This Doesn't Sound Right

Jurisdiction
California
My 95-year-old Aunt told me she had to pay $4000 in Federal Taxes and $1000 in State taxes this year. She had to take out a loan to pay it.

Somehow this doesn't seem right to me. She lives in an Assisted Living facility and has 3 sources of income, most of which she pays in monthly rent to the facility:
  1. Social Security
  2. A very modest public sector pension
  3. Interest from a small (< $100,000) stock portfolio
Okay, I know she did what tax preparers hate. She stuffed every receipt, notice, brochure, etc. from all year long into a paper bag & said, "This is too hard for me, you figure it out." and sent that to her tax preparer. I know she shouldn't have done that, but she did, 2 weeks ago. (Her assisted living facility does have volunteers who come in to help residents with their taxes, but she didn't want to let them see her private info.)

Her tax preparer filled out form 1040-EZ, or whatever it's called now, & sent it back to her to sign and send in with the taxes she owes. They also recommended that she file quarterly estimated taxes this coming year.

Something doesn't seem right to me. I can't imagine the income from those 3 modest sources being so high that she owed that much in taxes. Her hearing and sight and memory aren't what they used to be, and I'm worried that something got miscommunicated, or even that somebody might be deliberately taking advantage of her. She likes to keep her finances private and won't let me see the tax forms she filed. On the other hand, I am her Health Care POA and she has me designated as the Executor of her estate after she passes, so I do feel like I should try to make sure she isn't getting ripped off.

Does this amount of taxes owed under these circumstances set off Red Flags for anyone else, or is it just me?
 
My 95-year-old Aunt told me she had to pay $4000 in Federal Taxes and $1000 in State taxes this year. She had to take out a loan to pay it.

Somehow this doesn't seem right to me. She lives in an Assisted Living facility and has 3 sources of income, most of which she pays in monthly rent to the facility:
  1. Social Security
  2. A very modest public sector pension
  3. Interest from a small (< $100,000) stock portfolio
Okay, I know she did what tax preparers hate. She stuffed every receipt, notice, brochure, etc. from all year long into a paper bag & said, "This is too hard for me, you figure it out." and sent that to her tax preparer. I know she shouldn't have done that, but she did, 2 weeks ago. (Her assisted living facility does have volunteers who come in to help residents with their taxes, but she didn't want to let them see her private info.)

Her tax preparer filled out form 1040-EZ, or whatever it's called now, & sent it back to her to sign and send in with the taxes she owes. They also recommended that she file quarterly estimated taxes this coming year.

Something doesn't seem right to me. I can't imagine the income from those 3 modest sources being so high that she owed that much in taxes. Her hearing and sight and memory aren't what they used to be, and I'm worried that something got miscommunicated, or even that somebody might be deliberately taking advantage of her. She likes to keep her finances private and won't let me see the tax forms she filed. On the other hand, I am her Health Care POA and she has me designated as the Executor of her estate after she passes, so I do feel like I should try to make sure she isn't getting ripped off.

Does this amount of taxes owed under these circumstances set off Red Flags for anyone else, or is it just me?

I can't imagine that anyone on this site could even speculate on whether or not she was "ripped off" based on your post. I would imagine that any tax professional would have to see the income statements/ "box of stuff" she sent off to her tax preparer to see if her taxes were calculated correctly.

I will tag @Tax Counsel who is a Tax Attorney to look at your post. Perhaps he could assist.
 
I can't imagine the income from those 3 modest sources being so high that she owed that much in taxes.

How would you know? Do you have a copy of her tax return sitting in front of you? If you don't, see if you can get it and give us the figures.

Does this amount of taxes owed under these circumstances set off Red Flags for anyone else, or is it just me?

No. It's just you.
 
Does this amount of taxes owed under these circumstances set off Red Flags for anyone else, or is it just me?

Unfortunately without all the actual details — starting with the tax return and the income reporting program (IRP) documents that she was issued, like Forms 1099 — it's really not possible to say if the return is accurate. The specific amounts of each source of income, deductions, and credits are important. You say she received a "very modest" public sector pension. But the term "very modest" unfortunately tells me nothing. What is modest to you might not be to someone else, for example. If she had enough other income her Social Security can be taxable income, in which case the exact amount of the SSA income matters. The exact amount of interest she received matters, too. And did she have any withholding, estimated tax payments made, etc., that would reduce the tax owed? You don't mention any of that. It's quite possible for a retiree on a pension, SSA payments, and interest or other investment income to end up owing $4,000 in federal tax when there has been no withholding or estimated taxes paid, so by itself the information you provided doesn't strike me as clearly wrong. The details matter.

You can take a copy of the return, IRP documents, and any other relevant tax information she has to a tax professional for a review to see if anything was amiss.
 
Thanks all. I know you can't possibly know whether it's correct or not without the documents, but neither can I. I was mostly trying to figure out whether it's worth an ugly and distasteful battle to try to get her to show me the documents, or whether there's some plausible way it could make sense "as is."

It sounds like there's some plausible way it could be just fine "as is" so I'm going to assume that's the case unless I see any other evidence to the contrary.

Thank you all for your feedback.
 
Let's look at it another way, if you are still reading.

According to the 2021 tax tables, a single, no dependent person paying $4000 in fed tax would have a taxable income of $35,000.

Add back $14,250 (standard deduction for seniors) and you get $49, 250.

Assuming SS of about $20,000, and ignoring interest for the moment, that puts the pension at, roughly, $29,250, about $2400+ per month.

That plus SS would barely cover the rent at assisted living places of any quality.

As for interest on investments, is it interest or earnings? The stock market turned in gains last year of almost 30%. If she had to sell some of her holdings it could add to her taxable income.

The above, of course, is pure speculation and her actual figures could vary. But that gives you an idea of how she could end up with $4000 federal tax.

State taxes can run 15% to 20% of federal tax so $1000 there could also be in the ballpark.
 
For what it's worth, the box of receipts that the tax preparer received was not used if the 1040EZ was filed. It appears that the standard deduction was claimed and the receipts were disregarded, or that the standard deduction was more than the receipts would have totaled.
 
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