Owe $2000 in federal taxes for 2016, also have $2000 in credit card debt. What is best way to manage this?
In June I started a job making $56,000 a year. Today I learned that I unwittingly marked myself as "exempt" when filling out my W4, and my online tax service says I now owe $2000 in federal taxes for 2016. I also currently have $2000 in credit card debt at a 9.90% interest rate, $500 in emergency funds, personal Roth and Traditional IRAs, and an employer-sponsored-but-non-matching 457(b).
I changed my W4, put a pause on my non-matching retirement contributions, am eeking out all possible deductions I can think of, and am trying to figure out my other options at this point. It's possible I can save $4000 by April 15th, but not likely.
Option 1: Pay the taxes first as soon as I get $2000 and pay minimal credit card payments in the meantime.
Option 2: Pay off the credit card balance first, shoot for $2000 by April 15th, and use my emergency money and/or a tax payment plan if I fall short.
Option 3: Put $2000 towards a retirement plan before April to qualify for the savers credit of 10% of retirement contributions, then pay the taxes and minimal credit card payments, using emergency savings/repayment plan if necessary. My adjusted gross income is currently showing as $32,750, which is $2000 over the limit to qualify for the saver's credit. In 2016 I put $800 towards my 457(b) and $500 towards my Roth IRA, so with a $2000 contribution, I believe the credit would be for $330, resulting in taxes owed of $1670.
Option 4: Another solution I have not considered.
Posted Feb 17, 2017, 2:46 AM UTC