I owe taxes this year, why am I getting hit with a tax bill instead of a refund?

So I just finished filing my taxes and I'm completely shocked. Instead of getting a refund like I usually do, I OWE $3,200 to the IRS! I don't understand what happened. My job situation hasn't changed much - still working the same position, maybe got a small raise (like 5%) but nothing crazy. I claimed the same dependents as last year (just myself, single filing status). The only thing different was I did some freelance work on the side that paid about $12,000 throughout the year. They paid me directly, no tax forms or anything. I also sold some stocks that I had for a few years and made about $4,500 profit. I've always gotten at least a small refund before. Is this normal? Did I mess something up on my return? Or is this just what happens when you have side income? I'm freaking out because I don't have $3,200 just sitting around!

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21 comments

Dmitry Popov

•8M

This is actually pretty common and there's a straightforward explanation. When you have income that doesn't have taxes withheld (like your freelance work and stock profits), you're responsible for paying those taxes yourself. The $12,000 in freelance work is considered self-employment income, which means you owe both income tax and self-employment tax (about 15.3% for Social Security and Medicare). The $4,500 in stock profits is considered capital gains, which is also taxable. Since your regular job's withholding was only calculated based on that income, it wasn't accounting for these additional income sources. For future reference, when you have significant income outside your regular job, you should make quarterly estimated tax payments throughout the year to avoid a surprise bill come tax time. You might also want to increase your withholding at your main job by updating your W-4 to compensate for the additional income.

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Dmitry Popov

•8M

The quarterly amount would have been roughly $800 per quarter, though it depends on when during the year they earned the freelance income and sold the stocks. Yes, there can be penalties for not making quarterly estimated tax payments when required. The IRS calls this an "underpayment penalty." It's essentially interest charged on the amount you should have paid throughout the year. The penalty rate changes quarterly but is generally around 3-5% annually. However, there are safe harbor provisions - if your withholding covers 100% of last year's tax liability (or 110% for higher-income taxpayers), you can usually avoid the penalty even if you have additional income.

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StarSailor}

•8M

I had almost the exact same situation last year! Made about $15k from side gigs and got slammed with taxes. After panicking about how to pay it all, I found this tool called taxr.ai (https://taxr.ai) that helped me analyze my situation and find deductions I missed. It looks at your specific situation and compares your tax scenario against similar cases. The big thing it showed me was all the deductions I was missing as a freelancer - like my home office, portion of internet bills, supplies, mileage, etc. I was able to rerun my numbers and cut my tax bill by about 40%! For your freelance income, there are probably legitimate business expenses you can deduct to reduce the tax impact.

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StarSailor}

•8M

It doesn't require uploading your full tax returns - you answer questions about your situation and it analyzes the information. You can also upload just specific relevant documents if you want a deeper analysis. It's fully encrypted and secure if you do share documents. Yes, it absolutely helps with quarterly payments! That was one of the best features for me - it gives you estimates for what your quarterly payments should be based on your projected income. It even sends reminders before each quarterly deadline so you don't forget.

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Zainab Ismail

•8M

Just wanted to update - I tried taxr.ai after asking about it and wow, it was actually really helpful! I was able to find almost $2,800 in deductions I would have missed for my side gig. I had no idea I could deduct part of my cell phone bill since I use it for business calls. Also found out I can deduct mileage for driving to client sites (which I do a lot). The quarterly payment calculator is super straightforward and now I've got all the payment dates in my calendar with the estimated amounts. Feeling WAY more prepared for next year. Thanks for recommending this - definitely worth checking out if you're doing any kind of freelance work!

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Connor O'Neill

•8M

If you need to set up a payment plan with the IRS because you can't pay the full $3,200 right now, I highly recommend using Claimyr (https://claimyr.com). I was in a similar situation last year - owed about $4,000 and couldn't pay it all at once. I spent DAYS trying to get through to the IRS on my own - always got the "call volume too high" message and they'd hang up. Super frustrating. Then I found Claimyr. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they get you placed in the IRS phone queue without you having to keep redialing. Within 2 hours I was actually talking to an IRS agent! Got a 72-month payment plan set up with very reasonable monthly payments. Saved me so much stress.

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Connor O'Neill

•8M

They don't have a special connection to the IRS - they use technology to monitor IRS phone lines and automatically call for you, placing you in the queue as soon as a line opens up. Then when they get through, they call you and connect you directly with the IRS agent. It's all automated with their system. It's definitely not a scam. I was super skeptical too, but I was desperate after trying for days. They don't do anything you couldn't technically do yourself if you had hours to keep redialing. They just automate the process of getting through the busy signals. Once you're connected, you're talking directly to the actual IRS, not to some third party.

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Keisha Robinson

•8M

I need to eat my words about Claimyr. I was so skeptical that I decided to try it just to prove it wouldn't work. I was shocked when they actually called me back in about 90 minutes saying they had an IRS agent on the line. Got my payment plan set up in one call - $78/month for my tax bill which is totally manageable. The IRS agent was actually really helpful once I got through. For anyone wondering - you're definitely talking to the actual IRS, not some middleman. They just get you past the impossible phone system. Saved me literally days of frustration and probably a lot more in penalties if I had just ignored the tax bill hoping it would go away (which was honestly my plan before this).

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GalaxyGuardian

•8M

Just want to add - if you did freelance work, you're considered self-employed, so make sure you're filling out a Schedule C to report that income and expenses. You can deduct legitimate business expenses like: - Part of your home if you use it regularly and exclusively for work - Business travel and mileage - Office supplies - Software/subscriptions related to your work - Professional development - Health insurance premiums (potentially) Those deductions can really add up and reduce your tax bill significantly. Don't miss out on them!

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GalaxyGuardian

•8M

You should have receipts or some form of documentation for all business expenses you deduct. Without receipts, you're at risk if you get audited. Bank and credit card statements can help if you've lost some receipts. For things like mileage, start keeping a log now for this year - there are apps that can help track this. For last year, you might need to make reasonable estimates based on appointments, calendar entries, etc. Just be prepared to justify your estimates if questioned.

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Natasha Volkova

•8M

Yes, you can offset capital gains with capital losses. If you have investments that have gone down in value, selling them in the same tax year will create capital losses that directly offset your gains. You can also contribute to tax-advantaged accounts like 401(k)s or traditional IRAs to lower your overall taxable income, which can help reduce the impact of the capital gains. For example, if contributing more to your 401(k) drops you into a lower tax bracket, your capital gains rate might also decrease.

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