I wrote about my $15,000 tax bill on this post and I’ve been conducting an autopsy on how my money got murdered in the brutal manner that it happened.
Preparation
Review Documentation: I took a look at all my W-2’s, brokerage accounts, bank accounts,real estate business records, taxation records from various jurisdictions. I confirmed all documentation was in order.
Inspect the Body (tax filing): The tax filing’s condition was immaculate and pristine, aided by the fancy work of TurboTax. The body contained dozens and dozens of worksheets and other forms complete and accurate.
External Examination: The filing showed signs of trauma in the midsection from blunt force from an unknown source.
Internal Examination:
Body Cavity Access: All organs intact, no unusual or suspicious findings.
Thoracic and Abdominal Cavities: No unusual findings.
Organ Removal and Examination: Each organ in perfect condition, well documented and appropriate for the situation. Heart, lungs, liver, spleen, kidneys, and gastrointestinal tract in perfect condition. No Sign of disease.
Head Examination: Key issue found, head was not used properly!
Key Findings:
Here is where my tax bill went off the rails:
- Medicare Surcharge (0.9%) – The 2010 ACA added an additional Medicare tax for high income earners. The percentage of Medicare tax was raised from 1.45 percent to 2.34 percent for people with an earned annual income of more than $200,000 ($250,000 for married couples filing jointly).
One issue here is that the medicare surcharge tax applies to ALL income over $250,000 and our employers did not deduct any amounts for this so we were on the hook for this.
- IRS penalty for underpayment – Because we underpaid our taxes, we had to pay a penalty!
- Interest charged at 32% tax rate – We had too much cash earning interest that was essentially all taxed at 32% tax rate. This could have been saved by having money invested in qualified dividends or even better municipal bonds earning tax FREE income.
- Capital gains – Due to some large expenditures in 2023, I cashed out some company stock and had to pay 20% capital gains tax.
Remediation Actions:
I have come up with a nefarious plan to reduce my taxes by 30% to 45% but that’s a post for another day.