Big Tax Bill

[mw82]

So, I just got hit with a big tax bill for 2022 - $47,000. I am freaking out.
Here are my initial thoughts. Please give feedback:

1. Cry
2. Borrow from my TDA retirment account to pay this bill. (I have no idea how else to come up with this much money.)
3. Increase my tax withholdings on my W4 going forward.
4. Consider a tax advisor.
5. Find a new accountant.

Any other suggestions? Any advice would be welcome.
Thank you!!

[abds]

So, I just got hit with a big tax bill for 2022 - $47,000. I am freaking out.
Here are my initial thoughts. Please give feedback:

1. Cry
2. Borrow from my TDA retirment account to pay this bill. (I have no idea how else to come up with this much money.)
3. Increase my tax withholdings on my W4 going forward.
4. Consider a tax advisor.
5. Find a new accountant.

Any other suggestions? Any advice would be welcome.
Thank you!!

Curious how this happened, which might guide your #3-5. Either..
1) you make a ton of money, and you were only off on your taxes by a few percent (3% of $1.5M is $50k) which also means you can presumably pay this relatively easily even if it is a hassle (based on your #2 this doesn’t seem likely), or
2) you made a really substantial error/miscalculation somewhere. Are you making $300k a year and didn’t think you’d owe income tax?

[bovie]

Wait—your accountant just sprang a $47k tax bill on you a day before the due date with no warning whatsoever?

They're for sure getting fired.

Regarding solutions, do you have a HELOC or SBLOC? Taxable account?

You can borrow against your retirement account, but definitely don’t withdraw.

[CordMcNally]

You and your accountant are likely to blame. What’s your emergency fund look like? This seems like a good use of it.

[jfoxcpacfp]

For all I know, you may be one of our clients, as I received an emotional email from a client yesterday, smaller amount but in the neighborhood. My reply entailed the following:

1. Thank you (always) for letting us know of your concerns
2. We just received your information so your return has not even been prepared, much less been through our double-review process. In these cases, we tend to project high to avoid underpayment penalties. Your results will almost certainly change
3. Bal due probably includes first-quarter tax estimate (I forgot to mention this to them and didn’t have time to look up, but I’m 99% sure it’s so)
4. We reached out twice during 2022 to prepare tax projections and never received the info to prepare them
5. We can only work with what we’re given (one spouse has a business they manage in QB and stays behind with the books - they have very full plates and just too busy, but they had already expressed a desire to do a better job this year.) I sincerely hope it happens - I hate for any client to get a bad surprise, even when we had tried our best to avoid it. I know it’s tough and I feel terrible for them and for the OP.

Have we made mistakes before? Heck, yes, but we use every one to improve our system and have set up a system to make such emails when a client follows all the steps a rarity. We charge a lot and if you’re not going to take advantage of what we do, you might as well go to HRB and save your money.

We have had one other this year in which the client did provide info for projections and their balance due was a good bit higher and we’re still working on that one. I’ve talked to them on the phone and explained that we received final info so late that the return hasn’t been through 2nd (Laura’s) review yet, so the balance may change but, again, the amount included the 1st quarter estimate and their W2 income increased at the end of the year. Plus, we overestimate to protect our client. We don’t know the whole story yet, but they were underwithholding and already expected a significant bal-due, just not that much. When you underwithhold and your W2 increases, the FIT w/h does not keep up proportionately, so that’s what happens. We’ll figure this out and get them back on track, but we c/n predict a jump in income unless the client specifically tells us they are expecting a bonus or something similar. This particular client also had side hustle income that increased beyond projected, and that only compounded the increase.

Anyway, my point is to take a look and determine if you bear any responsibility. Have a talk with your CPA to find out what happened - this part can be very difficult but is critical for you, if not the CPA. If you did everything s/he asked and ended up with an unexplained surprise, find a new CPA. If you’re one of our clients, fire us, iow.

[mw82]

Thank you all.
I'm sure I am to blame. I thought the money my employer was witholding on my pay check for taxes would be enough. I claim no dependents on my W4 despite having a few kids.

[FunkDoc83]

Never heard of this happening to a W-2 employee. I would think the default setting on a W-4 would lead you to overpaying taxes and getting a refund instead. So sorry man.

[GasFIRE]

How does your 2021 tax return compare to the 2022 return? What changed? Were there other income sources or capital gains last year beyond your W-2 job?

[Tim]

Thank you all.
I'm sure I am to blame. I thought the money my employer was witholding on my pay check for taxes would be enough. I claim no dependents on my W4 despite having a few kids.

Find out what happened. You have to have income that is generating a $47 tax underpayment.

[MPMD]

need much more info
working spouse?

[Kamban]

There had to be one of two things

1. An error in withholding and claiming more dependents than the year before.
2. Extra income in 2022 than 2021. This should have been caught in time. Either the OP made more money on his job ( but should have had more withholding) or did a side gig and did not think about taxes, or had a spouse who earned income but did not pay taxes on it.

I don't think this is CPA's fault. Also not sure if this is a final tax return or an extension with estimated payments due for 2022 and paying the estimated 1st qtr for 2023, both fed and state. Too little info given, too much emotion in the post.

BTW, I would love to have to pay only 47K extra in tax each year. Some years I get a large refund and some years I have a humongous tax bill. Such is life.

[matia]

Use credit cards with high limit to pay it, this gives you about a month to figure out alternatives. Can transfer then balance to a no interest card and just spread out paying it off through monthly savings. Caveat: credit card payment has a % fee but I'd assume if you sold from taxable you'd also be paying ltcg. I just don't like selling my investments. Rather just tighten your belt over next few months and pay off the CC.

[Marko-ER]

Wow, that is indeed quite a ball to drop, especially with 1 day left to file. Perhaps file for an extension? I am not sure if you need extra time make sure to pre-pay something against any penalties.

(very) tangential issue: what does the WCI community think is a reasonable time to give an accountant to file on time for moderately-complicated return? 5 days, 10 days? I think I gave my accountant about 14 days and no word yet, might have to get an extension, which I did not want to have happen. It's not like I dropped of piles of paper on them, everything was meticulously organized in vanilla folders and I was planning to just take a standard deduction.

[Bmac]

I would imagine many CPAs would have a blanket policy that if all the documents were not provided by a certain date (definitely greater than 14 days from the filing deadline) that an extension would be likely and possibly necessary. If for no other reason then to prevent a massive data dump from multiple clients in the last week or so. I would be interested to see if any of the CPAs on this site have a comment.

[bovie]

It's not like I dropped of piles of paper on them, everything was meticulously organized in vanilla folders and I was planning to just take a standard deduction.

Should've used chocolate folders—I hear CPAs love those so you probably would’ve gotten a response by now that way.