Mo’ Money, Mo’ Taxes: How a Surprise Tax Bill Set me up for Future Success



        Hey All, today I have a special guest feature from Finance G.Y.L.T. (Getting Your Life Together). As a part of my blog, I host a segment called the Bounce Back. The point is to show that we all make mistakes that hurt us financially but instead of giving up or accepting it as is, you can take action and Bounce Back!
  • Finance G.Y.L.T. is a 30-something Millennial currently working towards financial freedom. I want to thank her for being so gracious to share her "Bounce Back" story with us. Hopefully, you are able to learn from her misstep through the actions she took and are better prepared/more aware in your own financial journey. If you are interested in following Finance G.Y.L.T.'s journey be sure to follow her on Instagram @financegylt.
-------------------------------------------

 I was living a lie, y’all. A honest to goodness charade of my own making.

        Not the Lifetime movie type of lie where the antagonist has two families in different cities and is shocked when they get caught. But the kind of lie where your own blissful ignorance comes to bite you in the butt and you have no one to blame but yourself.

What was the lie you ask? That I made more money than I actually do.

           Now how could I mess that up? A simple unchecked box on my W-4 is the culprit in my tale of self-sabotage. My take home pay was too high and Uncle Sam was not playing on getting his cut. But, there is more to the story. I promise I am not as absent-minded as I may seem.

        2020 has thrown everyone for a loop. We have experienced a whole year in a matter of months with the pandemic, protests, a tanking economy, and presidential elections are looming ahead. But when I think back on the past several years, my whole life has been marked by huge changes every year since 2017. Below is a summary of my major life events in recent years:
  • 2017 - My forced resignation from a toxic job in June (good riddance). My soon-to-be hubby lost his toxic job in July. We got married in August. We both remained unemployed the rest of the year. (I know. A lot.)
  • 2018 - I started a new job in January (consultant that travels so I could live anywhere). We moved to a new city in March for hubby's new job.
  • 2019 - I started a new job in March. Hubby lost his job in October (another toxic work environment. Sigh). 
  • 2020 - Hubby started a new job in January but lost it in April due to COVID-19. He just started a new job this week!
        For context, we are a black married couple, dual income no kids (yet) in our mid-30s living in a moderate cost of living city. I have a Master’s degree and he has a Doctorate degree.

        So if you weren’t counting, that’s 7 jobs between my husband and I in the last four years, on top of getting married and a cross-country move. I am tired just typing all of that. How the heck did I get through it?! All of these changes have had huge implications for our tax burden, our budget, and how and when we will reach our financial goals.

        Through all of the job changes, we submitted new W-4s and filed our annual taxes as usual. When we got married, we filed “married but separate” because I had way more student loan debt and we didn’t want our combined income to mess up our income-based repayment (IBR) amount. Don’t even get me started on how IBR for federal student loans is a scam over the long term. But I digress.

        Fast-forward to the Saturday before the July 15 tax deadline. Yes, even with an extension due to the pandemic I managed to wait until the last minute. I was online using TurboTax to plug in my information to see what my final taxes return would be. I didn’t expect to get money back but I also didn’t expect to owe more than a couple of hundred dollars, definitely less than $1,000.



Imagine the gut punch I felt when I saw that I owed $4,930 dollars in federal taxes!

        Take me to the King! This is too much. Of course my first thought was that I had entered some W-2 information incorrectly. I triple checked that, and no change. I started to panic a little. But then I remembered that TurboTax offered a CPA consultation online for an additional price. At this point, it couldn’t hurt. I knew I was going to have to pay but I wanted to understand why I owed this much and how to avoid this next year.

        So I made the online appointment with a CPA to give me a call. In a 20-minute video chat, this kind woman broke down my numbers, walked me through the calculations, and showed me the error of my ways. Where had she been my whole adult life?!

        I work in operations management, so I am very results-oriented and use a process improvement framework for everything, even in my personal life. Below is my breakdown of the steps I took to understand my error, what tools I used, what actions I took to rectify my mistakes, my action plan for the future and the retrospective earnings I took away from this experience.

Root Cause Analysis

**Please use this link for the IRS Online Tax Withholding Estimator

Course Correction

 

Lessons Learned

        If you couldn’t tell by the numbers I have been mentioning, I make a good six figure salary (less than $170k). I have come a long way from my $52k salary coming out of graduate school. But even with this great salary, this situation made me realize my mindset was one to two income brackets behind where my actual gross income falls. And my actions reflected that mindset. In retrospect, I should have talked to a CPA years ago when I had my first major increase in salary. I plan to consult a CPA regularly going forward with my husband, especially when one of us changes jobs.

        We tend to focus solely on getting promoted, getting the fancy job title, and getting the pay increase, but neglect to level up our knowledge on how to manage our new income. A large contributing factor is lack of exposure. I thought only celebrities and business owners had CPAs. I have friends from college who are CPAs, mostly at large firms. But yet and still, it never occurred to me that I was the high-earner individual that needed a CPA.

        And that’s why I am sharing my failure and the specific steps I took to address it. I want other women to learn from my missteps and recognize when they hit a new level in their career and income. So they can level up their thinking and financial planning knowing the key resources to seek out and concrete actions to take.

        My earning potential is very high. Couple that with my husband’s six figure salary and earning potential, and our future looks very nice. But I wish I knew all of this coming out of graduate school. We could be so much further along in our journey to financial freedom. So I hope you take something actionable from my story, no matter what your current income is. You won’t be at this salary forever. So prepare for your inevitable success!

        As much as it pained me to use my emergency fund to pay this tax bill, I am grateful to have learned this lesson now at this income level rather than when I am making two to three times more income, resulting in a higher penalty. The higher we go in our careers and income, the more costly ignorance can be.

And if I take away nothing else, my greatest lesson is to read more carefully and CHECK THE DAMN BOX!


If you liked this article be sure to join my e-mail list. You can also follow me on Twitter and Instagram. Let's connect and keep the conversation going!


Comments

  1. Awesome read! It’s crazy how something as little as not checking a box can turn into such a huge deal

    ReplyDelete
    Replies
    1. Thanks! That little check box is no joke.

      Delete
  2. This was such a good read. It’s worrying that such a small thing can cause so many problems, but it’s amazing the lessons taken from it!

    ReplyDelete
    Replies
    1. Thanks for reading! Grateful for the ability to recognize the lessons and make the necessary changes.

      Delete
  3. It is very valuable that you share your experience.

    ReplyDelete
    Replies
    1. Glad my experience was helpful!

      Delete
  4. First off, it was great to read that you were able to leave toxic environments and get new jobs! Secondly, that was crazy about the tax experience. Does your CPA help you budget for the entire year now too and not just to keep your taxes on track? I loved the positive mindset vibes that were written in bold!

    ReplyDelete
    Replies
    1. Thanks for reading! So happy to in better places in our careers. Still looking for a dedicated CPA. I would think they would help us to decide the most tax efficient way to set up our W-2 for 2021. I also have some tax questions about some work stock options.

      Delete
  5. This was an amazing read! I thoroughly enjoyed reading how you and your husband left toxic work environments, seeing as thoigh I recently left my previous school (I teach, if that wasn't clear.) for that same reason. It is absolutely crazy to me that not checking a box left you with such a huge debt owed. I also do concur that IBR is a scam. I am happy that you were able to rectify the situation. Thank you for this information! It has been very insightful!

    ReplyDelete
    Replies
    1. Thanks for reading! It's amazing how much better it feels to be on the other side of a toxic job. Kudos to you for leaving a toxic work environment as well. When you are in it, you don't see how bad it really is. I need a whole other blog post on IBR. Smh. But you live and you learn. Count it all joy!

      Delete
  6. Thanks for reading! It's amazing how much better it feels to be on the other side of a toxic job. Kudos to you for leaving a toxic work environment as well. When you are in it, you don't see how bad it really is. I need a whole other blog post on IBR. Smh. But you live and you learn. Count it all joy!

    ReplyDelete

Post a Comment

Popular posts from this blog

3 Financial Numbers Every Adult Needs to Know

5 Easy Ways to Lower Your Monthly Expenses From Your Couch