March is a busy month on the calendar. The start is a slow emergence away from the dormancy of winter, but halfway through, March is marked by betrayal, Et tu, Brute?, followed closely by the death of a patron saint, Slainte!, and culminating in the start of spring, rebirth!, a few days later. Sometimes, March even includes the Resurrection of Christ. It’s like a burst of extinction and sanctification, all in a short period of time. At least this year Mercury isn’t in retrograde at the same time… like it was last year…right before the pandemic pissed all over the global directory.
April brings climatic improvement, but that alone isn’t enough to negate the angst of Tax Day for Americans everywhere, amid the myriad of emerging blooms. This year I decided I was going to use Turbotax. Last year, Russ and I filed jointly using a major accounting firm. Despite the extension added to the deadline, Russ and I gathered our papers and handed them over on time. The experience wasn’t overwhelmingly positive. I left thinking, “If it’s so straightforward and easy, I’ll save us a few bucks, and do it myself.”
My experience with accounting firms has not been great. I want to attribute these bleak encounters to the emotionally riddling services they instigate, sort of an ancillary byproduct, like waking up with sweaters on your teeth, after failing to brush them before bed.
I chose a small firm to do my taxes a few years ago. The first two years the experience went as smoothly as a gaited Paso Fino gliding across the plains. My taxes were prepared efficiently and professionally. After that, they filed for an extension, without having a consultation. I don’t even know if that’s kosher really, but I chalked it up to being a small fish (me) in a big pond (them). My stuff could wait. The next year I proceeded as usual. Once again, I was not notified they had filed for an extension until after the original deadline passed. That year, I ended up owing a significant penalty. I had intentionally liquidated some holdings into cash that year. Filing late does not mean a person can pay taxes on any capital gains late. Who knew?
That’s not actually a rhetorical question. I thought they would know. The only silver lining is they didn’t send a bill those last two years either, but it sort of begs the question.
“What kind of accounting firm does that?”
So Turbotax it was. After aggregating your data, it’s a matter of plugging the right number in the right box. Turbotax does the heavy lifting calculating your fiscal status as you fo through the program. However, adding the wrong number in the wrong place causes Turbotax to stop until you fix it.
Needless to say, this is where the rubber met the road.
Like a school crossing-guard standing in the middle of the street stopping traffic, Turbotax raised its yellow flag at the end of its stick with the giant exclamation point in the middle of it.
“You have exceeded income limits for your ROTH IRA contribution and are subject to penalty.”
That. Cannot. Be. Possible.
I added $6,000 which is the limit.
Wait. Income limits?
Is that even really a thing?
Dazed and Confused (life imitating art), I consulted the expert, Dr. of Economics, Google.
I discovered income limits are indeed subject to federal regulation, but only to ROTH retirement accounts. I had surreptitiously tripped over the fence boards into its jurisdiction, for a variety of reasons, a collision that ended with a tightly wound ball of hot wax caked in horse shit, the wick dangling dangerously close to the flint, like a hand outstretched desperate for its mate.
I sat scratching my head, disgusted with Turbotax and Google, twin contrarians in cahoots. In a nutshell, I’m being penalised for paying taxes on my retirement contribution now versus paying taxes on it later. That is the only difference between a ROTH and traditional IRA. My blunder will cost six percent in penalties for 2020…and 2019 as well (the year the big accounting firm did not catch this oversight the first time).
Nothing holds a Democrat’s feet to the fire like the pervasiveness or perverseness of unexpected taxes. Despite my best efforts to be fiscally responsible, the penalties felt like a mortar strike just as my tourniquet snapped into shards.
It’s ridiculous Turbotax’s feckless little bot, not the professional accountant, is who uncovered this massive oversight. (Robots: 1 , Human: 0). I knew the inevitable plan of action for correction was outside of my bailiwick. I called a new boutique firm. They came out of the gate swinging, sucker punching me hard, confirming I will actually be eating a 12% penalty for 2019 since it’s been in the account for two years now, for a total of 18% in fines.
This experience alone has me flirting with the other side of things.
Sweep the leg, Johhny.
Russ and I are at the bottom of our tax bracket, like millions of others in the same situation. This isn’t too dissimilar to being the youngest player in an age brackets for youth sports. A nine year old and a twelve year don’t always have a lot in common with height, weight, maturity, and otherwise. Smaller players aren’t usually as strong, or as resilient, as their teammates. Of course, there are always exceptions to the rule, and a lot of other factors to be considered.
The comparison between tax brackets and age brackets is loosely hung, but what does a couple making $20,000 a year have in common with another couple pulling in $80,000? Or how about a couple making 90K more than those at the bottom of their own tax bracket? Everyone is paying the same percentage of taxes on their income, but they are world’s apart in their standard of living and opportunities.
This blunder I’m still ironing out made me consider a lot of other policies, such as why an employee can contribute up to $19,500 to an employer-sponsored 401K, but the self-employed can only contribute $6,000 to an IRA, which is likely their only retirement account. Independent contractors are hogtied before they get the shingle on the door.
I’m mad at myself and this federal regulation, but I’ll get over it, but it does make me wonder where all of our tax dollars go? I believe in taxes and supporting the social good, but it would be nice if Americans were assured they were well spent, or better yet, weren’t squandered, misdirected or spent duplicitously. Being fined for acting as a conscientious steward of my financial future seems highly….contradictory… to the principles of American Dream.
“In this world, nothing can be said to be certain, except death and taxes.”