2010 Budget

We have our normal monthly budget, but I also like to be able to project out major expenses for the upcoming year (and thereby I can figure out how much debt we can pay off during the year).

Here are the major anticipated expenses, with the amounts we have currently budgeted:

Car Insurance, $1600 (half in Mar/Apr, half in Oct)
Income Taxes, $800 net (April)
Sister's Wedding, $1000 (May)
Home Maintenance (repairs, lawn care, small projects), $3000 (May - Sept)
Kitchen Remodel, $7000 (late summer/ early fall)
Vacation/Travel, $3000 (now - Dec)
Misc Spending, $2000 (now - Dec)

I've Been Avoiding this Blog

It's been a rough few weeks, our spending has been pretty high and we also found out that our income tax bill will likely be even more than I'd previously thought.

We bought most of the supplies to finish out our current remodeling project, and that was $1300.

I found out that some professional expenses ($470) isn't going to get reimbursed by my employer. Unfortunately, I was already told by my supervisor that it would be covered, so we spent the money we had set aside for this (and a bit extra!) and used it to splurge on a big-screen TV. Had I known at the time that the company would take back their word, we would not have spent the money.

Another $265 in professional fees won't be reimbursed until late summer, but I had to front it last month. I'm slightly annoyed at having been told that other things will be reimbursed/taken care of, only to have someone at a higher level reverse that decision (unfortunately, it's happened a few times since I've been at the company), but at this point I'm still pretty sure that this will eventually get reimbursed (unless I get laid off first).

Because of these three things, the credit card that I use for regular monthly expenses/spending (and try to pay off each month) has a balance of around $2600 right now, FAR more than I'd like it to be. And I won't be able to pay off much over the next few months, because:

We will owe roughly $1300 to the IRS, as it appears that our tax withholdings were screwed up when the "Making Work Pay" tax credit went into effect last spring. We're still not quite sure how this happened, because I declare "0" exemptions on my W-2 & Hubby declares "1" on his, but somehow BOTH employers reduced withholdings by the full amount for a married couple. I think we'll end up getting $400-500 back from the State, but the net total is that we'll end up owing a lot of money. Have I mentioned before that situations like this are why I disagree with Dave Ramsey and think a $1000 baby emergency fund is not nearly enough?

Our semiannual car insurance payment is due in April, and will likely be $800-900. We actually have two separate policies that renew within a couple weeks of each other. We probably should set aside $150/mo so that we have the full amount when the bills come, but instead we've always just chosen to cash-flow it. Instead of paying extra to our credit cards, we just shift the money to the bills instead.

Income Taxes

Our W-2's, 1099's, 1098's, and all the other tax forms have been arriving in the mailbox. We've finally received all of the major items, I think, and are just waiting on smaller stuff (like 1099 from last year's state refund & bank interest statements).

The good news, we made $110k last year.

The bad news, not all of that was actual income. Some of it was taxable fringe benefits, like tuition reimbursements. Some of it was from self-employment, which means that we have to pay an additional 15.3% tax PLUS our normal tax bracket.

I ran though some very rough numbers, and I think we will end up owing money this year. The State of Michigan has some pretty hefty penalties and interest, so we always deliberately over-pay them... I think we will get around $400 back from them. We will almost certainly end up owing the IRS though. I've been doing our taxes for several years now, so I have a pretty good handle on what our expenses & deductions are, and I'm estimating we will owe around $700. So much for getting a few hundred dollars back.

In all my estimating, I also realized that our charitable contributions are way less than we should probably be giving. Last year we gave only $100 in cash donations (with receipts). That's less than 1/10th of 1%. We've never tithed, and neither of us grew up in households that tithed... so we've discussed it and both don't feel comfortable giving away 10% of our income. Especially not now, when we have so much in debt (and such a lengthy & expensive wish list for things we'd eventually like to do, like buy a larger house with a basement, travel, save for kids' college). But I think we need to try a little harder... maybe get it up to at least 0.5% or 1%.

Employer Education Assistance

We received a notice today that additional taxes will be withheld for the next three months, approximately $300/mo. 

My husband's employer has provided a great deal of education assistance this year, but the amount they've contributed has exceeded the federal tax-free limit of $5250. Any amount over that is subject to tax, and so they are going to estimate the tax and then split it equally between the remaining 2009 paychecks. 

We're already pretty tight financially right now, especially since we're having the $275/mo extra withheld to cover self-employment taxes, the $500/mo increase in minimum credit card payments (effective since August), and the auto insurance renewals ($500 in Oct & another $400 in Nov)... losing an extra $300 would be really tough! 

We'd possibly have to dig in to the emergency fund to cover the shortage for the time being. We'll have to adjust our withholdings, perhaps by stopping the extra withholdings on the self-employment money, and then just take care of it when we go to file our taxes in the spring. 

It's a juggling act. We need money to pay our bills now, and we should be in a better financial position in the spring, but the economy is still rather precarious - so who knows if we'll even still have our jobs then. But at the same time, I don't want to withhold too little now and end up having to pay penalty & interest when we file our taxes.  

I think we'll be able to get most of it back when we do our tax returns, so I really need to find out more information on the tax implications of employer-provided education assistance. I'm hoping that we can claim a tax deduction for some of the tuition and fees that the employer paid (only the amount in excess of $5250, so just what we're getting taxed on). 

Estimating Taxes on Self-Employment Income

I had previously mentioned that we have some self-employment income coming in soon, and that we would either have to pay estimated quarterly income tax on it or we would have to adjust our withholdings from our "day jobs" to cover the additional income tax. 

While I love getting extra money from little side jobs, it really sucks to crunch the numbers and see how little is left over. On a $4500 check, we will end up paying close to 40% in taxes! 

We're in the 25% marginal tax bracket, so there's an instant $1125 to the IRS.  It's self-employment income, which means we have to pay an additional 15.3% (12.4% is to Social Security, and 2.9% is for Medicare). And of course we also have to pay state income tax of 4.35%  - so 44.65% in taxes, right off the top! 

There are a few small deductions (when we go to file our federal tax return, the self-employment tax deduction allows us to subtract 1/2 of the 15.3%) and multipliers used in the forms (you only pay the 15.3% on 92.35% of the net income), so the actual taxes paid ends up being slightly less.  

So out of the $4500 check, we pay: 

- Federal Income Tax:  $1125

- Social Security: $515

- Medicare: $121

- State Income Tax: $196

Subtotal, Taxes: $1957

Minus 1/2 SE deduction @ 25% tax rate: $80 [0.25*(0.5*($515+$121))]

Total, Taxes: $1877

We've sometimes been able to take the home office deduction as well, and that would allow us to save an additional $150 if we can take it this year. Even so, we would end up paying $1727! It's frustrating to see so much of our hard-earned money just disappear! 

Anyways, I used the $1877 to calculate how much extra we should have withheld from our normal paychecks for the rest of the year. I ran through the math a few weeks ago, knowing that it would be effective June-December (so seven months).  $1877 / 7 = $268/mo.  We set up an additional $25/mo to go to the State, and the remainder to go to the Feds. 

Budget for July: FAIL

I had every intention of posting my full budget for July on here, and then tracking how it compares to what we actually spent. 

The only problem, the July budget is completely screwed up.  It's a 3-paycheck month, so we have extra income. We're also expecting a substantial $4500 check for self-employment, but we don't know if we'll receive it in a few days or a few weeks. Together, this will amount to nearly $5900 in extra income for the upcoming month (that is, above and beyond what we normally take home).

But we're also planning to pay down a huge chunk of credit card debt, just over $6200, in preparation for the looming 150% increase in minimum payments on Chase. And I'd like to maintain a $5000 balance in our emergency fund, which means we need to set aside an extra $3000 by mid-August, to cover fall tuition and the upcoming house repair. 

 And because we decided to use the entire $4500 check now, instead of setting aside some for income taxes,  we had to modify our income tax withholdings at work so that they're taking out extra. If we didn't, we would end up owing nearly $2000 next April, which would kick us into the category where we'd also have to pay interest and penalties for underpayment!  Instead, I estimated what we should pay in estimated quarterlies, and just divided that by the number of months left in the year. The end result will be the same, come tax time, but for the rest of the year our take-home pay will be $275-300/mo less. 

July is going to be an unusual month for budgeting. Lots of extra money coming in, huge extra payments towards debt/savings, and a reduction in normal income. Dollar-wise, I think it all works out. In terms of cash-flow, I have no clue how it will shake out. There's plenty to take care of all the essential bills and minimum payments this month, I'm just not sure when all the extra payments will actually be made. 

So instead of posting an itemized budget, I'm just going to post the targets for the month of the July:

• Reduce credit card balance from $32,747 (as of 6/24) to $25,780
• Pay off completely all but two largest credit cards
• Increase emergency fund to $8000 ($3000 of which will be short-term savings)