2019 Taxes

[aqb]

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I just finished my second full year as a RPh in good 'ol CA. I got a refund of ~$2k the first year I worked straight out of school. Entering preliminary amounts on my tax forms, it is estimating that I am owing close to $4.5k for the 2019 year. Does this seem accurate? If so, do I just increase my withholdings in 2020 to ease the pain?

Thanks in advance.

 

[confettiflyer]

Yup that happened to me my second year, swing from a $4k refund to a $9k tax bill...back to a $6k refund the following year.

Now that my tax situation is more predictable on an annual basis, I generally know what I owe every year so I check my withholding quarterly.

I opt to withhold more each paycheck, but you can withhold less and mail in quarterly payments. I have unpredictable side income so the additional withholding I do covers that.

If you don’t have side income 2020 will probably be the year your finances settle into a groove...unless you have major life/career changes again.

Good luck!


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[BMBiology]

I just finished my second full year as a RPh in good 'ol CA. I got a refund of ~$2k the first year I worked straight out of school. Entering preliminary amounts on my tax forms, it is estimating that I am owing close to $4.5k for the 2019 year. Does this seem accurate? If so, do I just increase my withholdings in 2020 to ease the pain?

Thanks in advance.

What number is your withholding? How much did you make in 2019? Single?

 

[mentos]

That makes sense since you only worked about half the year the first year and now you're in a higher tax bracket. I think I had 1 on my withholding when I was single and nearly broke even at tax time.

 

[aqb]

What number is your withholding? How much did you make in 2019? Single?

Withholding is 1. I made 130k. Married.

 

[BMBiology]

Withholding is 1. I made 130k. Married.

What is your spouse income? Do you max out your 401 k and HSA? That is a good way to reduce your taxable income.

 

[mentos]

Withholding is 1. I made 130k. Married.

There is a box that says something like "married at higher single rate". When I checked that for both my wife and I, we went from owing a few thousand to getting a small refund the next year.

Make sure to max out your 401ks if you haven't already.

 

[ValeRx]

Withholding is 1. I made 130k. Married.

You should be filing jointly, especially if your spouse doesn't make anywhere near what you do.

 

[confettiflyer]

You should be filing jointly, especially if your spouse doesn't make anywhere near what you do.

I’m hoping they are.

To the OP - finish your taxes this year and look at line 12b (1040).

Divide that by the number of paychecks you get (26 if you’re paid q14days). Look at your federal withholding on your most recent paycheck.

If it’s = or > than your line 12b/26 number, leave it be. If it’s >>>> (probably not since you owe), adjust down. If it’s
If you have spousal income, add up the withholding on both paychecks (assuming they are also q14days).

You’ll have to fudge if you had some one-time tax deductions in 2019 not on 2020.

I personally had to withhold at 4 + $250/paycheck to get it right (I think, I’m guesstimating)


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[confettiflyer]

If you have a spouse that doesn’t qualify for a 401k/403b at work, one of the last things you can do ahead of 4/15/2020 is drop in max $5500 into a spousal IRA. Not sure if that’s an option for you. It probably won’t wipe out your tax bill.


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[Sine Cura]

What is your spouse income? Do you max out your 401 k and HSA? That is a good way to reduce your taxable income.

This is a just an FYI but California does not recognize HSAs so those are treated as taxable accounts, i.e., you technically have to account for interest, dividends and capital gains/losses when doing the state tax return and add back the contributions to your taxable income

 

[aqb]

What is your spouse income? Do you max out your 401 k and HSA? That is a good way to reduce your taxable income.

She makes ~65-70k. I max out my 401k, did not max out HSA - plan on doing that when enrollment opens up again.

There is a box that says something like "married at higher single rate". When I checked that for both my wife and I, we went from owing a few thousand to getting a small refund the next year.

Make sure to max out your 401ks if you haven't already.

I'll look into this, thanks.

You should be filing jointly, especially if your spouse doesn't make anywhere near what you do.

Yes, we're filing jointly.

If you have a spouse that doesn’t qualify for a 401k/403b at work, one of the last things you can do ahead of 4/15/2020 is drop in max $5500 into a spousal IRA. Not sure if that’s an option for you. It probably won’t wipe out your tax bill.


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My wife is a teacher. They have their own set retirement plan so no 401k for her. Both her and I have maxed out our Roth IRA for 2019 at $6000.

 

[confettiflyer]

She makes ~65-70k. I max out my 401k, did not max out HSA - plan on doing that when enrollment opens up again.


I'll look into this, thanks.


Yes, we're filing jointly.


My wife is a teacher. They have their own set retirement plan so no 401k for her. Both her and I have maxed out our Roth IRA for 2019 at $6000.

Hmm..good choice on the Roth, but doesn’t help the withholding problem. We’re now back hunting for deductions/credits and simultaneously increasing withholding to kill the tax bill.

So basically...just pump up withholding, pump out some kids, and start a money-losing business? lol


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[confettiflyer]

This is a just an FYI but California does not recognize HSAs so those are treated as taxable accounts, i.e., you technically have to account for interest, dividends and capital gains/losses when doing the state tax return and add back the contributions to your taxable income

I lump it into other income. I honestly just eyeball it, I don’t really care to get this number exact unless I’m taking a capital loss (hasn’t happened with this market). Just as long as I’m under whatever automated threshold flags an audit.

Actually it’s really just interest/dividends at this point, my HSA is set to buy/hold.


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[genesis09]

If you owe that much, you might have to pay a penalty for under withholding. Federally, there is a hold safe rule, but on the state level, you will have to check.

 

[pezdispenser]

They've completely changed the withholding system, so if you file a new Form W-4 now, you'll have to use the new 2020 form: https://www.irs.gov/pub/irs-pdf/fw4.pdf

On the 2019 and prior W-4, what caught out a lot of people was the check boxes for Single, Married, or "Married, but withhold at higher Single rate." If you're married but both make a decent income, then you were supposed to the check the "Married, but withhold at higher Single rate" box. Otherwise, if you checked the Married box, then your employer would withhold taxes based on the Married Filing Jointly tax brackets but they won't know about the other spouse's income so the tax bracket would be too low. e.g. 130k + 70k = 200k which should be in the 24% tax bracket. But if you both check the Married box, one employer will tax the 130k in the 22% bracket and the other employer will tax the 70k in the 12% bracket, so it won't be enough and you'll owe taxes on your tax return.

Anyway, they've removed this option on the new 2020 W-4 as well as the number of allowances/exemptions system. You can read Publication 15-T if you want to know how to calculate the taxes withheld: https://www.irs.gov/pub/irs-pdf/p15t.pdf

Now they want you to use the online calculator at www.irs.gov/W4App , or the manual worksheet at the end of Form W-4, or there is a checkbox in Step 2 that says "If there are only two jobs total, you may check this box. Do the same on Form W-4 for the other job. This option is accurate for jobs with similar pay; otherwise, more tax than necessary may be withheld". If you do that, your employer will use the higher tax withholding tables on the right side of Pub 15-T page 6.

Personally, I check the step 2 box but I also keep a spreadsheet with all my paychecks, taxes, stocks, etc so that I can calculate my taxes and adjust my withholding if necessary.

 

[dblock05]

You live in CA and you've maxed out 401k (19k) and also both did a roth IRA at 6k/each?

Also, if you work for CVS, you can start contributing to your HSA at anytime through myhr.

 

[aqb]

So basically...just pump up withholding, pump out some kids, and start a money-losing business? lol

We do have our first baby due in June, does that count yet? Ha.

You live in CA and you've maxed out 401k (19k) and also both did a roth IRA at 6k/each?

Also, if you work for CVS, you can start contributing to your HSA at anytime through myhr.

Yup, I max out both. And I also work for CVS, never knew that I could contribute anytime. Thanks!

 

[mentos]

We do have our first baby due in June, does that count yet? Ha.


Yup, I max out both. And I also work for CVS, never knew that I could contribute anytime. Thanks!

The child tax credit is only $2,000 per child. Idk why everyone says to have more kids to save on taxes. $2,000 might cover some diapers, not much more.

Definitely max out HSA as well. I don't work for CVS anymore and my current employer doesn't offer HDHP so I can't contribute to HSA unfortunately. My old HSA from CVS has like $24,000 in it though from the investments. If I put that money in FSA instead it would all be gone.

 

[confettiflyer]

We do have our first baby due in June, does that count yet? Ha.

Congrats! Not yet, but he or she will be a $2000 tax credit next year, and that opens up deductions or dependent care flexible spending (if offered by cvs) if you need to pay for child care.


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[mustang sally]

Yep, if you are going to use daycare for the new baby, try to get the dependent care flex spending if you can. $5000 you can get off of your taxable income right there.

 

[EMdoc10]

Early 30s single employed attending physician. Feel like I'm paying tons in taxes, trying to figure out what else can be done to lower taxable income.
-Maxing out 401k, 403b, and state retirement plan
-Already deducting federal and state taxes (10k max), mortgage interest, and charity

-Backdoor ROTH @6k/y

-Paying at least 17-18k/y on med school loan interest, but sadly cannot deduct due to income restriction 🙁
-Apparently work medical insurance (which I haven't really needed, thankfully) is low deductible, so no HSA offered to maximize and deduct 🙁

Looking for ideas. What am I missing? Thanks.

 

[ValeRx]

Early 30s single employed attending physician. Feel like I'm paying tons in taxes, trying to figure out what else can be done to lower taxable income.
-Maxing out 401k, 403b, and state retirement plan
-Already deducting federal and state taxes (10k max), mortgage interest, and charity

-Backdoor ROTH @6k/y

-Paying at least 17-18k/y on med school loan interest, but sadly cannot deduct due to income restriction 🙁
-Apparently work medical insurance (which I haven't really needed, thankfully) is low deductible, so no HSA offered to maximize and deduct 🙁

Looking for ideas. What am I missing? Thanks.

You may not be able to lower your taxable income and end up having to have to add extra withholding.

 

[metallideth]

Early 30s single employed attending physician. Feel like I'm paying tons in taxes, trying to figure out what else can be done to lower taxable income.
-Maxing out 401k, 403b, and state retirement plan
-Already deducting federal and state taxes (10k max), mortgage interest, and charity

-Backdoor ROTH @6k/y

-Paying at least 17-18k/y on med school loan interest, but sadly cannot deduct due to income restriction 🙁
-Apparently work medical insurance (which I haven't really needed, thankfully) is low deductible, so no HSA offered to maximize and deduct 🙁

Looking for ideas. What am I missing? Thanks.

Do you have access to a 457 plan at work? If so you can also decrease taxable income by contributing to it. The typical yearly max contribution is the same as the 403b/401k.

 

[ValeRx]

We refinanced student loans. The 5.8% federal loan was too much to make progress.

... I did the same thing and we're already getting screwed. Federal loans are already on hold... and most pieces of legislation I've seen only offer relief to federal student loans, not private.

 

[mentos]

... I did the same thing and we're already getting screwed. Federal loans are already on hold... and most pieces of legislation I've seen only offer relief to federal student loans, not private.

What relief would a pharmacist get?

 

[ValeRx]

I think hes referring to PSLF and any covid related loan reduction for heath care workers.

Yep!

 

[EMdoc10]

Do you have access to a 457 plan at work? If so you can also decrease taxable income by contributing to it. The typical yearly max contribution is the same as the 403b/401k.

457 is my state retirement plan. Already maxed at 19k in 2019.

 

[radio frequency]

Let us know if you find anything. Pharmacist / MD couple here and we pay an insane amount of tax as well.

We do the 403b, HSA, Roth (backdoor). Spouse is able to contribute the 54k max via his work, but I am not.
We'd save ab 5k in tax is I could put away more in a 457b plan but my job doesn't offer it.

We are looking into solar because that's a big tax credit, but would still add expenses monthly and if we moved wed be stuck with the payments.

We refinanced student loans. The 5.8% federal loan was too much to make progress.

Why not pay cash for solar? Then payments aren’t an issue. The payback is better without loans.

 

[radio frequency]

Early 30s single employed attending physician. Feel like I'm paying tons in taxes, trying to figure out what else can be done to lower taxable income.
-Maxing out 401k, 403b, and state retirement plan
-Already deducting federal and state taxes (10k max), mortgage interest, and charity

-Backdoor ROTH @6k/y

-Paying at least 17-18k/y on med school loan interest, but sadly cannot deduct due to income restriction 🙁
-Apparently work medical insurance (which I haven't really needed, thankfully) is low deductible, so no HSA offered to maximize and deduct 🙁

Looking for ideas. What am I missing? Thanks.

Will you qualify for PSLF at least?

We could. But wanted extra cash around in case market slump 2.0 occurs, which at this point may never happen

Time in the market beats timing the market.

 

[EMdoc10]

Cant 457 go up to 54k total?

Not that I know of...

Retirement Topics 457b Contribution Limits | Internal Revenue Service

Retirement Topics - 457(b) Contribution Limits

www.irs.gov