When I dove into my $300,000 of debt, one of the things that caused it was an unexpected $40,000 in tax bills. That was caused by the sale of stock to buy my ex out of our house. I was relatively inexperienced with finances at that point, and had no idea how much the capital gains tax would be. It was considerably more than it might have been because it also pushed me across the threshold for Alternative Minimum Tax.
And I had to completely change my taxes in other ways because I couldn’t claim head of household, hadn’t adopted Liana as I had planned, and a host of other rotten things had happened. (Did I mention the legal fees from the custody fight? Yeah. I didn’t think so. I don’t remember exactly how much it ended up being and don’t want to look it up for fear of causing flashbacks and hyperventilating. I think it was more than $70,000 though.)
I should also note that the dollar values mentioned here make one thing clear — I live a life of privilege. I’m white, upper middle class, live in a great neighborhood, and have the resources to survive and even thrive with this much debt and craziness in my life. I realize that means my story doesn’t translate to a lot of other people’s stories. I know. And this is still the only story I can tell coherently.
Anyway, here’s a bit about where I was in early 2007, as I slowly crawled back out of the hole that the separation, custody battle, and debts had left me in.
“I don’t know the refund that I’m going to get. My taxes have been so complex in the last few years that I finally gave up doing them myself and took them to an accountant. A couple of years ago it took us two solid hours of discussion — after she’d done all the research of the tax laws — to figure out how to do everything. That got most of it settled and done in the right way, but I’m glad to have her.
“Even after that, though, my amount owed/refunded has swung by about $40,000 when I look at the last four years of returns. (Capital gains, weird dependent/head of household stuff, and hitting the AMT ceiling at a -very- bad moment will do that to you.)”
That first time with the accountant was right after my ex and I separated. Even today, 15 years after the separation, discussions with lawyers and tax folks take a lot of time. Today, people sometimes ask whether my ex and I are divorced. Our society is already starting to forget that there was a time when same-sex couples could not marry — and thus couldn’t divorce — and the raising and relationships with the kids weren’t automatically both people’s right and responsibility.
That’s absolutely awesome.
And it’s a little weird to have me and Liana and our relationship be a remnant of that time when legal connections weren’t what they are today.
By the time I was writing in early 2007, things were much calmer.
“I think I’ll have a refund of roughly $2,500. It [the refund] is purposely set that high to allow for a cushion in case of more wild swings in my life’s adventures.”
People who hadn’t been reading along previously were a little shocked. One person reacted this way:
“Was that…. forty THOUSAND??? if so, can i borrow a couple thousand? i will gladly pay you back next thursday.”
I’m guessing some of my current readers are having a similar reaction. And so I’ll answer the same way as I did back then.
“Yep, you read it right. It was a Very Bad Day that was the end of a Very Bad Year. And that would be why I’m now repaying a 401(k) loan and various other debts. I preferred to owe myself instead of the IRS for the difference. Anyway, sure! Let’s talk terms and rates … and collateral. ;-)”
I was looking forward to what my taxes were going to be like after Rich and I got married, too:
“My taxes are only going to get more complicated after I get married. Then there’ll be two incomes, two sets of state and local tax, and four kids (none of then biologically related to me). I hear the financial aid forms will be a nightmare, too.”
I was right. They got more complicated. We managed. Eventually I started doing our taxes in TurboTax myself. That has worked well, except this year when I paid extra to have a tax planner look over my shoulder and he screwed up our tax filings for Indiana. Ah well. I got it straightened out again.