I wrote on Wednesday about the “fun” surprise that we owe on our taxes this year.
After I talked to my father-in-law, he suggested seeing if filing separately might work better for us than filing jointly. He said it doesn’t often gain a married couple much, if anything, but occasionally it’s the right way to go. (This blog post from SmartMoney.com talks about a few reasons it might be smart for a married couple to file separately.)
So, last night, I re-opened TurboTax and filed a separate tax return from Ben and myself.
Trying out “Married, Filing Separately”
When we file separately, Ben is scheduled to get a Federal refund of $13 and to pay the State $50.
When we file separately, I am scheduled to owe the Federal government $550 and the State government $210. (Yes, it looks like my taxes are the problem child this year…)
If you do that math, that’s a total of $797, which is $117 more than we owed filing a joint tax return.
Good to know.
Why was filing separately more?
It turns out that when you’re married and you file separately, you can’t deduct interest paid to student loans, which is (sadly) a large chunk of what I deduct every year.
I also didn’t make enough by myself to have contributed $1,300 to my Roth IRA, so if we decided to go ahead with filing separately, I would have had to withdraw a significant chunk of my retirement investment this year. Yikes.
What’s the plan now?
Having talked to my father-in-law and my aunt, and gotten their two cents on our situation, I decided to go ahead and file without having our taxes re-checked. There’s really no two ways about it, we owe $680 in taxes. So, we’ll proceed with the plan outlined in Wednesday’s post: pay the taxes with our emergency fund and rebuild it over the next two months with highly focused saving.
My goal is to have our emergency fund back up to full by the tax deadline, April 17, 2012.
What about next year?
If the withholding from my paychecks was so low this year, it made me want to consider that it might be too low next year, too. I want to make sure that we don’t end up owing too much next year, or at least be prepared for it if we do.
There are really two options.
Option 1: Figure out what our taxes should be for 2012 and have extra withheld from each paycheck.
Option 2: Figure out what our taxes should be for 2012 and set aside extra savings to cover the theoretical difference.
(Edited to Add: There’s actually also a third option, “Figure out what our taxes should be for 2012 and pay estimated taxes throughout the year.” I’m not actually sure how this works, so I’ll have to do a little more research before I try to explain it)
TurboTax supposedly has a way to estimate 2012 taxes based on your 2011 tax return within the TurboTax 2011 software, but I have yet to explore how it works. In the mean time, I found an online calculator to do a rough estimate of our supposed tax payment or refund for 2012.
Next year we’ll have twelve months of mortgage interest payments to deduct (assuming we itemize), plus whatever tuition costs for the Fall 2012 school year. According to the calculator, because of the mortgage and the tuition payments, we should get around $1,000 back.
It doesn’t look like I have to update my W-4 just yet, or open a new ING Direct savings account, but I’ll run the TurboTax calculations this weekend and figure out how accurate the online estimate is.
