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During the last week of tax season, my office received many calls from clients wondering why they were making tax payments with their tax extensions. Many were under the misconception that a tax extension was a way to postpone any tax payments. That is not completely true.
Being that the U.S. government is funded by taxing their citizens, it will do everything in its power to get as much money as possible. So, if you owe tax, the IRS will charge you penalties and interest on any monies owed and not paid. So if you didn’t pay enough in taxes throughout the year and owe money in April, you can be charged penalties and interest on the money that you owe on April 15. If you file an extension, and thus postpone the due date to October 15, you may owe additional penalties and interest on any monies owed for the time between April, the regular tax due date, and October, the extended due date.
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So while you can technically postpone your tax payments until October, you may owe even more than you would have if you had just paid them on time. Paying an estimate in April of what you think you may owe will save you on penalties and interest. The instructions for the 1040 even say you may owe a penalty if the amount owed is more than $1,000 and that it is more than 10% of the tax shown on your return. It also says you will be charged interest on the tax not paid by April 15. Do you really want to give the IRS more than you have to? I know I tend to get mad at myself for having to pay more because I was too lazy to take care of it earlier.
In analyzing my February credit card activity, I was able to incorporate both my hubby’s credit card and my own, allowing me to look at most of the household expenses, as opposed to just my credit card.
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Our cellphone expense was $59.40, which is a little low, considering my normal monthly expense is $45 and his is $25. Since it should be around $70 a month, I expect March’s cell phone expense to be higher than normal.
We spent only $125.45 on food, mostly because I was not home for dinner three to four nights of the week during tax season. My employer provided dinner every Wednesday night, which usually provided lunch the next day as well. I also started relying on those $2.99 frozen meals a few meals of the week when I would forget to pack lunch or dinner.
After a year of a constant puddle of water on our basement floor, my hubby finally went to Home Depot and purchased a sump pump battery and sulfuric acid for $129.58 to repair the sump pump so that it would pump the water out.
Medical expenses were $270.00, which is two monthly payments of $135 on my hospital bill. My January medical expenses were lower than usual because I paid the January payment late, in early February.
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Our meals and entertainment expenses were fairly high at $357.13, mostly because I would either forget or be too tired to prepare my lunches and dinners for the week, and was working 6 days a week. So we would eat out for dinner, thus making our food expenses lower.
There’s a miscellaneous charge of $120 for the deposit on our daughter’s birthday party, which is an irregular charge and will not happen again, other than the remaining balance for the party.
Lastly, the finance charges came to $25.41, bringing the total February credit card charges for our household to $1,474.86. Hopefully March’s credit card activity wasn’t too bad, since I was busy working 28 of the 31 days that month.
I am in the home stretch of tax season, with tax day less than two weeks away. As such, I have finally went through my January 2017 credit card charges to determine if I was able curb my spending with the holidays being over.
Related post: Where Did My Money Go In December?
My fuel cost remained around the same at $43.39. I wait until my tank is near empty, so that I can take advantage of the free coffee with a gas purchase of at least 8 gallons.
My cell phone expense doesn’t change much either, coming to $48.60. Come to think of it, my cell phone monthly expense is around the same as my monthly fuel expense.
As I look at the expenses that are more variable and less fixed, thus I my control, I noticed that my meals and entertainment expense went down from $243.70 in December to $106.47 in January. My clothing expenses also went down to $126.81 from $233.42 in December. I’m sure the holidays were the reason for that.
My medical expenses went down from $410.00 in December to $115.54 in January. As I am currently on a $135.00 monthly payment plan for a hospital bill, plus a couple of smaller bills, I definitely made more payments in December and less in January. I expect that my February medical expenses will be higher than January’s.
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January’s supplies went down by about $100 to $157.01. I replenished a lot of the supplies, like toilet paper and dog food, back in December. Which brings us to the biggest expense category, $651.32 in miscellaneous items, for January. I labeled them miscellaneous because they were irregular charges that probably won’t happen again for a while.
About $300 was for a HP laptop to replace my second hand desktop PC that finally crapped out. The remaining $350 is my 50% deposit for the lawyer that drafted our will. While I initially thought I would use one of those online services, I decided to spend the money and utilize an actual lawyer.
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Lastly, my finance charges went down to $8.77 from $33.04 in December. Adding that into my total January purchases, my total credit card charges for January were $1,257.91. With my total December charges at $1,554.69, I spent $296.78 less in January than I did in December. I was even able to pay off December’s purchases and an additional $600 during January, which is why my January ending statement balance was only $657.91.
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I hope February’s spending activity is on the same downward path as January’s. We will see when I analyze the credit card statement.
Last year, for the first time in my working life, I had to pay taxes in April when I filed my tax return. It was largely attributed to the fact that both my hubby and I did not carry health insurance for ourselves, thus resulting in a health care tax. To prevent a repeat of that scenario this year, I employed four strategies that increased my tax refund.
As a way to decrease our taxes owed last year, my hubby and I made $4,500.00 in IRA contributions right before April 15. Even though we made the contributions in 2016, it counted towards our 2015 taxes, thanks to the IRS’ attempt to foster retirement savings. You’re allowed to deduct your IRA contributions, among other deductions, from your income, in calculating your AGI and taxable income, thus lowering your taxes.
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We’ve done this twice now, for our 2014 and 2015 taxes, both right when we filed our taxes. Rather than waiting until the last moment like I do, you can make small regular contributions throughout the year to ease the cash flow burden it creates in April. Just keep in mind there are IRA contribution limits every year.
The limit for 2016 is $5,500.00 for those under 50, and $6,500.00 for those 50 and over.
When I changed my employer in February 2016, I made a mental note to set up a 401(K) contribution as soon as I became eligible in six months. In the second week of August, I had HR set up my retirement account, and have even increased my contribute rate since then. My hubby also contributes to his 401(K), although at a much lower rate than I do.
401(K) contributions basically lower your taxable wages by deferring a portion of your income to your retirement account. So if your salary is $50,000 a year, and you contribute 10% to your 401(K), which is currently my contribution rate, the wages you put on your tax return is actually $5,000.00 less (10% X $50,000.00) at $45,000 a year, with the $5,000.00 deferred to a future year, when you withdraw the money from your 401(K). As a word of caution, withdrawing from your retirement account, whether an IRA or 401(K), could result in huge tax penalties, so do your research first.
When I started my new job last year, I filled out the W4 in a way that allows the most taxes to be withheld from my paycheck. A W4 is the IRS form that tells my employer how much taxes to withhold from my paycheck. Thus, if I claim on my W4 that I am single with no children, my employer will withhold more taxes than if I claim that I am married with a child.
This ensures that I pay enough taxes throughout the year and don’t owe more when I file my tax return in April.
And finally, when I started my new job, I also picked up health insurance for my hubby and myself, starting in March 2016. We were no longer subjected to the health care tax fine for going without any health insurance that directly added to our taxes in 2015. And while my employer pays for my health insurance premium, we pay out of pocket for my hubby’s portion of the premium, which can be declared as an itemized deduction.
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It’s important to remember that these strategies are not quick fixes. The earlier these strategies are implemented, the better tax position you will be in. While contributing to your IRA can be decided after the end of the year, the other three strategies, contributing to your 401(K), picking single on your W4, and carrying health insurance, have a greater affect when done earlier than later. You also can’t pick up health insurance whenever you want, but you can change your W4 selections and contribute to a retirement account, whenever you want.
To become more consciousness of where my money is going, I created a MS Excel spreadsheet of my December 2016 credit card charges. While it’s not perfectly accurate, it gives me a pretty good idea of where my money went. This includes only the expenses I put on my credit card, and not the entire household. As this becomes a regular habit, I will eventually include the entire household.
I immediately noticed that my fuel was less than $50, which is for my car for the entire month, but not my husband’s. That makes me love my 2016 Honda Civic even more. The $45.00 covers my cell phone for the month as well.
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The $43.07 was at Home Depot for the wall trim to continue my living room renovation and the salt pellets for the water softener.
The $91.28 spent on food is only a portion of our food expense, as my husband normally pays for the food since he usually goes to the grocery store after work when he picks up our daughter from daycare. Since I tend to buy supplies in bulk, the $254.98 includes lots of toilet paper, dog food, and other household items. It should last us a while. And speaking of pets, my old lady cat has been treating the basement like her own personal litter box, so I took her to the vet to assess her health, resulting in a $138.88 bill. I also got the dogs some Christmas presents at the pet store, bringing the total one time pets cost to $152.35. As suspected, the cat is suffering from age related arthritis, and needs to lose some weight, all contributing to her treating the basement floor like her toilet.
Being the holidays, my clothing and meal and entertainment expenses were higher than normal. The $243.70 in meals and entertainment includes treats for my husband and myself, including his Christmas gifts at GameStop, eating out, and leaving work at noon the day before Christmas Eve to see Rogue One. It also includes registering for the Binghamton Bridge Half Marathon in May. I also went to my local Kmart that was in its final days, and bought some clothing and home furnishings, including two rugs, thus increasing my clothing expenses to $233.42.
My medical expenses was the highest expenditure on my credit card, at $410.00. It’s actually a little higher than normal, because I made one of November’s monthly medical payments late, in December, on top of December’s payments.
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And the final charge on my credit card is the credit card interest of $33.04, for a total of $1,554.69 on my credit card. Hopefully January’s charges will be considerably lower, with the holidays over and my hours picking up at work for tax season.