2022 Taxes

I knew 2022 would be a tricky tax year. We put a new rental property into operation, rents were up and fortunately, we weren’t hit with numerous repair costs. As I’ve shared previously, navigating the ins and outs of federal income tax is uncharted territory for me. Staying oblivious to federal income taxes is one of the many benefits of military service! After my retirement from the military in 2019, I quickly discovered there are strategies one must implement to keep the tax bill in order.

I thought I had it figured out for 2022. One of our businesses operated at a loss, offsetting a portion of the gains from the other. I kept withholding the same as my previous two years post military which worked out nicely on those tax returns. With one in college, I was expecting to reap the benefits of an education tax credit. We also increased 401k contributions and charitable giving.

But as the 2022-year-end statements, 1099s and W2s start trickling in and I start piecing together our return, I’m coming to the realization that many of my assumptions were just plain wrong. First and foremost, even though I kept my withholding the same, for some reason less was withheld than the previous years. Additionally, we don’t qualify for the education tax credit. To make matters worse, I didn’t take into account our oldest turned 18 last year so therefore no child tax credit for him either!

As a result, we will be way underpaid. On a positive note, our one business that took a loss did help offset some of the profit on our rentals. We won’t be able to do that again this year as a business can’t operate at a loss indefinitely! Additionally, at the end of the day, it appears our effective tax rate will be proportionally about the same as 2021. It could have been much worse!

Thankfully, I started looking at our 2022 return in January this year. Imagine the surprise if I started crunching on this in April! We’ll have a hefty tax bill come April to include some penalties. I’m only mad at myself for not planning better. Death and taxes are facts of life and I’m of the belief we have to give unto Caesar what is Caesar’s. I fully acknowledge this is a good first world problem to have; we are blessed to be in a position where we have to worry about our tax burden. However, I just hate making mistakes! Perhaps it’s time to seek the help of an accountant for 2023. As a chronic do it yourselfer, I’ve always done my own taxes, but maybe it’s time to seek help.

In the meantime, I’m already working to prevent a repeat performance in tax year 2023. I’ve increased withholding from my employer as well as bumped up both our 401k and charitable contributions again. I’ve also made plans to make quarterly estimated tax payments for 2023 which can all be done online. It’s actually surprisingly easy to set up a payment account on the IRS website. My goal is always to come in “on time” with the tax bill. Never liked getting a big refund check when I gave the government an interest free loan!

More to follow after the actuals come in and we file in April. I’ll share my lessons learned so maybe someone in a similar boat won’t end up with the surprise I discovered this week. Have you started looking at your 2022 return yet? Gone are the days of a simple tax return; makes one miss the Army a bit…

Want to learn more about the financial truths that have helped our average American family achieve success? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truths to Build Wealth on sale now at Amazon!

Want to learn more about the lessons we’ve learned from investing in rental properties, check out my book Collect Rent, Don’t Pay It! A Beginner’s Guide to Rental Property Investing, for sale now on Amazon!

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