Well, it is actually $1,860 and the short answer is So I Won’t Go To Jail.
But let me explain.
Normally, a post about why some random Middle Class Guy is sending $1,860 of his hard-earned money to the IRS would not be worth the five minutes of reading, or even the time that I spend writing this.
However, this being the first time that I send money to Uncle Sam in April rather than Uncle Sam sending some money back to me, I thought that I would share why.
Many Years of Money Back
For many years, I did what most Middle Class Americans did. I worked all year, I saved some money but spent much more, and at the end of the year after celebrating the holidays, I would have the same or less money than I did at the beginning of the year, plus a few thousand of credit card debt.
I have lived in Crook County, Illinois (known to some as Cook County) since I was born with the exception of four-and-a-half years as a Madison, Wisconsin resident from the age of almost eighteen until I graduated from the UW after just turning twenty-two.
I mention that because I have now owned property in the same county that I have lived my entire life in since spring of 1998, a few months before our son was born, thus I have had to pay property taxes to Crook County every spring.
I know that this is not the most prudent way to do things, but I would file my income tax return in mid-February or early March up until this year, get our tax return check in the mail for many years or direct deposited in the past four or five years, and then use those funds to help offset the cost of our first installment property tax payment.
Many times, we would get around $2,500 back from the Treasury, which used to more than cover our first installment payment. As our tax return has shrunk while our property taxes have risen over the years, it has fallen short of our first installment amount for the past four or five years.
Last year, due to our son turning seventeen during 2015, we no longer received an extra $1,000 child tax credit for him, so last year was the first year that our return dipped under $2,000, and by a lot. My wife picked up a few more hours, and her part-time job does not deduct income tax from her check, so we have to make up for that at tax time.
Okay With Others Footing the Bill
I recall my father, who was self-employed, having to stroke a check for over forty thousand one year to the IRS. Trust me, that was not a day that you wanted to be hanging out by him or talking about taxes with him.
I was already just out of college, starting out at my first so-called “real job,” that just paid me about $25,000 per year at the time (spring 1995), so when my father told me that he had to write a check nearly twice the amount of my annual salary, I thought “Damn! You must be making a butt-load of money to be paying that much in taxes!”
In retrospect, I now know that my late father topped off making almost $200 K in his very top earning years, and that he probably had to pay the $40,000 to Uncle Sam in a year that he made about four times that amount, and that it must have hurt like heck to have to pay that much. As a matter of fact, I recall him telling me that he was going to have to pay it in quarterly installments.
Oh well. I knew that my father worked very hard 365 days per year and that he would be able to pay it somehow. The one thing that I recall saying to him is “Wow, Dad. You must have made a real lot of money to be paying that much in taxes, so you should be happy about that.” That comment from his 24-year-old son did not help much.
At my place of work, when colleagues with jobs that pay more than mine who also have spouses with jobs paying more than mine complain about having to send $5,000 or $10,000 or even $20,000 to the IRS in April, I do not mind that either.
With a stay-at-home wife who now works part-time, we spent many years getting by on my salary alone as it rose from the thirties to the forties to the fifties to the sixties etc., to the point where I now make a little over $100 K.
When I hear colleagues who own second homes, who travel on great vacations three or four times per year, who drive new luxury autos, who purchase a new iPhone every year, who purchase new clothes and shoes at a high frequency and who drop hundreds at bars and restaurants and at grocers like Whole Foods on a regular basis complain about paying the tax man, I smile to myself while expressing my shared pain with them.
How I know how much many of them are paid is that it is published on the Better Government Association website, since we are talking about Illinois here. If their spouses do not work for units of government, I usually know an approximation of how much they make, anyway, because many of my colleagues and friends seem compelled to tell me for whatever reason. If they are professionals, like accountants, attorneys, doctors and so forth, I also assume that they make a heck of a lot more than us local government employees do.
Also, the more that they make, the more that they seem to want to tell others.
Due to my long-time profession in economic development, I also know many, many business owners, brokers, financial people, developers and many other professionals involved in the development field.
When I hear of someone that I know living or purchasing a new home in South Barrington or Inverness or a north shore suburb like Kenilworth, Glencoe or Lake Forest, I assume that they are doing well financially.
When the same people show up to meet with you in a new 700-series Mercedes or the best status symbol car these days, a Tesla, and they tell you that they just returned from Europe or Hawaii, you can make the assumption that they are doing quite well. Ditto if they own their own airplane.
When I hear one of these guys complaining about having to pay the IRS, I think to myself, but do not say out loud, “Great, I hope that you pay fifty grand and that it can be split up by twenty Middle Class Guys like me.”
So How Did A Middle Class Guy End Up Paying?
My wife and I ended up owing money to the IRS by a unique confluence of financial events in 2016, at least one of which will not happen again.
As you can see, I used Turbo Tax for about the fifteenth year in a row, or for however long Intuit has been producing it.
Our total income last year came in just a shade under $120,000, which is far and away the highest that it has been for us. Last year had been the previous high at $105,000 and 2014 was the first year that we cracked six figures at about $100,000 exactly.
If you can see the actual numbers, my wife and my combined income was around $103,000, actually two thousand lower than last year.
Why I have to send the money to the IRS is not due to us earning a higher income, but due to receiving $7,300 in interest, $1,400 in dividends, $2,000 for a “sole proprietor business” and over $5,000 in capital gains.
I have previously explained the divvies. I have the T. Rowe Price GNMA fund and also had and still have a few dividend-paying stocks. My favorite dividend-paying stock was taken from me in an acquisition, but that is a post for another day.
The $7,300 in interest was mostly from our son’s savings bonds, which we cashed out to pay for his first semester of college. Since he only has about $500 in savings bonds left, and our daughter was not the recipient of very many at all (the bond-giving relatives passed away), we will never again collect that high amount of interest on savings bonds again.
I made about another $200 in interest from the Evil Bank for parking $15,000 with them for six months, and made another hundred or so in interest from a savings account with Capital One.
The $2,000 in proceeds from a sole proprietor business was actually one-sixth of a business venture entered into by my late father nearly twenty years ago. Long story short, my mother inherited half of the 2016 proceeds from that venture and my two siblings and I inherited the remaining half, each of us receiving one-sixth of the $12,000 that it generated many years later. That number is also highly unlikely to be repeated due to the nature of the project.
Finally, the $5,000 in capital gains was due to one good trade that I made (netting about $7,500) offset by the $500 loss from the stock that was “taken” from me and a $2,000 loss on another trade that I finally gave up on after over three years. I have a lot more “invested” with the extremely volatile stock that netted me the plus-$7,500 and I am waiting on it, perhaps for years to come, to sell for a similar or, hopefully, much higher gain.
While it may sound impressive for a regular Middle Class Guy to net $5,000 on the plus side for making a few trades, if I sold out my positions tomorrow morning, I would be about $8,000 down, thus I continue holding those stocks until the day when I can sell them for a higher amount.
I will not be dispensing any stock advice here, but I will confess that I am down on investments in two commodities: oil and gold, and am also down on Annally Capital Management, which I have held for about five years now, collecting about $60 in dividends every quarter for the two hundred shares that I purchased years ago after the Money Madman strongly recommended in favor of it on his show, Mad Money.
Although I mostly talk, think and write about long-term investing, I also speculate a little bit and try to contain myself from speculating a lot more, which would most likely end up in me losing a lot money, something that I cannot afford to do.
Should I have socked away an extra thousand when I netted around $7,500 for a trade last August? You bet. Should I have socked away another thousand after cashing out all of our son’s savings bonds? Yes sir. Did I? No, I did not.
What I will be doing is writing and mailing the check that I just wrote out to the U.S Treasury tomorrow from a local post office so I do not wind up in Club Fed.
I hope that the U.S. spends it well. As I told my father all those years ago, I hope to make enough money, perhaps even from my writing efforts this year, to pay the IRS again.
But I sure would not mind them sending that $1,860 back to me next year!