Well, it’s official. I’ve completed my taxes and I owe the Government $6000. $6019 to be exact. Because of that, I haven’t filed my taxes just yet. To make matters worse, I don’t have $6000 lying around. Truthfully, it could have been worse. But, this is the last straw to drop so to speak. I knew this year was going to be rough. I knew my taxes were going to be high. I’m just glad that I know the amount and I am working diligently to come up with the funds to pay my taxes next month. So, let’s take a look at why my taxes are so high and how I plan on paying for it.
Why Are My Taxes So High?
I feel like it’s been a while since I’ve gotten a tax refund. Gone are those glory days. Honestly, this year’s high taxes were expected. Here’s why.
Last year, among other things, I withdrew money from my 401K to buy a beach condo! There were numerous reasons for this decision. Even though that condo that I bought is costing me a fortune (nearly $6000 a month in mortgage and HOA fees alone), to me it was still worth it. But, in order for me to purchase that condo, I needed money for the down payment. So, I withdrew funds from my 401K.
The problem of course is that it’s an early withdrawal because I don’t meet the age requirement to be able to withdraw with no penalty. So, now I am suffering the cost of paying taxes on the withdrawal as well as a penalty.
There are other reasons why my tax bill is so high, but this is the main one. Like I said, it could have been worse.
How Am I Going To Pay For My Taxes?
This is a tough one. As indicated above, I don’t have $6000 laying around. So, how am I going to do this? Let’s see.
A. Money Diverted From The Condos To Taxes
I’ve reported on how the fact that while I am in the slow season, money is tight financially because I have to use my income to support my beach condos.
The good news is that we are heading into the busy season. Spring break is upon us and at least for the next few months, the hope and goal is for the condos to be able to support themselves. That will give me some breathing room. So, the money that would have gone to the condos can instead be used to help fund my tax payment.
In truth, it won’t be enough. If I am really diligent, I might be able to come up with half. Maybe $4000 if I lucky. But, for now, I feel comfortable saying that I should be able to come up with $3000 on my own.
B. Sell Stocks From My Dividend Portfolio
I didn’t want to say it, but it looks like I am going to have to sell stocks in my dividend portfolio to come up with the difference.
The other options I had made no financial sense. For example, I could again try to withdraw money from my 401K or my Roth IRA, but the tax consequences would be worse!
Additionally, I was contemplating maxing out my credit card to pay the difference. This was the leading contender for a while. But, one of the things I’ve notice with my already high credit card debt of nearly $20k, is that the interest payments alone are brutal! Had I put the $6000 on my credit card, the interest payments alone would have made the decision far more expensive!
So, my thought process to save as much money as I can by April 15, and withdraw as little as I can from my dividend portfolio. Imagine If I am able to save $4000 and only withdraw $2000 from my dividend portfolio. I hate selling but I think that’s be best option for my financial situation.
Long-Term Impact
Let’s take a moment to examine the long-term impact of this decision.
For starters, the money that I am trying to save for my taxes was supposed to be save to help me get through the slow season come November. So, although I’ll be able to endure the pain of paying my tax bill, I am only delaying the inevitable. It looks like I may have to struggle again for one more slow season.
But it’s not all bad news. I am still going to try to pay down my credit card debt over the next few months. At some point I’ll be in a position to increase the contributions again to my dividend portfolio. So, it’s not all bad. But for now, the struggle is real, as the saying goes.
Final Thoughts
My financial life is going to get worse before it gets better. But, there is light at the end of the tunnel. $6000 is a lot of money, but it’s not the end of the world.
I think I have selected a reasonable and fiscally responsible approach to coming up with paying for my taxes. I just have to weather the storm over the next several months.
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