February 6, 2013

Via LearnVest By Cheryl Lock ~

When my pay was direct-deposited into my checking account every two weeks while I was working my first full-time freelance job, I’d think, “Wow, that’s a decent amount of money. I can totally live off this!”

No one ever told me (and I never bothered to ask) why my paycheck seemed so large, so I lived it up for an entire year—eating out, going to plays, buying new clothes and taking trips.

Then April rolled around: tax time. In all fairness, I knew that I hadn’t been paying taxes on the money I was making as a freelancer. I just had no idea how much I actually should have been setting aside from each paycheck. I now know that I should have been saving at least 33% to 35% of every paycheck to put toward taxes. Hindsight … you know what they say.

In the end, I owed a little over $3,000. My accountant practically cried when she gave me the news—and a full-blown panic attack.

Well, it turns out that I’m not the only one befuddled by taxes—especially now that the new tax laws have been put in place for 2013. We found three readers to share their own horror stories in the hopes that maybe, just maybe, it will never happen to you.

The $40K Bill Bombshell

In 2010, Heidi Saucedo’s husband was working in Egypt for two months. While he was away, Saucedo received an envelope from the IRS, which revealed a bill for $40,000.

“After I picked myself up off the floor, I had to contact the hubby … by Facebook chat,” she says. “Can you imagine going through all the back-and-forth required for that via chat?”

The problem was that Heidi and her husband had not filed a tax return in five years, since money was tight while she stayed home with their two children. “I just didn’t understand that we could possibly owe nothing—I thought we would be charged for everything we owned,” Saucedo says. “I knew this was foolish, but we were living paycheck to paycheck, and we were too proud to ask for assistance.”

Her husband was also working under a 1099—meaning that he wasn’t a full-time employee, so he was taxed at the end of the year instead of out of every paycheck. “Apparently, I had ‘known’ this (my husband says that we discussed it), but to this day, I swear I had no clue,” Saucedo says.

After using TurboTax to figure out the tax deductions that hadn’t been included in that $40,000 bill (like standard deductions and the child tax credit), it turned out that they didn’t owe anything. “At the time, I chose not to go to a professional since the gist of the letter from the IRS was that all we needed to do was file our taxes,” Saucedo says. “I was pretty overwhelmed, and I didn’t have any money to pay a CPA, so I signed up for TurboTax.”

“The good thing was that when I began the search for anything and everything that I could get my hands on to rectify the situation,” Saucedo adds, “I realized that I love doing taxes. Never again will there be an unfiled return!”

LearnVest is the leading lifestyle and personal finance website for women.

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