My Bad Tax Experience

I had a very bad experience with my taxes about 5 years ago.

The problem started when I attempted to file my taxes using tax preparation software. To my surprise when I began to do the numbers I noticed that they were displayed in red. This normally is an indication that you are not due a refund but you owe instead. At first this didn't bother me because I still had some more information to input into the program. I had not entered deductions such as home loan interest, student loan interest, charitable contributions, etc.

Once the amount, which was already in red increased to the amount of ten thousand dollars that is when I began to get worried. I began to panic! I immediately got all of my paperwork together and went to an accountant because something just was not right. As the accounted reviewed my wife and I's W-2's he discovered that the amount of the federal tax that was withheld was very low.

Then my wife made an unbelievable confession. She said that she had switched her number of dependents from zero to three. This reduced the amount of federal tax that was withheld from her check allowing her to have more money every pay period. Now, this is a normal practice for some people. They start out with 0 dependents where the government federally withholds a maximum amount. Then for the next 6 months they change the amount of their dependents.

Although this may work for some people, its success really depends on what tax bracket that you are in. In the case of my wife, she forgot switch the amount of her dependents back to zero. This is what caused us to owe ten thousands dollars to the federal government. As a result of the mistake that she made both of us were liable for repaying this amount because we were married and always filed jointly. I was devastated by this because I have always had an additional one hundred dollars deducted from my paycheck to ensure that I didn't owe the federal government. Now I was faced with the possibility of not receiving a federal income tax refund for the next 4-5 years.

We came up with a simple solution for restoring this tax debt issue. I changed my tax filing status from married filing jointly to married filing separate. This enabled us to get a refund that year. We were able to pay off our tax debt within 3 years. I strongly discourage anybody from adjusting their number of dependents for the sake of getting a few extra dollars on their paychecks. Instead it is best to just allow the maximum amount of federal taxes to be withheld. This can save you lots of money and will keep you from experiencing the tax nightmare that I did.