8th, make the last payment to the IRS for the 2014 that I couldn’t pay on time in 2015.

Friday day, get back to work on work, the source of the income, and the cause of the taxes.

Friday evening, find the folder with lots of 1099s in it. Call that enough, because it is Friday night.

Saturday, April 9th, work like always because since my Triple Whammy I’ve been following my Rule of 7, and working seven days a week (with a day off every two months or so.)

Saturday evening, listen to responsible voices and decide to at least begin working on taxes – with a large glass of red wine.

20:00
Rummage through the crowd of TurboTax emails to find the latest offer, and see if I can find my old account info. Ah, remember to check last year’s notes.
Oh wait, TurboTax teases with an email that may do that, assuming I remember my password.
Success on the second try.
Whew. Logistical hurdles cleared. Emotions relieved.
Pick a software package.
Trying the Self-Employed Bundle that they recommend for the same price.

20:05
Start filling out Personal info, which is copied from last year, so that helps.

20:09
Business Income
TurboTax starts with income, which ratchets up the scary part of the tax story. Over in the corner is an estimate of taxes which climbs while income is entered, and retreats when deductions are entered.
Decide to grab tax info from Schwab online, even though they gave me paper copies at my request, and I’m only dealing with Business, not Personal stuff. Just trying to get everything arranged.

20:17
Welcome to the Gig Economy, where W-2s are rumors and myths, and the world is defined by 1099s and unreported income.
Watch the taxes due as the income is entered, breathe, remember to breathe.
Oh, Amazon, you pesky mega-corporation, changing tax IDs and such.
Hey, that doesn’t look too bad.
Oops. Missing the biggest 1099.
So, there’s a bit of anxiety. I hope I can get the data in time, and I hope it doesn’t increase my taxes too much.

20:41
Begin the mind-numbing task of reconciling my Business bookkeeping to what is reported in state taxes to the terms used by the IRS.
Cue Star Trek – Next Generation to provide a ready distraction that can be ignored most of the time. I’ve seen them all. Some people put on background music, I put on old TV shows. Ah, the Federation, where there were no taxes.

21:02
Done with the Business section, except for the biggest 1099.
Come back to it later, I hope. If not, do I file for an extension, or go with an estimate? Decide later.

21:23
Start and finish the Personal Income section relatively effortlessly. It is good to have good software; keeping mind that the software only has to be easier that filling out the taxes with paper and pencil and ink and calculators. It’s a low bar TurboTax easily clears.

21:25
Decide to Save & Sign Out because it is almost nine-thirty on a Saturday night.

Sunday, April 10th
Another day, another day of work.

20:07
Once more unto the breach – while waiting for a 1099.
Filling out Personal deductions means a long list of things that don’t apply in the life of a single person. So, make it easier by filling it out while talking with a friend on the phone.
The conversation was so good that TurboTax logged me out while waiting for me to get back to work.
Finish the call.
Log back in.
The software found federal itemized deductions of about an extra $200. Okay, I’ll accept that, even if I don’t completely understand it. If I tried to totally understand every bit of my income taxes I’d hurt my brain, take months, and marvel at tax accountants that somehow keep up. Or, use the software and trust the programmers.
The deductions don’t add up to much because I don’t, and can’t, spend much.

21:12
Drumroll. Fill out the heatlhcare portion that deals with ACA, Obamacare, insurance provided through an exchange, whatever you want to call it. I call it my monthly bill for which I receive no benefit.
Wow! Instead of paying a few thousand, the interim estimate is that I’ll get a $2,677 refund. That was unexpected. Finally, some good news – again, even if I don’t understand it.
Apparently, entering the data sent by the state, and coupling it to my self-employment makes an enormous difference.
Ah, but waiting for that extra 1099. That may swing it back towards zero.
It’s good to end on an optimistic note, and is an encouragement to looking forward to finishing and filing.

Monday, April 11th
Evidently, just before midnight the right number came through.
The good news for my income was that it was a big number. The unsurprising news is that it would probably dramatically reduce my refund, and maybe I’ll have to pay a few hundred. That’s doable.
But, get to work. It’s Monday.

9:42
I got ahead on work, and found a fifteen minute slot where I might be able to update the filing with the new 1099 number and resolve the uncertainty and possibly alleviate the anxiety. Take a break, log in, jump into the process again.
Rats, I can’t figure out how to update a 1099. The program keeps sending me back into a loop that doesn’t let me edit the incomes.
Ah, I’ll try retreating and walking through lots of steps. Success. The data is in.
What? Now I owe over $5000?
Anxieties spike. I begin to shake. Quickly call an old friend who has helped me through a divorce and a possible foreclosure (averted, thankfully). Tell him to just listen. Don’t try to fix. I just needed to vent.
Hit Review and be ready to call TurboTax – after I find a break in my work schedule.
Dive right into a 10:00 meeting with an apology for my mood.

12:31 PM
Postpone or cancel everything else on the schedule for the rest of the day.
Start over. Maybe inserting that 1099 after I filled everything else out caused a software error. Hey, I’ve written programs. Errors happen.
Clear my return so far and start again.
Self-employed bundle, again.
Filling out Personal Info, again.
Swallowing away anxieties.

12:34 PM
Filling out Business, again; and wondering what I did right or wrong.
After all of the 1099s and income is reported, I owe, whoa, almost $6,000. Logically, I know that figure will decrease as I enter deductions. Emotionally, anxieties spike. Physically, I am simultaneously tightening up and trembling. This can’t be healthy. What are the costs of filing out taxes? Does one induced heart attack counter the country’s gain from that (and probably several more) individual(s)?
It is the Self-Employment Tax that causes the problem. As I understand it, businesses like consulting and writing, jobs like those in the Gig Economy, effectively pay taxes based on revenue, not income, because of the high profit margins. If I make $1,000 and it didn’t cost me much to operate from my laptop and kitchen table, then I pay $150. Taxes must be paid. But, ouch.
Done with Business – and hoping that magical health insurance and mortgage interest create enough deductions.

12:56 PM
Now getting Personal, again.
Add in the pension. That swings things higher by another 10%. Evidently, they haven’t been taking out as much as I expected.
Considering the Panama Papers, all of these mentions of foreign banks emphasize a lifestyle and financial options that enable another world.
Call another friend to abate anxiety. Talking helps. Listening helps, too.

13:15
Begin Deductions, again.
An estimated payment from last year brings it down a bit over a grand to over $5,000.
Evidently, I qualify for itemized deductions. I don’t think I spent enough in the previous year to qualify.
Now, we get into the confusing details of being self-employed and having health insurance from a marketplace. Last night, this swung the numbers from paying to a refund. Today…
only down to about $4,000.
What did I miss? How did it go from a several thousand dollar refund last night to an even greater tax bill today?
Sit back. Sigh. $4,000. That’s more than my bank account. Maybe I can scrounge enough to pay it, but then there won’t be enough for things like the mortgage and my healthcare premium.
Out comes the credit card, which I recognized was an option. (Cue the groans, lamentations, critiques, and offers of help from many friends. I hear you. Read more below.)
Fill out the credit card information.
Pay for the service.
Prepare to file – and get an error message. Something isn’t right with the form, and I can’t decipher their message. Help!
Hello, help. My problem is so specific that none of the FAQs, forums, or Help Me files are going to help.

13:49
Click on their offer to talk to someone. Find out that the wait time for help is 65 minutes. Don’t expect a call until 14:54, but don’t go anywhere either because they could call at any time.
Went to the bathroom. TurboTax signs me out.

14:44
Ten minutes early, they call back. Good.
For the next twenty minutes, Elizabeth does a marvelous job of unraveling the issue (through some very nice screen-share tech). The cause wasn’t obvious. The fix was something I never would’ve found on my own. Thank you, Elizabeth.
For the next twenty minutes, Elizabeth dives into my health insurance issue, trying to find the mysterious several thousand dollar swing – and finds nothing to fix. Except…
For the last ten minutes, Elizabeth points out business deductions that I haven’t taken, partly because I run a very frugal business, partly because some of the deductions are more trouble than they are worth. The benefits of the deductions are quantifiable, but they have costs, too.
She moves on to the next person to help. I return to finishing the filing.

15:34
As I pay with my credit card, I scribble notes about various ways I can pay it off. I’ll worry those essential details, later.
One surprise, somehow I am now paying $4.99/month to Quickbooks? How’d that happen? I’ll check into that, later.
TurboTax mentions checking my situation for benefit programs. I sign up, and hope it isn’t just an opportunity to collect spam.
Traumatized by the process. Postponing the rest of the day’s activities – except, maybe, for writing
16:32
Go for a walk.


Conclusion

As I said, taxes must be paid. Otherwise, we don’t have a country. The great debate about the most equitable tax system continues even as the Legislature continues to worry more about an indefinite number of tax breaks. The increasing complexity may eventually implode, but dysfunctional bureaucracies can have great longevity. Think North Korea. I don’t expect any great change in the system, though I hear someone wants a political revolution. I don’t expect to affect any great change, myself; though writers never know where their writings will go. Maybe this post will help make a difference.

I finish the process feeling held hostage to Quickbooks, the IRS, and my credit card; even as I know taxes are a necessity.

Just as with my truck, and with the septic system, money has about when it is needed. It is sweet and touching how many friends have offered me loans. For many of them it is because they don’t want the credit card companies to benefit from my situation. I’ve declined all of their offers for two reasons: 1) if for some reason I couldn’t afford to pay off the debt, I’d rather have the credit card company deal with the risk, and 2) one of the consequences of my father’s death is the prospect of an inheritance that I understand to be about the size of my tax bill. Within the next few months, a check should arrive that pays off the tax part of the credit card bill.

And, of course, I am an optimist – despite, as one friend put it today; “Oh no! You can’t get a break lately!” But I have. I have friends, and hope, and trust that my efforts will eventually (hopefully soon) be compensated.

In the meantime, I have a house, a truck, a full pantry, health, and community. I am bummed that I missed the Monday dance practice, though. Oh well, maybe tomorrow.

PS Did you really read this far? Congratulations, that’s over 2,400 words. I’m impressed. Thanks for being there. – T

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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One Response to Tricky Taxes Trips And Traps

  1. Pattie Beaven says:

    I feel like I’m a cheater when it comes to doing my taxes…my dad’s an accountant….all problems solved!

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