Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
This past week, I finally received my completed 2012 federal and state income tax return documents from the accountant.
In general, the results were very good. However, I feel that by analyzing some of the finer details/numbers, I can better plan for how to approach my tax planning for the 2013 year.
Specifically, the questions I am interesting in answering are as follows:
- How much of my un-taxed income should I be saving each month in order to pay taxes when the time comes?
- Should I use an accountant for filing my 2013 taxes next year?
Let’s get started!
2012 Income Breakdown
- 2.3% from dividends and interest from investments (meaning that I can likely ignore this contribution for planning purposes since it is so small).
- 68% from untaxed fellowship income for my work as a graduate student.
- 29.7% from Schedule C self-employed business income.
After subtracting out the deductible part of self-employment taxes and my contributions to my Individual/Self-Employed 401k account, I arrived at an Adjusted Gross Income (AGI) that was 20% lower than my overall gross income, so that was nice!
2012 Federal Taxes
2012 State Taxes
2012 Total (State + Federal) Taxes
- I paid a total tax amount for 2012 equal to 14.6% of my overall gross income.
- For 2011, I calculated this number to be 17.8%.
2013 Estimated Tax Payment Schedule
Target Question # 1 – How much of my un-taxed income should I be saving each month in order to pay taxes when the time comes?
- To be conservative, I will save 20% (so slightly higher than the 15% and 18% taxes I paid in 2012 and 2011, respectively but lower than the 33% I was saving for last year) of my un-taxed gross income each month in order to pay taxes/estimated taxes for 2013.
Target Question # 2 – Should I use an accountant for filing my 2013 taxes next year?
This got me thinking – does an accountant provide me with enough value to keep using the same one (or different) going forward?
Well, let’s start by first addressing the easy question of using the same accountant going forward. For the past few years, I have been using an accountant 1300 miles away back home in Arkansas because they were tying the payment for my taxes in with my Dad’s business tax return (essentially doing my tax return without much additional compensation). Since my Dad is no longer having business taxes done since he has switched to regular employee income, I have to now pay to use that accountant. Obviously, there is no reason for me to stay with that same accountant since they are 1) charging me and 2) so far away.
So, the question now becomes – do I find a local accountant here in Virginia or just do my taxes myself using Tax Act?
Since I have self-employed income/a home business, my taxes tend to be rather complicated. In addition to standard estimated taxes that I pay periodically, I seem to often have tax-related questions that come up throughout the year as I am reading about various issues related to personal finances. In my mind, it is rather valuable to have a certified tax professional that I can openly ask about these issues. In addition, using an accountant to do my taxes provides me with a certain amount of peace of mind that is hard to put an exact price on. However, the number is definitely higher than the cost of the $151 from the 2012 tax return.
Because of the two considerations discussed in the paragraph above, I will likely start seeking out a local accountant here in Virginia to help with my 2013 taxes based on recommendations of several people I know here in the community. I’ll be sure to share my experiences of screening CPA’s as I go through the process, but I will need to do this sooner rather than later since I will likely need to mail 1099-MISC’s to my staff writers from this site prior to January 31st, 2014 so that they can file their 2013 tax returns on time and I can avoid penalties.
How about you all? What lessons did you learn from your 2012 taxes that you will carry forward in the next year?
Have you ever calculated what % of your gross income you pay in state + federal taxes (this is the first time I have ever calculated a percentage)?
Share your experiences by commenting below!
***Photo courtesy of http://farm4.staticflickr.com/3067/2592570286_b213acd1de_z.jpg?zz=1