Certified Public Accountants

Answers to a Few Common Questions During this Tax Season


By Rick Torkelson, CPA and principal of Torkelson & Associates, LLP in Petaluma, CA

Question: How come I owe more than last year (or my refund was bigger last year)?

Answer: Assuming all income, withholding, dependents and deductions were identical to last year, your refund would be slightly higher or balance due slightly less than last year. Tax rates did not change, but the brackets are indexed to inflation and slightly wider than last year – meaning there’s more income taxed in the 10% bracket, then the 15% bracket, etc. It’s clearly a moving target, but if your refund is down this year, it’s because you made more money or had less withholding, or fewer deductions, or some combination of things.

One scenario that often provides surprise balances due is when a spouse gets a part time job. For example let’s say a couple has a taxable income of $75K. They would be in a 25% Federal tax bracket meaning the next 10K they earned would create an additional $2,500 in federal tax. When a non-working spouse gets a part time job earning 10K per year, they would typically have no, or very little federal withholding. This situation would rob $2,500 from your refund or add $2,500 to your balance due. The answer is to be aware of the percentage of Fed and State tax to your income and react as soon as possible with changes in your income or your income as a couple by changing the withholding, making estimates, or saving some tax money for April 15th.

Question: I enrolled for Health Insurance with Covered California and now I owe a huge tax liability. Why?

Answer: When many people were signing up for health coverage at the end of 2013 and early in 2014, they were asked to estimate their income for 2014 and depending on that estimated income, often they received a discount or “advance payment of premium” from the Federal government. This advance payment is in reality a tax credit or a loan from the government depending on your actual income as filed a year later with your 2014 tax return. Many taxpayers as they lived through 2014 found better employment, cashed in some IRA, sold stock at a gain, had some taxable income producing event that lifted their income beyond the estimated income on their health care application a year ago. When their income taxes were computed, they no longer qualified for these advanced premium payments (or as much advanced premium payments), and they require repayment – a surprising tax due on their 2014 return. The lesson here is to overestimate your income and then when your tax return is prepared, you will earn more premium credit and you will get a surprise refund.

Question: How long do I keep my tax records?

Answer: This can be complicated question if you have payroll or many fixed, depreciable assets, but assuming you are a typical taxpayer, keep support for your tax returns for all “open” years. These are year where you can be audited – 3 for the IRS and 4 for the state of California. As of May 1, 2015 (assuming you did not extend your return), 2014, 2013, and 2012 are open for the IRS and 2011 additionally for the state. You should keep support for your deductions for these years. If you own your personal residence, you should keep the purchase escrow and all the receipts for improvements and any refinance escrows as long as you have the house plus the open years after the house is sold.


Estimate #2 is due June 15th. Remember, estimates are ESTIMATES. If income is down, you can lower your estimate. If income is up, consider increasing your estimate (or save you money for next April 15th).

© 2020 Torkelson & Associates CPAs, LLP.