How on earth could I possibly owe IRS 4k???

[IOBA]

Help me understand how I could possibly owe the IRS about 4k for this tax year???

* taxes were taken out of paycheck job, settings were married, 0 deductions

* about 400 in interest/dividends

* a nice tax refund for 2009, but according to the taxcut program, I don't have to pay income taxes on the state refund

* no other income

* no 1099-C or 1099-MISC

* 5 kids

* standard 1040 (not itemized)

Shouldn't I be coming out ahead, not behind???

*loud groan*  anyone have any clues??

[Lel]

Is the tax withholding for 2010 similar to your 2009 income?  Did you realize any capital gains or have an increase in income?  Did you stop or cut back on any retirement plan contributions?  Basically, I'm asking if there are any significant changes on your return this year.

BTW, how are you able to determine your current tax liability?  The tax rates are still up in the air.  If you are using a tax program that is assuming that income tax rates are going to rise to the pre-2000s levels (which will be the case unless legislation extends the tax cuts from the early 2000s), then that may account for the difference.  Just speculating.

[IOBA]

Is the tax withholding for 2010 similar to your 2009 income?  Yes, although last year I had them take out married, plus 1 dependent.  This year, it was married, zero dependents.  Besides spouse, there are 5 kids to deduct/claim.  I think they took out a few thousand more...

Did you stop or cut back on any retirement plan contributions?  Yes, fewer contributions, more debt.   But withholdings are done by the employer, based on your taxable income.  SOoo... Theoretically, employer took out the right amount of tax.

BTW, how are you able to determine your current tax liability?  I bought 2010 TaxCut program.  Looked at last paystub, added in the numbers for one more paycheck this year, and inputted the numbers.  My tax return is pretty simple, spouse, kids.

I know the IRS forms will be finalized 01/11/2011 (according to the IRS and the TaxCut program).

I am really praying that I don't owe that much money!!!  That would royally be awful!!

[haulingthescoreup]

Maybe the TaxCut program was designed with the expectation that the tax cuts would be rolled back? --so they're figuring your tax without them.

(I think Lel said this, but I'm just now figuring it out. )

[Lel]

Having never used TaxCut, can you clarify one thing?  By "2010 TaxCut" is ths a tax program that would be used for the 2010 tax year, or was it created in 2010 for use for the 2009 tax year?

If this is to be used for the 2010 tax year, are you able to look at all the marginal tax rates?

And did you make sure that selected the correct filing status?

Did you make any traditional IRA contributions in 2009 that you didn't continue this year?

[Just grasping at straws / throwing out ideas]

[IOBA]

I appreciate all the feedback.  It's the program designed to do the 2010 taxes.  I did notice (unhappily) that it apears to make no difference on how  much I owe by having 1 kid or 5 kids.  Go figure...a mistake, I hope???  Nice lady at the IRS said by having 4 kids means an additional 13k savings.  hhmmm...not seeing it!  (I have one kid in college, 4 at home).

[Lel]

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@IOBA wrote:

I appreciate all the feedback.  It's the program designed to do the 2010 taxes.  I did notice (unhappily) that it apears to make no difference on how  much I owe by having 1 kid or 5 kids.  Go figure...a mistake, I hope???  Nice lady at the IRS said by having 4 kids means an additional 13k savings.  hhmmm...not seeing it!  (I have one kid in college, 4 at home).

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Not exactly.  Having 4 kids allows you to deduct 4x the dependent exemption, which would equal about $14,000 (roughly, I don't recall exactly what the exemption amount is).  This, along with your itemized or standard deduction and any other applicable deductions, is subtracted from your adjusted gross income to yield your taxable income.  So if your marginal tax rate is 25%, then your tax savings would be 0.25 x $14,000 = $3500.  This doesn't take into account any earned income tax credit that might apply, though.

Are your kids being claimed as a dependent on someone else's tax form?

And I still think that the new tax software is assuming that tax rates are going to rise, since legislation to extend the tax cuts hasn't been passed yet.  If it does pass, then I'm certain an update will be sent out to fix your program.

[IOBA]

I get to deduct all five kids plus one more who is over 23, but legally my dependent.  IRS lady said I could claim her since she meets the definition of a dependent.

Just not seeing the deduction and believe me, they eat WAY more than $3500 a year!  Not to mention the showers!!     Five boys between the ages of 7-20.   Oh yeah - lots of showers!

Well, maybe when Congress figures out the taxes and TaxCut updates, I will get a refund vs owe money.   

[haulingthescoreup]

lol, not exactly a testimonial for TaxCut, is it?

TurboTax has always asked me for the number of dependents, which is now 0. * sigh * And the tax always changed as the number changed.

[Walt_K]

Are you sure you calculated your taxable income correctly?  I did this a couple years ago, freaked out at the numbers I predicted, then went over it again and realized I forgot to factor in all of my pre-tax deductions.