I’m still pretty baffled by tax code. In my most focused moments I can be found following links to read about tax opportunities that work best for the early retiree lifestyle. Luckily the authors and bloggers that direct me to these sites usually clearly explain the premise of the idea before I reach the IRS page so I am not overwhelmed by the jargon. But with my own W-2 soon to be posted I wanted to be prepared for my first tax season, which will be in some ways easier and in others more difficult than previous years. This year is easier in that it is the only one where I have paid taxes and held only one job at one company with no gaps or unemployment. It is more difficult because as a result of my Roth IRA mishap last spring I have a few hundred dollars of money in a taxable account. Since it is a Vanguard Target Retirement Fund it includes both stocks and bonds as well as domestic and international versions of both, which all create some added complexity.
Originally I was planning to use this refund to offset my income since about 75% of it is going towards my 401K, HSA, insurance and taxes during the next 6 months in NYC. I calculated being able to pay for everything based on my current budget, cover the month after I quit my job and even have about $600 to spare at the end of that. The ‘loss’ of that estimated $1,000 I thought I would receive changed things. I’ll have to find another way to offset these costs. Luckily this surprisingly doesn’t worry me. I see it as more of a challenge than anything. And a truthful excuse I can give my friends for not doing things that I don’t want to do in the first place: I’m saving for the move. I can’t afford it right now.
Hilariously I received my W-2 after checking my mailbox daily like a present was coming. I filed with TaxAct which has been helping me become more confident with my tax abilities when something unexpected happened: I owe money. Instead of the refund I had tirelessly calculated and the six month scenarios I had poured over all of it was incorrect. Now instead of receiving any federal tax refund I owe a bit of money. Luckily I am receiving a small refund from New York state, which will offset this debt, but it still felt like a devastating loss. I was surprised by my reaction actually, but it makes sense. Despite trying to control my anxiety it overtook me – making my shoulders hunch and my hands cramp.
But this taught me a very valuable lesson that I had learned in words, but not in actions: flexibility is the key to success. Or as Tracy Jordan said in 30 Rock “You want to make god laugh? Make a plan.” I thought that was stolen from some actual quote, but apparently the closest is a similar quote from Woody Allen. Back to the point: I was taken off guard and forced to reevaluate my previously perfect plan. I’ve discovered that based on my budgeted expenses I’m going to run out of income to spend in a few short months. I’ve started brainstorming what I will do then. I decided upon a few options and am no longer worried. I thought that my biggest concern this year would be figuring out how to file taxable investment income, but once again I was surprised. But it doesn’t matter. Bring it on.