MyMoneyMinute.com

April Fools!

It’s April 1st, which means you have to read everything twice to make sure it’s real and you weren’t the victim of an April Fools prank, like the ones that Baker at Man vs. Debt pulled, or the light-hearted piece PT from ptMoney penned today.

“I’m From The Government, And I’m Here To Help.”

Not quite as funny is the increasing level of dependency we have on the government to care for us when the chips are down.  With the “Great Recession” and a concerns of a double-dip housing collapse, there have been numerous federal incentives to stimulate and inorganically sustain the economy.  The necessity of these programs are debatable, but programs like Cars “Cash for Clunkers”, Appliances “Cash for Clunkers”, and the First-Time Homebuyer Tax Credit have brought extra money to the pockets of consumers.  It is redistribution of wealth at its finest!

Don’t Depend on Government!

Incentives from the government are nice to those benefiting from it, but the minute you begin to expect the assistance, you run into the problems, which at least are minor inconveniences and at worst horror stories.  Here’s a few examples:

• Home Buyer Tax Credit — A buddy of mine just bought a house last year, after living in his previous home for 5 years.  When tax time came around this year, he expected that $6,500 rebate from the government.  Awesome, right?!?  Wrong, because he bought the home before November 6, 2009, which means he doesn’t qualify.  Luckily for him, he has a decent emergency fund and wasn’t depending on the money.

• Appliances “Cash for Clunkers” — There was a fellow Personal Finance blogger who had a parent that purchased a new dishwasher under the guise of the Appliances “Cash for Clunkers” program.  Turned out, their state was not a participant in the program.  So an old appliance was replaced, but no tax rebated given.  I couldn’t find the link to save my life, so forgive me this once for poor journalism.  Just remember to check local laws and stipulations on which appliances qualify for tax rebates.

• State Pension Plans — Government jobs used to be looked at as secure jobs even if the pay was below market value.  Now, teachers are being laid off by the thousands, and pension plans are going broke.  Chickens are coming home to roost with the excessive benefits offered to public employees, and aren’t sustainable at current levels.  If you are a public employee, you can’t solely rely on a pension to provide for your retirement.

• Income Tax Refunds — Ahh, there’s nothing like getting a HUGE tax refund, right?  All that money that would’ve been spent is now saved up and sent directly to you in one fell swoop from the IRS and your state government… unless, of course, you live in California.  Last year, the Governator and his Golden State legislative compadres faced a budget shortfall, and considered issuing IOUs because the state had no money.  Maybe that’s a good reason to argue that “Size Does Matter” with Tax Refunds.

• Social Security — The jokes about Social Security have been around for at least an entire generation now.  The bottom line is, you simply can’t depend on Social Security to be there for your retirement.  Consider it a nice bonus, but don’t rely on it, because it may not be there when you retire.

• Unemployment – I can’t forget my recent battles with being denied unemployment benefits.  Just remember, you don’t always qualify for the benefits.  Pay close attention and follow all the proper procedures, otherwise you may end up with nothing to fill the gap between employment.

Conclusion

What do you think?  Have you expected something from the government and it didn’t come through?  Do you budget or plan to include government incentives, or consider them an added ‘bonus’ if they come through for you?

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photo by smemon87

Politics, taxes

Reader Mailbag

Who doesn’t love giving their opinion? I’m no exception. I love the dialog that transpires on this and other personal finance blogs. If you have a personal, financial, or legal related question you’d like me to answer, hit me up on my Contact Page. And of course, remember – I don’t have all your facts. All content on my site is just that – opinion! I am not a professional financial advisor. Make sure you double-check all my sources and seek professional guidance, whether legal, financial, psychological, or otherwise

Ask J

Today’s question comes from a reader in California, my former home state where I was born & raised. As Dr. Dre & Tupac said, “California knows how to party” – but even rappers have to file taxes. Here’s what our reader asks:

Well my friend, as any good attorney would say, it depends! To find the answer to your question, I first contacted Kelly Phillips Erb, aka the “Taxgirl”, a tax attorney out of Philly. You can follow her on Twitter (@taxgirl) and read her tax musings on her website. In our Twitter exchange, we didn’t see why you couldn’t use a different filing status, BUT the issue would definitely be controlled by State law. In other words, “it depends” because there could be at least 50 different answers depending on where you live.

California Dreamin’

So the answer lies not with the feds, but the State of California. The answer to your question is found here: California Franchise Tax Board Publication 1051A. The 1st page, 2nd column, 3rd paragraph says:

“California requires you to use the same filing status on your California return as you used on your federal return.”

The relevant exceptions to this revolve around gay marriage and domestic partnerships, which the feds do not recognize and California courts did for a few months.

Mine, Yours, Ours

Another issue you may have overlooked is how community property affects your tax return in California. According to the FTB Pub. 1051A linked above, California community property rules mean that even if you file separately, you and your spouse must claim your income equally. You make $50k and she makes $10k? If you’re filing separately you both claim $30k in income. This forced equality would likely put the kabash on any plans for the lower-paid spouse to claim/qualify for any tax credits.

And That’s My Final Answer

Sorry my friend, looks like in California, the luck of the Irish is not with you today!

TurboTax Giveaway

A fellow member of the Yakezie blogging network is giving away a couple copies of TurboTax Premium Edition. If you want a chance to score free tax software and read some great content, check out Evan at My Journey To Millions. Evan is an Estate Planning attorney in New York, has great content on his site, and is a funny, funny dude. Read his post and follow his instructions on how to enter the contest.

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taxes audit, california, filing status, income, income tax, IRS, marriage, taxes

Taxes have been filed, and a refund has arrived in the MyMoneyMinute household to the tune of about $360.  Last year, we were hit with about a $2,000 tax bill, so I was pleasantly surprised to end up on the receiving side this time around… but should I be?

Money Experts: “You Don’t Want A Big Refund!”

Many financial experts, including Dave Ramsey, frown upon a big tax refund.  Why?  Because the money you’re getting back was yours in the first place — it’s just been held hostage by the government for a year, interest free! The solution for them is to adjust your income tax withholding on your paycheck so that you receive more money each pay period.  Additionally, if you receive a larger lump-sum return, you’re more likely to spend it on a big-ticket item (electronics, vacation, etc.) rather than use it in a more financially responsible way, like paying off a car loan or credit cards, building up an emergency fund, or even for extra giving to your local church ministries.

For more on this argument, read articles by these two great bloggers:

Craig Ford from Bible Money Matters – 3 Reasons Why A Big Income Tax Refund Is A Horrible Thing.

Jason Price from One Money Design — Income Tax Refund: Is It Good Or Bad?

Me: “It’s Not So Cut & Dry”

In an ideal world, I agree with the guys above.  Unfortunately we don’t live in an ideal world.  If I lived in an ideal world, I’d never owe taxes or get a refund.  Then again, I also would never have charged money on a credit card, financed my life (cars, furniture, a home, and an education that cost even more than the home!).  Oh, and I’d have a stable job, an ideal salary, with predictable raises and bonuses too.

The 2 Major Reasons To Tolerate A Big Tax Refund

While aspiring for the ideal scenario above, there are reasons a big tax refund isn’t such a horrible thing after all.  Here are a few of them:

1.  You Suck With Money

Let’s face it.  If, instead of getting a big chunk of money in a refund each year, you got monthly slices of it by altering your withholding, it is almost guaranteed that money would be spent, and you wouldn’t even know where it went.  A few extra bucks each paycheck would be swallowed up by a restaurant here and a Starbucks trip there.  When you get one big check after tax season each year, you only have to make one financial choice each year, not 12 monthly choices to do the financially smart thing.  And hey, even if you make the wrong choice and blow the entire refund, at least you’ll get a really cool big-ticket item out of the deal, rather than spending it all throughout the year and not knowing where it went. If you’re gonna be stupid with your money, at least get a TV or an all-inclusive vacation to show for it.

The majority of us are financially undisciplined.  Until you get disciplined, a big refund can protect you from… you.  For a great analogy of this argument, check out an article written by Sam at Financial Samurai — Tax Refunds Are Good For Most People, Because Most People Can’t Save.

2.  The Danger of “Normal”: Risk Is Diminished

What my blogging friends didn’t discuss in this tax debate was this: we face problems adjusting our income withholdings because life is rarely “normal” or “ideal”.  Most people I know with a “stable” salary and tax structure are government employees.  In this economic climate, even those jobs aren’t safe.  People are underemployed and laid off in record numbers to the point where it is difficult to determine what your expected yearly withholdings should be.  Additionally, life happens too — you get married, buy a house, have children, buy a different house, someone gets injured on the job or gets pregnant — all these life changes affect your taxes, which means your withholdings may be off again.

For me, a limited return is ideal, but does not factor in the reality of risk.  From a risk standpoint, I’d much rather risk (1) giving the government my money interest-free for a year and get a big refund, rather than (2) miscalculate my withholdings and having to scramble to come up with an unexpected tax bill.

Conclusion

Currently, my life is just not stable enough to justify the risk of accidentally under-withholding to the point where I owe a big tax bill, and I suspect most people are in the same boat.  Perhaps down the road, life is a bit more stable and less in flux, I can spend the extra energy to get my withholdings down to a science.  But until then, I’ll err on the side of caution.

What Say You?

Don’t forget to read the articles by Craig, Jason, and Sam – then drop a comment below and let me know how you deal with your income withholding & tax refunds.

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taxes dave ramsey, refund, risk, taxes, withholding

“Don’t Drink, Smoke, or Chew…

At the beginning of this month, the largest tobacco tax increase in history came into effect.  The Federal tax on a pack of cigarettes increased from 39 cents/pack to $1.01/pack.  Strategy involved is at least two-fold.  Idealists believe from a health perspective, the increased taxes on tobacco is enough to force people to quit smoking, while the more cynical say it’s just a ploy to generate government revenue, particularly from the middle & lower class, where percentage-wise, it will hurt their pocketbooks greater.

…Or Associate With Those Who Do.”

This is a tough one for me.  I can’t stand smoking; moreso cigarettes than cigars, hookah, or smokeless tobacco.  I hate when I’m forced to breathe toxic air because of someone else’s habit.  I also hate having to spend money on dry cleaning because my clothes get cigarette smoke ingrained in them anytime you go to a restaurant.

But I also hate taxes.  However, government has a clear history of promoting public policy by dangling purse strings.  To the citizenry they promote charitable causes, home buying, education, and parenting by providing tax breaks.  To the states they offer matching federal dollars to build highways and infrastructure.

The difference with smoking, however, is that instead of a passive tax break, this is an active taxing of the citizenry’s actions.  There IS a difference between encouraging behavior by providing tax relief, and manipulating behavior by forcing your hand with a tax.  But here, it’s a bad habit that most don’t care about anymore; and since it doesn’t affect them, they’re all for it.  I guess it comes down to whether you’re an Idealist or a Cynic on this issue.

Twitterverse

Here’s some comments I got on this topic from my Twitter buddies:

• @MoneyEnergy – an increased tobacco tax is a good thing in the long run – it’s only painful in the present for a select few… my 2 cents.
• @VictorB123 – I think tobacco is the modern “tea”. People should start growing their own and avoiding the tax if they use it.
• @gregzimmerman – ridiculous money grab!
• @PerryNunley – I quit smoking about 1 year ago cuz sin taxes are stupid (so is smoking).
• @photog357 – Utterly asinine. It’s nanny state tactic, & illogical in that revenue goes to counteract activity they want money from.
• @The_Weakonomist – I decided to be OK with it. They do risk an underground tobacco uprising. Moonshine? No. Brownburn!
• @blockss – Well, it’s quite interesting that the Federal Gov’t will need to recruit ~20 million more smokers in order to pay for SCHIP [the name of the tobacco tax legislation].
• @ManVsDebt – I hate smoking, but think this could be a slippery slope… How long until Fat Tax? Hmmm maybe I’d shed some pounds…
• @MoneyEnergy – but if more tax is necessary, shouldn’t it be on smtg we want to discourage (based on obj. evidence)?  It’s not like the ONLY tax would have to be on cigarettes, etc. besides cigarette butts everywhere pollute, too.

Me?  I say tax the tobacco enough to provide vouchers for my dry cleaning bill.

What do YOU think about tobacco taxes?

photo by Chris Schroeder

taxes

Party Like It’s 1773!

Today, thousands if not millions of people are expected to turn out to local Tax Day TEA parties.  The Tax Day Tea Party is a national collaborative grassroots effort organized by Smart Girl Politics, Top Conservatives on Twitter, the DontGo Movement and many other online groups & coalitions.

TEA stands for “Taxed Enough Already”, and these grassroots protests are in response to reactionary and excessive tax & spend policies by the U.S. government prompted by the recent bailouts and stimulus plans passed by Congress & signed into law by President Obama.  The TEA Party is analogous to the Boston Tea Party of 1773, a protest over the American colonists being subject to British taxing policies without any representation.

Here’s the video that started it all:

CNBC\’s Rick Santelli\’s Chicago Tea Party

Where’s The Party?

Thousands of Tax Day TEA Parties are scheduled today in many cities around the country.  For more information on a TEA Party in your local area, visit the Tax Day Tea Party website.

I’m Busy, How Can I Follow Today’s Events?

There are many political pundits, bloggers, and organizations covering the events nationwide.  Here’s a few I’ve seen:

Twitter

Many people are covering local events real-time on Twitter:

• @johnculberson
• @NewtGingrich
• @LeadershipInst

You can also search Twitter for comments using the following search tags:

• #HHRS (Hugh Hewitt Radio Show)
• #TCOT (Top Conservatives On Twitter)
• #teaparty
• Tea Party

Facebook

Nationwide Tax Day Tea Party

YouTube

Do a search for “Tea Party”.  Plenty of attendees in numerous cities are posting their videos throughout the day.

Report Back to MyMoneyMinute!

Are any of you attending a Tax Day TEA Party today?? Please leave comments below about your experience, as well as links to pictures.  I may do a follow-up post if there’s enough reports generated.

photos by skye820

Politics, taxes bailout, boston tea party, Hugh Hewitt, John Culberson, Newt Gingrich, Obama, stimulus, Tax Day TEA Party, taxes

Finally Did Our Taxes

I finally completed our taxes.  I had eyeballed our tax returns about two months ago, but since my initial sketch showed we’d probably owe upwards of $2,500, I decided avoidance was my best option until I felt like dealing with it!

Lucky for me I waited.  Since I was hanging around Twitter at the right time, I won a free online copy of Turbo Tax.  Thanks to Jim Wang (@bargainr) who blogs at Bargaineering, for the promotional code!

The Verdict

Well, looks like we owe the IRS $1,288.00.  I hate to owe money, but ultimately, that’s FAR better than owing $2,500.00+!  Turns out that in my original “eyeball” test, I didn’t factor into account that we can deduct our real estate taxes, along with some other minor deductions.  All-in-all, I’m satisfied with this amount.

Tax Tip

In e-filing our taxes, TurboTax gave us the option to electronically pay our tax balance on any date up to and including April 15th.

Here’s my tip: if you have your money in a high-interest checking account, set your automatic deduction to occur on April 15th, and keep your money earning interest up until the last possible date. It may only buy you a happy meal, but hey — it’ll be a free happy meal!

How’d You Like TurboTax?

This is the third year in a row that we’ve used TurboTax.  Every year, we consider hiring a CPA to do our taxes, but ultimately, I just don’t think our taxes are complicated enough yet to justify hiring someone else to prepare our taxes.

I used the Deluxe package, valued at $49.95.  In Texas we have no state income tax, so all I had was federal taxes to worry about.

I’ll keep this short & sweet — I love the online access they provide now.  They’ll also keep your information stored online for next year.  The process was very user-friendly and pretty easy.  The only issues I ran into where I didn’t feel TurboTax didn’t do a great job explaining what they were looking for was when they requested the “basis” level for gifts to charities; but I did figure it out using their online forums and a bit of Google searching.

I have not used any of their more complicated software for small businesses or rental property issues, so I cannot attest to how TurboTax stands up to those with a bit more tax complications in their life.  But for the relatively simple, I thought it did a great job.

Have you used TurboTax or another tax software program?  Give me a mini-review below.  I’m interested in your comments.

photo by Howdy, I’m H. Michael Karshis

taxes

Welcome!

Welcome to those visiting my site from Prime Time Money!  Take a look around and feel free to subscribe or add me to your feed.  The following is a companion post to my guest post on What To Do If Your 1099 Form Is Incorrect.

What to do if your W-2 form is incorrect

As with my 1099-Misc issue, I called the IRS help line at (800) 829-1040, and here’s what I learned about pending W-2 issues:

Before requesting any IRS action, you must first attempt to remedy the situation with your employer by sending a request in writing to your employer to re-send a corrected W-2 form.  Include a self-addressed, stamped envelope with your correspondence.

If your employer is not cooperative, and it is past February 15th, contact the IRS help line at (800) 829-1040.  The IRS will initiate a Form W-2 complaint.

Form W-2 complaint procedure

When an IRS representative initiates a Form W-2 complaint, a letter is sent to your employer giving them ten (10) days to furnish a corrected W-2, and lists the applicable punishments & fines for noncompliance.

You will be sent a letter containing instructions and Form 4852, which may be used if your employer does not provide you a corrected W-2 form in time to file your tax return.  You can also download it from the following link:

• Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Tax season sure can be stressful, but hopefully this and other tax tips will make this year a little easier on you!

Suggested MyMoneyMinute posts:

1. First Post: Inauguration Day — My Own Inaugural Ball
2. My dog Odie:  How Socks Can Affect Your Emergency Fund
3. The MyMoneyMinute Economic Stimulus Plan
4. Beyond the Paper: How Your Digital Imprint Affects Employment

photo by BallGame68

taxes IRS, taxes, W-2