Anybody have any last minute tax tips. Halfway through 2001, my wife and I made the transfer from poor graduate students to DINK’s (double income no kids). Because we have no kids and no house, we have nothing to claim. But we owe $3200 and I don’t really want to pay this because it wipes out all of our short term savings and my job is possibly on the line. Any ideas on how to cut down this amount? The only other thing I can think of is that we had Webvan stock and the company filed bankruptcy (Isn’t there something about worthless stock?) Any help would be appreciated.
At this point you’re screwed. Do a little more planning with your W4. If you’re not going to have the money taken out of your paychceck prior to you getting it, then set up another account that you deposit the money into and DON’T TOUCH IT. Then, when you file, if there’s anything left over it’s yours.
You can write the WebVan stock off if it is worthless but it will be a capital loss and you, therefore, will get to deduct it only to the extent of capiatl gains plus $3,000 per year with the rest carried over to subsequent years. Don’t whine about no deductions though! Until our tax rate goes over 100%, you are better off paying more in taxes at a maximim rate of 39% than in having more deductions which cost you a minimum of 61% out of pocket after you tax deduction. Correct your W-4 for 2002 so you won’t be in the same situation this time next year. BTW, you may get hit with penalties and interest this year too. Welcome to DINKland!
You can file and extension and also arrange to make payments. I forgot what form you need to file, all the info should be in the handbook .Worthless stock is just that, worthless stock.
PS. If you and your wife have not fully funded IRA’a for 2001, you can do so until 4/15. Depending on your tax rate, that could save you a couple grand in taxes although you won’t have the IRA money to spend until age 59 1/2 without incurring penalties.
I’m no expert on tax law, but I do believe you can take a deduction for a capital loss – you would have to sell the Webvan stock at a loss to take the deduction though. Unrealized gains and losses don’t affect your tax bill. You can also get deductions for charitable contributions, but only if you’re doing line-item deductions and not doing the standard EZ form. Go talk to an H&R Bloch or some other similar low-cost tax-advice place to get the real scoop. Bottom line is the government takes too damn much money anyhow.
You and your wife should file separately. My wife and I used to file jointly and would always get reemed. Then we filed separately and it saved tons of money. Bring your paperwork to a good accountant and I’m sure they’ll be able to figure out what to do about that worthless webvan stock.
Thanks for the tips guys. I figured that we were going to get screwed and I have made the appropriate adjustments for 2002. Since I don’t have any capital gains (didn’t sell anything last year), I’m assuming that I should wait to claim the worthless stock next year. Now regarding the IRA, I have heard this metioned, but will this only save me the tax dollars that I would have had to pay on the $2000 per IRA or would this save me even more? Thanks again guys!
Yes, you probably can write the Webvan stock off. What I would do, is invest in a good Tax specialist. And do file for a extension! ASAP!!!
Also check out the IRS's website - which does have a ton of info that may be helpful. Maybe even invest in some type of software that handles taxes.
Avoids is right you can take the $3,000 stock loss this year. That should help get your amount owed down to $2,100ish. IF you are not in a 401k start one, you can SAVE up to $10,000 a year PRE/ BEFORE taxes (some company’s match the first $2K or $3K). Turst me, when they take it out BEFORE taxes you will not notice it !! Don’t touch it until you need cash for a down payment on a house.(IF you are the Jason from Mt View it may take a few years)
Sorry for your situation. The advice from those above is good, but the long term solution is to stop being an employee. The tax code is written to benefit politicians and their contributors – not employees. Figure out a way to incorporate, and start writing off your expenses and then pay taxes on what is left. What you do now is pay taxes on all your money, and try to cover expenses with what is left. Not the way to go.
Same thing happened to me 2 years ago. DINK, paid like $2000 in taxes. I maxed out contributions to my IRA and that helped some. What really helped was to change the W4 and to buy a house - the next year they paid me $1000. (Although having a house is really expensive - I didn’t really save any money). Just think of what happened this year as a dose of reality and vow to change for next year.
Regarding tax software, I’ve used Turbox tax for 199 and 2000, but switched to TaxCut this year. I don’t like Taxcut at all and would definately recommend Turbotax. Tonight I will go back and try to file separately. Thanks again for the tips. Any thoughts on the previous IRA question? I gotta go work out. I’ll be back tonight.
The IRA contribution will only be a deduction from your income earned, so, yeah, it will only save you that money – unless it were to move you to a lower tax bracket. BTW, a Roth IRA wouldn’t save you anything this year, but is probably a better bet in the long run – maybe look into making a regular IRA contribution this year and rolling it over when you have more available cash.
As a consultant (read self employed) I have an SEP IRA. Anything on the front side of your 1040 is a dollar for dollar deduction (reduces your income by that amount). If either of you meet the requirements for a Self Empolyment Pension (SEP), go for it. These plans allow you to contribute 15% of your before tax income or $30,000. Which ever is less.
Check it out, you still have time.
Thanks for the tip. I’ve got the money and I’m ready to pay, but I would love to pay less, so I’ll take a look.
Jason, as long as your annual income(With your wife’s help) isn’t above 64,000, then the full $2,000 can be written off.
Like someone else mentioned, a Roth IRA is definately the way to go, in planning for the future.