Adjusting for my Potential Tax Liability
As you may have noticed from my net worth reporting, I don't really report liabilities that are accruing such as taxes on a monthly basis. I typically receive a small refund from my income taxes each year so it has been safe to assume the withholdings from my paycheck typically cover any expected tax liabilities.
However, since I rented out my home in the latter half of the year I am losing a significant portion of my tax deductions (mortgage interest /property tax deduction) [for clarification, I will still have these deductions as rental expenses, but they will now be more than offset by the rental income]. Since I didn't change my withholding after I made this change, I have been worried about a growing tax liability.
Since it looks like I will hit my net worth goal for the year and it would be a more accurate reflection of my true net worth, I have decided to make an adjustment of $3,000 in tax liability for the month of December on my balance sheet. This liability combined with my current withholdings should adequately cover my estimated tax exposure for the year. Luckily I have a line item for tax liability on my net worth report to easily account for this adjustment.
However, since I rented out my home in the latter half of the year I am losing a significant portion of my tax deductions (mortgage interest /property tax deduction) [for clarification, I will still have these deductions as rental expenses, but they will now be more than offset by the rental income]. Since I didn't change my withholding after I made this change, I have been worried about a growing tax liability.
Since it looks like I will hit my net worth goal for the year and it would be a more accurate reflection of my true net worth, I have decided to make an adjustment of $3,000 in tax liability for the month of December on my balance sheet. This liability combined with my current withholdings should adequately cover my estimated tax exposure for the year. Luckily I have a line item for tax liability on my net worth report to easily account for this adjustment.
posted by 2million at
12/09/2005 09:54:00 AM
6 Comments:
Slomoney - I apologize for the confusion.
The real problem is threefold. My earned income has increased, I am now renting, and the rental property will show a much smaller loss than what I had hoped it would be.
I recently did an exercise to calculate my rental loss for the year and it turns out that it won't be as big a write off as I initially anticipated (even after depreciation, mortgage interest expenses, maintenance, etc).
I quickly estimated that the result may be ~$3,000 in additional tax liability.
By
2million, at 12:42 PM
Great blog! Alot of detail. I like the accounting mentality of this site. Keep up the value, it's great. Mine is www.journeytoamillion.blogspot.com
By
Ryanlds, at 1:17 AM
well you need to buy another rental property to get extra depreciation!!!!
By
Adventures In Money Making, at 4:07 PM
What about your tax deferred retirement accounts (401K, traditional IRA)? $100K in retirement assets may net $75K or less after taxes. The same holds true for brokerage accounts and unrealized capital gains (only a 15% hit, plus whatever the state takes, which can be another 5-10%). Without considering unpaid taxes you may significantly overestimate the money you have left to spend.
By
Anonymous, at 10:59 PM
$2M,
I've really enjoyed reading your blog. Question for you:
How are you estimating and then doing your taxes?
By hand?
Turbotax? The quicken tax wizard?
In general what are you using to track your cash accounts / cash flow?
n
By
makingourway, at 9:46 AM
This year Im using Taxcut (i usually use whatever is cheaper) and I currently use MS Money for my pf software.
By
2million, at 11:21 AM
Post a Comment
<< Home