Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

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Topic Author
kurious
Posts: 79
Joined: Mon Nov 07, 2016 12:39 am

Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by kurious »

Hello Bogleheads,

We used TurboTax to do our return and found we owe over $4000+ (inclusive of a small underpayment penalty) plus on federal taxes and get a small refund (around $150) on state (MA) return. Is such a scenario common?

This is the first time we have such a large tax bill.

Our tax situation was pretty straight forward last year:

1. 2 salary earners with MAGI of $160k plus. No other incomes.
2. TurboTax says we owed about $22k in taxes and paid about $18k.
3. We claimed the standard deduction.

Does it make any sense to pay TurboTax or someone else to explore avenues to reduce our tax bill?

We had the following events last year:

1. Bought a home in India (we are Indian citizens) for $50k but didn't avail any loans.
2. Moved apartments within the city
3. Had parents visit us for a couple of months and we paid for all their expenses
4. DW lost her work permit and left the country for the last quarter.

We used TurboTax to explore but couldn't find any additional tax breaks that apply to us. Before we go ahead and accrue a sunk cost, just wanted to reach out to the wise women and men on this forum for advice.

Thank you.
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gmaynardkrebs
Posts: 2128
Joined: Sun Feb 10, 2008 11:48 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by gmaynardkrebs »

I learned a lot from JK Lasser.
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by codedude »

kurious,

Your tax seems reasonable.

The only thing I can think of that will reduce your tax bill now for 2018 is if you had a high deductible plan and did not contribute the max allowed.

For 2019 you can try maxing out 401ks, Roth IRAs if not doing currently.

You mentioned buying property overseas. Do you have overseas bank accounts? If so you may have to file FBAR if the value is over 10k (please check actual IRS rules).
nolesrule
Posts: 1690
Joined: Thu Feb 26, 2015 10:59 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by nolesrule »

Much of your underpayment was probably due to not properly adjusting your withholding when the withholding tables changed. We had to double our additional withholding in 2018, even though our taxes went down.
lakpr
Posts: 6066
Joined: Fri Mar 18, 2011 9:59 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by lakpr »

Latest guidance from IRS suggests that as long as you paid at least 80% of the tax bill for 2018 through withholdings, there is no penalty. I suggest you ignore the penalty and just send the payment due to IRS before April 15th (80% of $22k taxes = $17.6k, I believe you said $18k paid)

As far as suggestions to lower your tax bill, if you have NOT participated in workplace 401k (for either or both of you), you have an opportunity to open an individual traditional IRA for $5500 each, total if $11,000; taxes reduced by $2300 (22% of $11000) which might just wipe out the underpayment. But the time is very short, just one week, run to your local bank and do it right now.

Since you said you are Indian citizens here on work permits, I think it is a high likelihood you haven’t contributed to workplace 401k.

Once 2018 taxes are taken care of, you can convert the traditional IRA to Roth IRA (what races you escaped in 2018 you would need to pay back for 2019). But after leaving the converted funds in the account for 5 years, you can withdraw entire balance with no penalty. Taxes are due again on the EARNINGS portion alone, if you are below age 59.5 at the time of withdrawal, if you are over that age no taxes due either.

Hope this helps.
Last edited by lakpr on Mon Apr 08, 2019 8:59 am, edited 1 time in total.
lakpr
Posts: 6066
Joined: Fri Mar 18, 2011 9:59 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by lakpr »

Wanted to make a separate post to emphasize: increase your withholding at workplace NOW. IRS won’t be generous for 2019
feehater
Posts: 211
Joined: Fri Jul 14, 2017 10:14 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by feehater »

If you've already put the numbers into turbotax and gone through all the "interviews" in its software, then I think you are pretty close to your final number. Are you thinking that paying extra for their "talk to a live cpa" product will turn up new and significant savings?
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RickBoglehead
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Location: In a house

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by RickBoglehead »

kurious wrote: Sun Apr 07, 2019 8:34 pm Hello Bogleheads,

We used TurboTax to do our return and found we owe over $4000+ (inclusive of a small underpayment penalty) plus on federal taxes and get a small refund (around $150) on state (MA) return. Is such a scenario common?

This is the first time we have such a large tax bill.

Our tax situation was pretty straight forward last year:

1. 2 salary earners with MAGI of $160k plus. No other incomes.
2. TurboTax says we owed about $22k in taxes and paid about $18k.
3. We claimed the standard deduction.

Does it make any sense to pay TurboTax or someone else to explore avenues to reduce our tax bill?

We had the following events last year:

1. Bought a home in India (we are Indian citizens) for $50k but didn't avail any loans.
2. Moved apartments within the city
3. Had parents visit us for a couple of months and we paid for all their expenses
4. DW lost her work permit and left the country for the last quarter.

We used TurboTax to explore but couldn't find any additional tax breaks that apply to us. Before we go ahead and accrue a sunk cost, just wanted to reach out to the wise women and men on this forum for advice.

Thank you.
1) Has no impact on taxes.
2) Has no impact on taxes.
3) Has no impact on taxes.
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Topic Author
kurious
Posts: 79
Joined: Mon Nov 07, 2016 12:39 am

Re: Got a large tax bill, is it worth paying TurboTax etc. for tax break research?

Post by kurious »

I learned a lot from JK Lasser.
I checked it out briefly. Appears quite informative. I will likely study it going forward.
The only thing I can think of that will reduce your tax bill now for 2018 is if you had a high deductible plan and did not contribute the max allowed.
I don't think we have one. Have written a note to the HR.
Latest guidance from IRS suggests that as long as you paid at least 80% of the tax bill for 2018 through withholdings, there is no penalty. I suggest you ignore the penalty and just send the payment due to IRS before April 15th (80% of $22k taxes = $17.6k, I believe you said $18k paid)
We did pay $18k+ . I will double check the numbers and if we paid more than 80%, we will not pay the penalty.
Much of your underpayment was probably due to not properly adjusting your withholding when the withholding tables changed.
This is the likely explanation. I started studying this forum three years ago when starting my job in this country. Since then, we've tried to be close to 0 refund. Last year, we owed about $1500 and had a refund come our way the prior year. We didn't update the W4s after the tax changes.

I entered mock numbers into TurboTax in January and saw we were due a small refund. I suppose the entered numbers were somewhat off and we have thus been hit by the bill.
I think it is a high likelihood you haven’t contributed to workplace 401k.
We did, actually. I maxed mine out and DW got to about ~14.5k.
Wanted to make a separate post to emphasize: increase your withholding at workplace NOW. IRS won’t be generous for 2019
I actually lowered witholdings further. We will likely leave the country next month and I've managed to max out my 401k for 2019. I'll be filing MFS (DW is now a tourist) and claim Saver's credit. MAGI will likely be $30k - $40k.
Are you thinking that paying extra for their "talk to a live cpa" product will turn up new and significant savings?
That's what we were thinking about. The opinion here seems to be against using that service. If they can't help reduce the tax bill, we don't really see how they'll add value. We've been filing taxes on our own for several years given the simplicity of our tax situation.
1) Has no impact on taxes.
2) Has no impact on taxes.
3) Has no impact on taxes.
Thank you for confirming
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