Last year I switched jobs/quit working full time to help my mother with dementia.
For 24 years I was a teacher and would get back about 5k each year as head of household claiming my daughter. In 2023 I quit at the end of the school year in mid June. Income for the half year was 36k. I then worked a few hours here and there coaching as a 1099 worker for a total of around 8k. I sold some stock for a capital loss greater than 3k which I thought would offset the 1099 tax owed at filing. However, when my accountant filed I ended up owing just over $100 which I was shocked about. Looking back I feel my accountant made errors in how to file the capital loss and it cost me hundreds, if not thousands. Is it safe to assume she made errors and I should refile?
Assuming you don’t have any capital gains - You can only deduct $3,000 of the capital loss against ordinary income. The remaining will get carried over deducting $3000 per year against ordinary income until it’s gone.
Also, the capital loss will not change the amount of self employment tax you owe.
What did your accountant say when you asked her to explain your return to you before you signed it for file and before you jumped to the conclusion that she screwed something up rather than it simply being your ignorance on the topic of capital losses and how they do NOT offset self employment income?
@Fallon
Another point to add is I think they mistakenly believe capital losses offset taxes owed when in fact it reduced earned income, after being applied to capital gains of course.
Idk how else they would think taxes on 10k of income would be offset by a 3k deduction.
@Fallon
She first asked me to sign showing I would owe more than the $100 when I asked questions she stated errors in found the insurance filing so it was reduced.
Is there a loss reported on Line 7, Form 1040? Did you report expenses related to your 1099 income on Schedule C? In addition to income tax, you’ll owe 14.1% self-employment tax on your net self-employment (1099) earnings. (The actual calculation is 15.3% of 92.35% of your self-employment income)
What makes you think the accountant made an error? You can’t just refile, you need to amend the prior return and fix the errors made to determine how much this changes your tax return. From your post, it is impossible to determine if the accountant made an error, since we don’t know how much tax was withheld on the 36k.
Also, if you think the capital loss would directly offset the taxes from self-employment you are incorrect. Self-employment tax on 8k is about $1130. In addition, from your post it looks like you had gross income of about $40,435: $36,000 plus $8,000 minus $3,000 - $565. Taxable income, assuming HOH filing status is $19,635. The federal income tax on that would be $1,570 plus 12% * 3,935 = $2,042 for a total federal tax burden of $3172.
Bailey said:
Thank you for the responses. Glad to see there are no errors.
Nobody said there were no errors. Nobody can say without reviewing and analyzing your return. People said there’s nothing in your OP that would indicate an error, that’s different from saying the return is correct. All the facts you indicated in your OP would lead to the same result you’re seeing.
The things that dropped the $5K overpayment you got back last year are the fact you only had withholding for half a year, you probably weren’t counting on the additional $1,200 or so in self-employment tax, you’re only allowed $3,000 net capital gain loss a year, you don’t get $3,000 back with a $3,000 you just get the associated tax back.
From the facts you stated that amount due sounds like it’s probably pretty accurate, but that doesn’t mean there are no errors. Your return is complicated.
Please excuse tax professionals from being a bit salty about this. When clients have a complicated return and the taxpayer’s transactions result in an unexpected tax bill it’s always the preparer’s fault whether it’s true or not.
@Monty
Thank you. I can take the saltiness from the pros. I understand where it comes from… and it is warranted. I was misinformed about several aspects of the tax codes.
Yes, it seems I would have a complicated return. I will definitely be giving the deserving appreciation to my accountant during the holidays.