Monday, March 15, 2010

Money Monday: March 15, 2010

I sat down this weekend and {gulp-shudder} worked out our taxes. This has been our most complicated tax year ever. It’s not the first time I’ve had to work out estimated taxes and send them in quarterly, but dudes…not to this extent. Not with one hundred percent of our income being self-employed income, not with one hundred percent of it having nothing withheld from a paycheck.

Between that and the fact that our beloved state has been playing pretty fast and loose with the rules this year, well…I was worried. I’d tried to stay on top of it. I’d dutifully sent in our estimated taxes each quarter. When the husband started his new job, I twiddled with his withholdings until they seemed to be Just Right. When I started mine, I actually set them high (something I really hate to do) because I had a feeling we might set a toe over that AMT line and lose a bunch of the deductions I had been counting on all this time.

Between the state and the feds, we owe $19.

Awesome.

I’m not a person who particularly likes to get a big refund check. I actually consider that to be a failure – it means that I’ve been giving my money away to the government, interest free, all year. Money I need right now, too.

Honestly, I’d rather owe money than have it coming back to me. Granted not thousands and thousands, but anything up to a single thousand I’d be pleased to pay at the end of the year, rather than give my money away free.

Taxes are a tricky subject, and far too complicated for my little blog. Besides, I’m hardly a tax expert. My father is (shoot, the man has a master’s degree in the blasted subject and whackity-majillion years under his belt dealing with them, and why it is that he is still [reasonably] sane is beyond me), but me? HAHAHAHAHAHA. Yeah. Not so much.

Still, as with most personal finance topics, I’ve got some kitchen table style advice to give.

If you’re getting a big refund check, think about adjusting your withholdings. That refund check is not the prize in the crackerjack box – it’s your money being returned to you. You don’t earn a dime of interest on it, or even get a nice thank you card at Christmas.

And by the way, if this is your savings vehicle that provides you with a big spring fling every year…sigh. Look, have part of your paycheck deposited to a savings account instead. One you don’t have an ATM card to, one that you can’t easily transfer money in or out of at will. Most companies with direct deposit can do that for you with ease; you’ll get the same ‘automatic savings’ thing but without the risk that your state will be unable to repay you at the end of the year, and while gaining an admittedly paltry amount of interest.

…but still, “some” is better than “none,” and if you should happen to need that money in August, well, you can get it, whereas any money that goes into tax withholding might as well be vaporized for all the good it’ll do you until after you file the following year.

If you’re not putting into a retirement plan, you’re giving up some juicy benefits. First of all, you pay no taxes on that income – which, if you’re in your prime earning years, can be a big deal. Shoot, you can actually put money into a retirement account “free” thanks to the savings on taxes. It also grows tax-free.

There are steep penalties for early withdrawal, though, so make sure you deposit that money and then keep your hands to yourself until you retire.

Another good place to be investing is in your HSA/FSA if you have one.

Also, look into other benefits your employer may have for you – commute reimbursement accounts, or childcare. These things that come out pre-tax can reduce the amount you pay throughout the year.

If you’ve never itemized, at least give it a look – especially if you own a home. For us, our mortgage interest alone was almost double what we’d get as a standard deduction. Toss in the medical and dental deduction and a few other things, and we’re getting nearly four times the standard deduction by itemizing.

If you’re using a tax preparer (like H&R Block, for example), stay away from their “rapid refund” checks. You know, the ones where it’s actually a loan at 672,082,110% interest? Yeah. Don’t do it. Again, it’s your money, your hard-earned money. Don’t give it away just to have your money a little faster.

For speed, do file electronically if you can. Also, consider using the direct deposit option to get your refund – I’ve done so the last few times we’ve gotten refunds, and I have to say the money has arrived weeks sooner…and no hold on the direct deposit like there can be on the check.

If you have complicated taxes, or find yourself facing something you can’t figure out tax-wise, seek out a good CPA. Now, I have to admit I have a clear bias here: I listened to my dad holding forth about various tax situations and what to do about it around the kitchen table from an early age.

I’ve noted the difference between a guy like him and what you often get at the H&R kiosk in WalMart.

It’s what might be called considerable.

When you’re facing some weird situation, whether it’s a check from a stock option cash out or half the deed to Aunt Myrtle’s farm, a good CPA can be your best ally against paying way more than your fair share in taxes.

Taxes aren’t fun. They’re ridiculously complicated, and seems like every year some idiot spackles yet another layer of Crazy onto the whole thing…but consider how much of your annual spending they really are. Take a look at that paycheck stub, take note of how big a bite it is every pay period.

Don’t let them be an invisible expense. Pay attention to them, pay your fair share proudly…and pocket what is rightfully yours.

(Busy weekend in the garden. It’s “go time” out here in California – our daytime highs have actually been flirting with 70 and our overnight lows aren’t getting below 40 anymore. Pretty soon, things are going to start exploding out there! I can’t wait to see how we do this season, I really can’t…have to, of course, but caaaaaan’t…)

1 comment:

Terena said...

good article. great advice.

too bad there's no such thing as a rapid refund in gardening