2million - My Journey to Financial Freedom

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Thursday, April 27, 2006

So Much for Trying to Account for My Tax Liability

At the end of last year, I made an accounting adjustment for what I estimated my additional tax liability might have been for 2005. There was a great deal of uncertainty for me on how I was going to treat my rental property for 2005 so I conservatively estimated my additional liability would be $3,000. I thought this would more accurately reflect my true net worth.

It turns out I was way off. Not only didn't I need to account for the additional tax liability, I am currently waiting for both a federal and state income tax refund. So much for trying to plan ahead.

I'll be removing the $3,000 tax liability from my upcoming monthly net worth statement so my monthly results will reflect a $3,000 gain above normal.

2006 Tax Witholding Planning

While I'm on the tax subject, nows as good as any to look at my tax situation for 2006. Unfortuntely its just as muddled as it was for 2005. While the net tax loss on the rental property will be significantly less than in was in 2005, I may still look for a new primary residence and could reap the tax benefits if I purchase a home.

I plan to leave my withholding the same for now and may revisit it as things begin to fall into place. My preference would be to owe some income tax (no sense in giving Uncle Sam a free loan). As long as at least the same amount is withheld in 2006 that I paid in 2005, I shouldn't have to worry about paying any underpayment penalties.

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