I did our taxes over the weekend, using TurboTax. As I have for the past two years (we got married in 2009), I opted to do our taxes “Married, Filing Jointly.” By the time I was done, TurboTax said that if we filed now we would owe $680 in both Federal and State taxes.
Ouch.
Okay, granted, $680 isn’t a lot in the grand scheme of things, but this is the first year of our marriage that we’ve owed taxes, and the first year that I’ve owed taxes since working as a freelance stagehand in 2007. Needless to say, I was taken by surprise, since I didn’t think that much had changed between 2010 and 2011.
So You Owe Money on Taxes. Now What?
If you find yourself owing more on taxes than you were expecting, there are a few options.
Option 1: Get someone to re-do your taxes to make sure they’re accurate
If you weren’t expecting to owe money on your taxes and you don’t think that much has changed between this year and last year, it might be worth it to take your taxes to someplace like H&R Block and have them double-check your numbers.
The downside: If you don’t have a simple tax return, this can add up.
If, for example, you own a home and have investments, both TurboTax and H&R Block will recommend their “Deluxe” tax preparation package. Having decided to go the DIY route first, you’ve likely already paid $29.95 for TurboTax. If you then decide the help available from TurboTax isn’t enough and go somewhere like H&R Block, you’ll pay an additional $29.95 to have them double-check your tax documents.
Again, $60 isn’t a lot in the grand scheme of things, but having to pay twice for the same thing can be frustrating.
Option 2: Use your emergency fund to pay Uncle Sam
This is why you have an emergency fund, right? Using your saved money to pay your taxes instead of someone else’s money at 15% interest is almost always a good idea.
The downside: As soon as you use your emergency fund, you have to replenish it, or you won’t have it the next time you need it. That usually means putting other saving/debt payoff plans on hold until the emergency fund is back up to “full.”
Option 3: Save aggressively to be able to pay the bill by April 15, 2012
If you have extra money to put aside (which you should, if you’re living below your means), and if you can cut back on some of your discretionary spending for a few months, you might be able to save up enough to pay your tax bill without dipping into your emergency fund or other savings.
The downside: You have to stop saving toward your other goals for a few months and possibly cut back on some spending in order to make the deadline. Doing so can be frustrating, especially if you’re used to living with a little cushion in your spending.
What we’re going to do
So we owe $680. Which of the three options are we going to choose?
Well, our tax preparation software was free (don’t ask; it’s a long story), so if we decided to go with Option 1, getting our taxes double-checked somewhere like H&R Block would only cost us $29.95 for the Deluxe package, plus whatever it costs to file State taxes (I believe Federal e-file is free at H&R Block). That doesn’t seem too bad, and there’s an H&R Block right across the street from our new place.
But if H&R Block comes back with the same answer I got, we have to consider either Option 2 or Option 3 as a fall-back plan.
Conveniently (sort of), recovering from Option 2 looks a lot like the plan to accomplish Option 3.
At our current savings rate ($425 a month), we would be able to replenish our emergency fund or save enough to pay our taxes in 1.5 months. Consider we have a little more than two months until our tax bill is due, that would give us plenty of time to get everything sorted out.
So, now we have a plan: Take our taxes to H&R Block, see what they say, and then figure out where to go from there.
Although… before I make the H&R Block appointment, I should probably call my father-in-law, who (Ben just reminded me) used to work at H&R Block. If I can get his opinion on our tax situation, maybe I can skip making the appointment after all.
The new plan: Call my father-in-law, get his opinion on our taxes and whether we did anything wrong, or could do anything differently to minimize how much we owe. Once we’ve had that conversation, figure out what the next step is.
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