Sharing a personal tax story, is gov't too big?

[웃 910]

Hi guys. Looking for some comments here. Whether right, left, independent, or not into politics.

Here is the deal. My dad told me he owes almost $70,000 this year in taxes. You would think you might pay that amount if you raked in millions, many many millions. But unfortunately for him that is not at all the case. Just a guess but he might have made $200k in 2009. He said it is mostly from pulling out early on some funds before retirement age.

Seriously though, if you made $200,000 you would think maybe a bill in the mail for $20,000-$30,000 would even be WAYYYYYYYY too much to ask for. But almost $70,000. That is absurdly ridiculous.

He said straight up he doesn't have the money to pay it. He is not gonna pay squat and possibly try to get into a payment plan. In other words, it looks like Uncle Samuel has him by the neck for the rest of his life. He will probably pay a monthly note rest of his life, or maybe Uncle Samuel will confiscate his car, garnish wages, or confiscate other valuables.

Really sad and pathetic for Uncle Samuel to think $70,000 in taxes is doable.

This makes me really dislike the government size, the amount of taxes they are trying to collect from citizens of this land, etc.

To me, I think government should be extremely limited. That $70,000 is spent by Uncle Samuel in most likely a millionth of a second. Why can't they turn the other cheek for that millionth of a second? These imbeciles are spending money like crazy, how fast and how foolishly they will spend his $70K?

Really though, I think government should be small at the city level, even smaller at the state level, and practically non-existent at the federal level. Just bare minimum at federal level.

I know some gov't is necessary, and gov't can definitely create jobs. But who is paying all of these government workers. Where does it come from? Taxes and a sh!t load of printers.

I think the gov't (city-state-fed) should be satisfied with property taxes and a sales tax, and that is about it. As far as taking away a third of weekly/yearly working income I think that is way too much. How about 10%???? One-tenth I can live with! Take a tenth of my income and use $1 for fixing up the roads, $1 to fight crime, and $1 to fight poverty, AND THEN STFU!

Thoughts?

[one...two...tree 2,762]

Just a guess but he might have made $200k in 2009. He said it is mostly from pulling out early on some funds before retirement age.

There's your answer right there. He cashed in on some tax free retirement funds early and now has to pay a penalty. It sucks to owe so much but did he not consult with his accountant before making such drastic decision? He could have borrowed against his retirement as another alternative which would have saved him a sh!tload of money.

You'll lose 10% of your savings as a penalty and have to pay taxes on the income you received. There are some instances where you wouldn't pay the penalty, but you'd still be losing your savings. Here are more details:

Virtually all employers impose severe restrictions on withdrawals while a person remains in service with the company and is under age 59½. Any withdrawal that is permitted before age 59½ is subject to an excise tax equal to ten percent of the amount distributed, including withdrawals to pay expenses due to a hardship, except to the extent the distribution does not exceed the amount allowable as a deduction under Internal Revenue Code section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year). The tax code legally defines hardship as:

1. Purchase of a primary residence (specifically excludes mortgage payments)

2. To avoid foreclosure of, or eviction from, primary residence

3. Payment of secondary education expenses incurred in the last 12 months for the employee, his/her spouse, or dependent(s)

4. Medical expenses not covered by insurance for employee, their spouse, or dependent(s) which would be deductible on a federal tax return (i.e. non-essential cosmetic surgery would not be acceptable)

5. Funeral expenses for the employee's deceased parent(s), spouse, child(ren), or dependent(s) (as of December 31, 2005)

6. Home repairs due to a deductible casualty loss (as of December 31, 2005)

[Danno 1,228]

Hi guys. Looking for some comments here. Whether right, left, independent, or not into politics.

Here is the deal. My dad told me he owes almost $70,000 this year in taxes. You would think you might pay that amount if you raked in millions, many many millions. But unfortunately for him that is not at all the case. Just a guess but he might have made $200k in 2009. He said it is mostly from pulling out early on some funds before retirement age.

Seriously though, if you made $200,000 you would think maybe a bill in the mail for $20,000-$30,000 would even be WAYYYYYYYY too much to ask for. But almost $70,000. That is absurdly ridiculous.

He said straight up he doesn't have the money to pay it. He is not gonna pay squat and possibly try to get into a payment plan. In other words, it looks like Uncle Samuel has him by the neck for the rest of his life. He will probably pay a monthly note rest of his life, or maybe Uncle Samuel will confiscate his car, garnish wages, or confiscate other valuables.

Really sad and pathetic for Uncle Samuel to think $70,000 in taxes is doable.

This makes me really dislike the government size, the amount of taxes they are trying to collect from citizens of this land, etc.

To me, I think government should be extremely limited. That $70,000 is spent by Uncle Samuel in most likely a millionth of a second. Why can't they turn the other cheek for that millionth of a second? These imbeciles are spending money like crazy, how fast and how foolishly they will spend his $70K?

Really though, I think government should be small at the city level, even smaller at the state level, and practically non-existent at the federal level. Just bare minimum at federal level.

I know some gov't is necessary, and gov't can definitely create jobs. But who is paying all of these government workers. Where does it come from? Taxes and a sh!t load of printers.

I think the gov't (city-state-fed) should be satisfied with property taxes and a sales tax, and that is about it. As far as taking away a third of weekly/yearly working income I think that is way too much. How about 10%???? One-tenth I can live with! Take a tenth of my income and use $1 for fixing up the roads, $1 to fight crime, and $1 to fight poverty, AND THEN STFU!

Thoughts?

I think the problem here is... you and your Pop have not grasped the concept of Social-Justice.

... Or redistribution of wealth, however you want say it.

[Pooky 3,876]

I think the problem here is... you and your Pop have not grasped the concept of Social-Justice.

... Or redistribution of wealth, however you want say it.

... Or the concept of reading the fine print about how these funds work. Social justice has got squat to do with it.

I've done the same and seen "my" investment shrivel before my eyes (well the taxman got most of what I didn't ), but I knew what the consequences were. When it came down to it, I needed to do it to secure my future. It hurts like hell, but it was there for my future, so that's what I used it for.

Did your father read the fine print? Did he speak to an accountant?

[rin and john 71]

There's your answer right there. He cashed in on some tax free retirement funds early and now has to pay a penalty. It sucks to owe so much but did he not consult with his accountant before making such drastic decision? He could have borrowed against his retirement as another alternative which would have saved him a sh!tload of money.

Agreed.

If he had taxable income of $208K, his marginal tax for additional income is 33% (or if single, it is 33% over 171K). So assuming he is in the 33% marginal tax rate (tax on incremental income, not all income) then say he withdrew $100K, his 'extra' tax would have been $33K plus a 10% penalty of $10K. So he would have withdrawn $100K and netted $57K.

Had he taken a loan, it would not have been taxable income this year. He would have paid himself back the $100K with interest (I did this when I got divorced; the repayment of principal and interest both go back to me, so it is like loaning yourself money since you get the interest back too). Additonally, when he began withdrawing from his 401K after retirement, he could have withdrawn 'extra' to repay the loan. The retirement withdrawal would have been in all likelihood at a lower tax rate since his total income will most likely be less per year at a lower marginal tax rate.

[The_Dude 1,142]

Hi guys. Looking for some comments here. Whether right, left, independent, or not into politics.

Here is the deal. My dad told me he owes almost $70,000 this year in taxes. You would think you might pay that amount if you raked in millions, many many millions. But unfortunately for him that is not at all the case. Just a guess but he might have made $200k in 2009. He said it is mostly from pulling out early on some funds before retirement age.

Seriously though, if you made $200,000 you would think maybe a bill in the mail for $20,000-$30,000 would even be WAYYYYYYYY too much to ask for. But almost $70,000. That is absurdly ridiculous.

He said straight up he doesn't have the money to pay it. He is not gonna pay squat and possibly try to get into a payment plan. In other words, it looks like Uncle Samuel has him by the neck for the rest of his life. He will probably pay a monthly note rest of his life, or maybe Uncle Samuel will confiscate his car, garnish wages, or confiscate other valuables.

Really sad and pathetic for Uncle Samuel to think $70,000 in taxes is doable.

This makes me really dislike the government size, the amount of taxes they are trying to collect from citizens of this land, etc.

To me, I think government should be extremely limited. That $70,000 is spent by Uncle Samuel in most likely a millionth of a second. Why can't they turn the other cheek for that millionth of a second? These imbeciles are spending money like crazy, how fast and how foolishly they will spend his $70K?

Really though, I think government should be small at the city level, even smaller at the state level, and practically non-existent at the federal level. Just bare minimum at federal level.

I know some gov't is necessary, and gov't can definitely create jobs. But who is paying all of these government workers. Where does it come from? Taxes and a sh!t load of printers.

I think the gov't (city-state-fed) should be satisfied with property taxes and a sales tax, and that is about it. As far as taking away a third of weekly/yearly working income I think that is way too much. How about 10%???? One-tenth I can live with! Take a tenth of my income and use $1 for fixing up the roads, $1 to fight crime, and $1 to fight poverty, AND THEN STFU!

Thoughts?

My thoughts are that you clearly have never had any exposure to taxes. A $70k Tax bill on $200k income is 35%, while being a little high is not out of line. Taxes are not stealing, and no, they can't just look the other way just this time.

[w¡n9Nµ7 §£@¥€r 123]

Seriously, he did early withdrawals on his tax-deferred savings without a qualifying reason, and you're complaining about the penalties?

[Dan J 277]

The tax liability for $200,000 is around $45,000 depending on exemptions and deductions. The early withdrawal penalty is $20,000 on $200,000. He could have had the taxes withheld when he made the withdrawal.

I am not sure how he would have gotten in the situation where he is owing the entire tax amount when filing taxes. Most brokerages do offer to withhold the tax when the withdrawal is made. Even if you don't have that done, its pretty easy to estimate the tax liability for the withdrawal and put the money aside.

[w¡n9Nµ7 §£@¥€r 123]

I just finished wrapping up my dads taxes for 2009. He passed away over a year ago and we ended up owing money on his sick/vacation pay which my mom got as a lump sum and out of which they didn't take any taxes out. Ended up being a hefty bill, since he never took time off.. for anything. Ever. Do I see it as government being too big? No, I see it as government (he worked for a local government) being retarded and not treating that money as wages and deducting at source like they do wages.

[one...two...tree 2,762]

The tax liability for $200,000 is around $45,000 depending on exemptions and deductions. The early withdrawal penalty is $20,000 on $200,000. He could have had the taxes withheld when he made the withdrawal.

I am not sure how he would have gotten in the situation where he is owing the entire tax amount when filing taxes. Most brokerages do offer to withhold the tax when the withdrawal is made. Even if you don't have that done, its pretty easy to estimate the tax liability for the withdrawal and put the money aside.

Yeah, I'm curious what his father was thinking when he decided to do this.

[The_Dude 1,142]

I just love the anti-government diatribes that slip in the catch phrase "taxes are stealing". No, they aren't, they are the price you pay for living in a civilized society. If you dont' like it, move to some third world country. I certainly would love to not pay taxes, but I enjoy having social services like road maintenance, schools, community organizations and emergency services far more.

[ValerieA 350]

And what did he spend the $200k on, that he doesn't have any left to pay the taxes? I mean, I can spend $200k pretty quick...but that doesn't let me off the hook for taxes.

What interest rate does the US gov't charge when paying back taxes on a payment plan? And what are the penalties?

[Deputy Purple 1,294]

I just finished wrapping up my dads taxes for 2009. He passed away over a year ago and we ended up owing money on his sick/vacation pay which my mom got as a lump sum and out of which they didn't take any taxes out. Ended up being a hefty bill, since he never took time off.. for anything. Ever. Do I see it as government being too big? No, I see it as government (he worked for a local government) being retarded and not treating that money as wages and deducting at source like they do wages.

wouldn't the fault here lay with the employer who didn't treat the payment as wages and withhold the proper amount of taxes?

[w¡n9Nµ7 §£@¥€r 123]

wouldn't the fault here lay with the employer who didn't treat the payment as wages and withhold the proper amount of taxes?

that's what i said.

[웃 910]

A couple responders are saying 'you and your dad' this, 'you and your dad don't know that'....'what were you guys thinking', 'you don't know about taxes', etc..

IT IS NOT ME!!! I am just sharing the story. I have a philosophy in life that guarantees very low bills and high savings. It is a two-tier strategy: NO MORTGAGE EVER and ALWAYS LOW CREDIT CARD DEBT. With these two things I am sure that down the road (later in life) I will be living very well.

Back to the story. Yes he knew there was a penalty. He has multiple accountants. I'm not sure he knew the exact price tag he would pay but he knew he would pay a penalty. And the reason he pulled out is because his savings went from about $1.5 million at the peak of the bull market (OCT 2007) to $400,000 by December 2008.........He probably would be up to about $700,000 or $800,000 if he held through 2009 but when you see your statement go from millionaire down to $400,000 (still a huge amount but not quite $1.5M) then I could see why he would want to get out.

I think capital gains taxes should be at 0%, 5%, or MAXIMUM 10% for families that make less than $500,000.

I'm not in the position yet where I would have to pay over $20,000 come tax time but most people are broke and in debt! Now maybe some of you guys are paying $30,000 or better every tax year (I highly doubt it). So you must have a couple hundred grand set aside to pay taxes each year. MOST PEOPLE don't have that. And I am betting that most of the people on here either didn't pay any taxes, are getting a paycheck back in the mail from the gov't, or are paying much less than $10,000. It's just a fact that most people do not have lump sums of money set aside to pay lump sums in taxes every tax year. Most people are struggling and living check to check, in debt up to their eyeballs!

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Edited April 13, 2010 by Lord Infamous