I finished my tax returns last night. I ended up using TurboTax, and it definitely made the process simple. I’ll probably use it again next year, even though I anticipate that next year, my return will be even easier, with only having to file one state return instead of two. I plan to efile, just to be done with it, even though there is an additional fee to efile.
I was delighted with how my federal tax return played out. Moving across the country for a new job meant a huge deduction, and I am getting a nice chunk of cash back from the federal government.
Then I did my two state returns.
And I owe both states a not so nice chunk of cash. More than the federal return, in fact.
I can’t say that this is entirely unexpected. I have investment income from mutual funds, as well as interest income. Even though I may reinvest the interest and dividends on the mutual funds and never actually see the money, it is still income, so I shouldn’t be surprised that I have to pay all these additional taxes.
Seeing those numbers made me cringe. I’ve been working so hard to really tighten my budget and be able to put more money into my savings. (I tend to “ignore” my investment income – it’s there to grow, not to be spent, at least not at this point.) Paying these taxes was going to put a huge dent into my day to day savings account.
And then I realized I was just being silly with all these rules I’ve set up for myself of what I can and can’t spend. I have a money market account tied to my investment accounts where CD interest is dumped. I’ve mentally earmarked that as my emergency fund, but really, it’s got almost 10 months of expenses in it right now. Since it’s thanks to investment income that I owe these taxes, why don’t I pay the taxes out of the investment income? It’s the obvious solution.
I think the lesson here is that sometimes we set up all these financial rules for ourselves in order to keep us on track, and we end up focusing so much on the rules that we miss the big picture.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.