Estimating 2020 Taxes

I'm watching some college football on television this Saturday and decided to do some preliminary estimates on our taxes this year. I'm not sure if I ever did any estimates around the time 2019 taxes were due or not. I know that things have been in limbo not knowing when my husband would get his promotion. He is on the promotion list as of late May. Now we wait for the military to get to his sequence number for actual orders to promote. It will not be October, so at most he will have two months of increased pay. 

We do qualify to take the American Opportunity Tax Credit for our youngest daughter in 2020. Our credits are a $500 dependent credit, a $1500 non refundable credit (AOTC) and a $1000 refundable credit (AOTC). 

Without the raise we will owe approximately $228. With two months of increased pay we will owe $270. I'm assuming the withholding will increase, otherwise the amount we owe will be more. 

I did all the math by hand looking at last year's return and finding all the numbers and tax charts for 2020 to make it all come together. My notebook is full of all sorts of numbers. I could have looked for a potential calculator. This way, I feel like I know it was done correctly, using our real situation and numbers. It is still an estimate, but I can definitely handle owing less than $300 next spring. 

My next task is to do some tax planning for 2021. The raise is significant enough to put us into a higher tax bracket. Withholding will have to be adjusted, so we don't owe a significant amount. I need to consider what tax education tax credits we may take, maybe none if we use Post 911 GI Bill funds. This means I need to figure out our plan for paying tuition next year, which is only a few months away. I also need to decide if we put more into retirement to offset taxes. I'm leaning towards a yes on this one!

Payroll Tax Holiday

My husband's paycheck next week is slated to have the reprieve from the payroll tax deductions. This reprieve is temporary through the end of the year. At this point anyway. We know that things can change. The unfortunate part for this holiday reprieve is that this is money that we don't need to use or spend and it will need to be paid back during the first half of 2021 with double the amount of payroll tax. 

Because we don't need the funds, we will simply save them in our savings account, earning a little interest, and plan to pull from the savings in the early months of next year if we are short. In the best case scenario, these funds will not have to be repaid and it will have been some forced savings! I would like that since we are diligently adding funds to our Pot of Possibilities. 

One help for us may be that my husband will finally get his promotion orders this fall which would put him above the income where the payroll tax holiday kicks in. That would mean less payroll tax to repay ultimately. I feel for people who really need this money and will likely use it, but may not do well when the taxes have to be repaid in early 2021.

Is your job participating in the payroll tax holiday? Do you have plans on how you will handle the lower income during the repayment period?

Here's an article from Forbes that explains the Payroll Tax Holiday if you need more information. Also might be wise to check with your human resource representative on how your employer is handling this payroll tax holiday. 

Reflection on August Spending

I think August has to be our spendest month so far this year. As many, our spending came to nearly a complete halt earlier this year with less travel, eating out and shopping in stores. We did a little online shopping as usual. August was the month that found us traveling across the country to drop our youngest daughter off at college for her junior year. 

Our daughter was pretty well stocked with the necessities, but there are always things that need to be replenished. More shampoo and laundry, and a replacement razor for the one left at home. Because we drove our van, we had fuel, meals, snacks and hotel costs to cover. 

The biggest expense was tuition for our youngest daughter. We wrote a check (actually sent it electronically) for $9011.72. Most of that was from cash saved, including our tax return. We did take a little more out from her ESA (Educational Savings Account), too. Because of the way the school did billing for books and a couple other things we owe another $947 later this month.

Our cat was diagnosed late in July with reduced kidney function and was put on prescription food. She did not like that change, so we were buying other canned foods that were more kidney friendly to mix in to get her eating the prescription food. At this point, I think we have been pretty successful and may be able to return some cans of food we stocked up for a refund. We also had another vet visit to have her numbers checked. BUN returned to normal but Creatinine levels went up slightly. We go back again later this month to have them checked again. This is becoming a $150 increased cost to our budget each month.

We live in a hurricane prone areas of the country. Thus this time of year we always start stocking up. This month we decided to add a portable griddle to our household to create more self sufficiency. The griddle was $130 shipped. After using it on a plastic folding table and noticing some heat damage, we have now invested in a stand for it, another $85. We also bought some grilling tools that we didn't have on hand either for another $20. We actually may grill out more with this purchase than we originally thought when we bought it. It will serve at least two purposes this way. 

How was your August spending? Was it your most expensive month this year? 

POP Contributions August

 These are the contributions we made to our Pot of Possibilities (POP) in August.

8/1 Paycheck $320.00

8/15 Paycheck $320.00

Interest Earned $87.58

Pinecone Surveys $9.00

USAA Reward $3.00

US Bank Reward $3.29

Chase Rewards $3.64

Amex Rewards $79.28

August Total $805.79

YTD Total $6,219.51    

New Big Goal Total $78,303.44

Making progress! Quite thankful. 

August Interest Income

I make a point of tracking the interest we earn every month. This month I noticed that I had tracked interest here, but not in YNAB. YNAB stands for You Need a Budget and it is a financial software used for budgeting. I corrected that error of course! 

Our interest comes from three banks, FNBO Direct, Navy Federal Credit Union and USAA. Most of the money is in certificates of deposits (CDs) at NFCU.

Here is what we earned on our cash last month:

FNBO $15.71

NFCU $71.68

USAA $0.19

Total $87.58

Thankful for all interest earned...but yet still sad that rates have dropped so dramatically at the same time.