Why You Paid More Taxes This Year (And What To Do About It) feat. Jasmine DiLucci
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- If you were surprised by your tax bill this year, you're not alone. A lot of Americans are wondering why they had to pay up instead of getting a refund. So in today's video, we'll talk about why you may have owed more and we'll talk to a tax attorney, Jasmine DeLucci, to find out what you can do to keep more of your hard-earned cash. But first, click those like and subscribe buttons and share this with your friend who tried to claim his Sour Patch Kids as dependents. Nice try, Carl. Listen.

Just because it says family size doesn't mean they're actual children. And enjoy your Red 40 while you can, bud, because RFK is coming for your kids. So let's start with the big question. Why did you owe taxes this year instead of getting a refund? Well, it's not because Uncle Sam woke up and decided to get extra greedy. He's always greedy.

Right.

If you're in that boat and you owe Uncle Sam a good chunk of change this April, you want to adjust your Form W-4 to make sure the amount withheld from your paycheck is more accurate. That way you won't owe so much all at once next year. Now this might sound complicated, but it's usually pretty simple. Get with your HR department or log into your payroll system and update your W-4 form to withhold more. And if you want to figure out exactly how much, the IRS has a withholding estimator that can help with this. I'll drop a link to that in the description below. But remember, the goal is not to get a big refund at tax time.

If you're getting a refund, it's because you've been overpaying and essentially loaning your money to the government interest-free. So the goal is to get to as close to zero as possible so you don't owe much and you're not getting a full refund that was already your money to begin with. Another income situation that could have led to a higher tax bill is having multiple jobs.

When you have two or more employers, they may not be considering your total income when they set up your withholding amount, which would lead to you owing more at tax time. Plus, if you have a side hustle or do some kind of freelance work, taxes aren't usually withheld from those paychecks, and you'll likely need to pay self-employment tax if your side hustle generated at least $400 in net earnings, and that could be 15%. So it's up to you to estimate the taxes you'll owe and either pay that throughout the year in quarterly payments or set it aside to pay at tax time. But to avoid any potential penalties and fees,

it's best to just pay it quarterly through the IRS website. Another income-related thing that could lead to a higher tax bill is taking money out of a traditional retirement account like a 401k because this would be now taxed as income. Now, a lot of employer-sponsored plans account for this by having a mandatory 20% withholding on the amount distributed from the account. But in some cases, this might not be enough to cover the taxes, which mean you'd have to pay the rest come tax time.

The second big thing that may have led to a surprise tax bill changes in deductions and credits. Remember all those stimulus checks and tax breaks we got during the pandemic? Simpler times. Well, those dried up faster than Kanye sponsorship deals. I miss the old Kanye straight from the go. Back in 2021, the child tax credit was pretty generous. $3,000 per child age six or up and $3,600 per child age five or under. Now it's back to just $2,000. And a lot of people got used to those boosted refunds, but

We're not in Kansas anymore. And even if you are in Kansas, you get the same credits as the rest of us. And if you're in Kansas City, I don't know where you are. Pick a side. Are you in Missouri? Are you in Kansas? Could it be both?

How Midwestern can you be? Just make a decision. Anyway, the third reason you might have been surprised by your tax bill, major life events. If you got married or divorced, both of those things can change your filing status and your taxable income. And if you sold your home, you may owe taxes depending on how long you lived in the house, your profit from the sale, and your filing status. And there are a handful of other reasons you may have owed more taxes this year, like you're self-employed and underestimated your own tax payments.

You sold some investments and owed capital gains taxes on those. Or your cat, Mary Todd Lincoln, walked across your keyboard when you were filing and made a huge, tiny mistake. All of those things could have led to a surprise tax bill this year. But how can you make sure you owe as little taxes as possible next year?

Well, I'm going to bring in the big guns to talk us through it. But before we get to that, I want to tell you how you can keep your personal info away from shady spammers and scammers. And that's by using Delete.me, a sponsor of today's video. Delete.me finds and removes your info from hundreds of these data broker sites that sell it for a profit. And Delete.me will send you a report showing you where they found and removed your data and how much time they've saved you. And currently, I'm sitting pretty at 86 hours saved, which is more time I can spend researching the tax code. Let me tell you, don't sleep on chapter 34 subchapter A. Real

Real page turner. So help take control of your privacy with Delete Me. Right now, you can get 20% off any of their plans at joindeleteme.com slash george or click the link in the description. Okay, back to taxes. Now that you know why you owe taxes this year instead of getting a refund, what can you do to make sure you're not stuck with a huge tax bill come next year? Well, to help out with this, I brought in a tax expert, Jasmine DeLucci. She's a tax attorney, CPA, EA, and fellow YouTuber. That's the only thing we have in common. Let's get to the conversation.

Jasmine, thank you so much for joining us. Thank you for helping us with this tax stuff. I know enough to be dangerous, but we had to phone a friend, call the expert. And you've got a lot of titles. You're running a CPA firm, you're a tax attorney. So help the average person out here. Like what can people do right now to make sure they're not surprised at tax time next year? Right now. So are we talking employees or business owners or both?

This is just the average, you know, W-2 guy. Maybe they got some side hustles. Just the average Joe out there who's going, why did I owe so much money? What can I do to reduce this? You know, I want to legally panicle Sam what's owed, but no more than that. Well, I would say step number one, not that it's going to reduce your overall tax bill, but it will at least reduce the surprise at the end would be your W-4.

Right. So everyone overlooks it, but making sure you're actually withholding the right amount. The goal is really that you don't end up with a refund and you also don't end up owing a huge amount of tax at the end of the year. I would say that's a huge problem and you can monitor it through the year. Right. So even before the end of the year, you don't have to wait and then get surprised in April. You can actually just check in and then withhold more or less throughout the year.

Is there a good calculator that you find to figure this out easily without doing like a Pythagorean theorem? I would go as simple as, I mean, if W2 is your main thing, I would go as simple as getting any calculator online that's a tax return calculator. And then the main difference is literally tracking the number throughout the year.

So saying, okay, get your last pay stub. What's my year-to-date earnings? What's my year-to-date withholdings? And then you continue to modify your estimate as the year goes on. Love it. So that's a good way to do it because a lot of times it is a withholding issue. It's you either pay too much, you didn't pay enough, and that W-4 form is where you make that adjustment. And if you have an HR team...

That's the place to go. Just say, hey, where can I get this form? Can you help me navigate this? Yeah, whoever's running payroll, I would get your last full pay stub where it shows year-to-date earnings, year-to-date withholding. What do you think the number one reason is that people think they're getting a refund, but then they owe money? It pretty much is from withholding issues. So,

The withholder calculators just aren't very good. They're going to make certain assumptions. So for example, you start your job in the middle of the year. Well, it's not necessarily accounting for that, right? Or if your spouse makes a lot of money, it's not accounting for that. Or if your spouse, you know, whatever, started a business, there's self-employment taxes. Next thing you know, there's just so many different variables W-4 is definitely not accounting for. Yeah, that's a good point. A lot of people are, you know, they're doing the side hustles. They don't realize that

taxes aren't taken out of that and on top of that they're paying a self-employment tax so it can be way more expensive than you thought on top of you know interest in a savings account you're like oh gosh i have to pay taxes on that if i made four thousand dollars from my interest in savings i still need to pay taxes that's actually i mean that's probably the number one issue is people make

you know, make $3,000. You've heard that the tax brackets are around 20%. In your mind, you're like, I'm good. Or maybe you're thinking I'm below the threshold, right? But self-employment tax, totally different. The threshold's $400, not 12,000 or 13,000. Oh, that's a good point. Yeah.

Have you kept up with all the Venmo changes? And hey, if you made more than this amount, you've got to account for it with the IRS? Yeah, so I've been keeping up and they're trying to ease in the transition. At the end of the day, those changes don't change the tax law. So the tax law is still that income's reportable.

But what I have been seeing is when you use Venmo, which we all do, if it's misreported as for goods and services, which also happens, then even if it's not income, like it was a reimbursement. I just had this happen with someone I was working with where he received reimbursements to pay their mortgage, their family mortgage for their home. Oh, boy. But it was through Google Payments, which issued a 1099-K reimbursement.

for the amount. And so that's why I mean, my number one thing is check your IRS transcripts. So you should always check your IRS transcripts, see if there's a 1099-K there that whether it's from Venmo and then especially if you look and you see, well, this is not income, you actually need to typically report it on your return

reverse it out and disclose that it's not income. Otherwise, the IRS will put it on your return as income. Yeah. And nothing's personal. I feel like people think, oh, my gosh, the IRS. It's just a computer software that flagged in when, hey, send them a letter that says you owe money.

And people think, oh my gosh, I'm getting audited. I'm going to prison. It's rarely that bad. Exactly. Yeah. I mean, when we get these IRS notices, I mean, they look scary, especially if you're not used to it. So it does feel personal. And then I think a lot of people respond by like calling the IRS and they're like, I'm just going to get someone on the phone and they're really going to understand me and they're going to help me fix this.

But it's really just a bureaucratic organization that doesn't work perfectly right now. And so it is quite simple as just following the processes the right way. And that's where I've spent a lot of my time trying to teach that. Because then when you get that notice, that's like here, you know, pay us $20,000 more. Not only is it terrifying, but then you actually, if you don't deal with it correctly, you end up dealing with it for six months to a year to two years, sometimes not being able to clear that.

Yeah, we get calls in the Ramsey show and people are like, hey, I just buried my head in the sand because I didn't know what to do and I was scared and it's been three years. I'm like, oh my gosh. Okay, deal with it. Deal with reality, number one. You don't want to owe the IRS. Even if it's incorrect, you want to clear it out. And we always tell people, hey, if you've got IRS debt, you've got to put that to the top of your debt snowball because they can really mess with your life, garnish wages, all of the things. So make sure you get that taken care of before you tackle the other debts. That's how the IRS views it, too.

I'm sure they do. Pay us first before anyone else. Really, they have negotiation programs. And I think a lot of people think I have all these expenses the IRS will understand, but they view it as we're the number one creditor and everyone else is secondary. Wow. They're bay. They're before everything else. Yeah.

Is there a quick way for people to know if they're better off itemizing or taking the standard deduction? Yeah, I would say the short calculation. So, I mean, most people are just going to be better with the standard. And I would say the exceptions would be if you have extraordinarily high interest, mortgage interest, and or in combination with extraordinarily high charitable contributions. And when I say extraordinarily high, I mean, those should really add up easily to over $30,000. And then you might start beginning to have a benefit

with itemized over standard. Love it. And final question for you. I get this a lot when I tell people that it's generally not worth it to do something for the write-off. Like I'm going to buy a $60,000 car so I can get a write-off, right? I want to keep my mortgage long, long, long for a long time so I can get the write-off. Can you dispel this with some basic math?

Because they're not listening to me, Jasmine. It's not a dollar for a dollar, right? So people get that accident, you know, where they think I spend a dollar, I save a dollar. But it's I spend a dollar and I save based on my tax rate. And especially if you're in 20%, whatever the tax bracket is, that's the best case scenario. And then if you're looking at things like mortgage interest, that likely isn't helping your tax return in the first place. So then incurring more of it actually does literally nothing.

You said it so much more nicely than I could have had. So thank you for that, Jasmine. This has been really helpful. You're making incredible content to educate people around taxes. So thank you so much for being on our show today. Of course. Thank you. Huge thanks to Jasmine for joining us. She is, in my head, the Miss Rachel.

of taxes. So now that you know why you may have owed more this year and how to prepare for next year, you can make some smart moves to keep more of your money where it belongs. And if you want a deeper dive on taxes, check out our free resources at ramseysolutions.com slash tax. If you head there, you're going to find a tax filing cheat sheet, a beginner's guide to taxes, and a tax prep checklist all completely free. I'm going to drop a link to that below. Be sure to check it out.

And if you do your own taxes, check out this next video to see this year's major tax changes. Keep watching or click the link in the description below. Thanks for watching. We'll see you next time.