More tax tips

[Martha]

Don't forget that for 2004 and 2005, you now have the option of deducting either your state income tax or sales tax, whichever is greater. The IRS will provide sales-tax tables. You can add any tax paid on cars, rvs, and boats to the table amounts. Alternatively, you can deduct the actual state and local sales tax paid -- if you can substantiate that amount.

This is a great break for those who live in no income tax states like Alaska, Florida, Nevada, South Dakota, Washington and Wyoming. Or low tax states like Tennessee.
Or if you are retired and have little income but spent a lot.

Hey, I spent the weekend working on taxes with my DH. Almost done. Not fun at all.

[Patrick]

So you're supposed to keep every receipt all year to get your total sales tax amount?

[Martha]

So you're supposed to keep every receipt all year to get your total sales tax amount?

No, you don't have to do that. There are tables which tell you how much you can deduct. You can add to the table amount of tax paid on car, truck, RV and boat purchases because they are so big. I haven't looked at the tables which are in IRS publication 600. See, http://www.irs.gov/newsroom/article/...132383,00.html

[VoyT]

Martha, am I right in thinking that the deduction is only available if you itemize?

[Martha]

Martha, am I right in thinking that the deduction is only available if you itemize?

Right.

[ESRBob]

Martha,
Thanks for bringing this up. I had not realized there was the option to deduct sales tax instead of state income tax.

On the surface this would appear to be very ER-friendly. After all, our income should be low enough that we aren't really paying much state income tax (or federal income tax, for that matter.) But we do spend, more or less as much as the general public. Spending mostly with a debit card not only earns you 1% back, but also provides a convenient record of your spending for IRS purposes. Thus you can aspire to deduct the full amount of sales tax you pay, which looks like it could be more than the alternate tables offer.

In my state, spending 50k a year nails you for $3750 of sales tax (7.5%) I surely paid nothing like that in state income tax last year -- so this gets me that much closer to eliminating my federal AGI, or staying in the nice 10% income tax bracket (with 5% capital gains, 5% dividends).

My kinda tax life!

[MRGALT2U]

Re. "my kinda tax life". Try for zero. You would love it

JG

[BUM]

When it comes to taxes trust noone! After all you are ultimately responsible for your return. CPA's office called yesterday to say the taxes were ready. In past years he called us into the office to discuss the returns. So DW picks them up at the front desk and being the nit picker I am, spent the entire day turning a dismal package into something I could live with.

Glaring "mistakes".

1. Even though I told him the company was not making a SEP contribution he assumed no tradIRA contribution. And filled out the forms accordingly.

2. This is the biggie...The numbers w/o the IRA contribution triggered Fed and state Estimated Payments because the system figures Income and withholding in 2005 will be similar to 2004. I'm ER'ed fer chrissakes and my '05 income will be half of '04.

To make some effort to cover '05 taxes I'm having my new-found refunds applied to my '05 return.

I feel like McCauley Calkin at Neverland Ranch

BUM

[retire@40]

CPA's office called yesterday to say the taxes were ready. In past years he called us into the office to discuss the returns. So DW picks them up at the front desk and being the nit picker I am, spent the entire day turning a dismal package into something I could live with.

Glaring "mistakes".

1. Even though I told him the company was not making a SEP contribution he assumed no tradIRA contribution. And filled out the forms accordingly.

2. This is the biggie...The numbers w/o the IRA contribution triggered Fed and state Estimated Payments because the system figures Income and withholding in 2005 will be similar to 2004. I'm ER'ed fer chrissakes and my '05 income will be half of '04.

What does the company electing not making a SEP contribution in 2004 have to do with the deductibility of your IRA?

[MRGALT2U]

I am considered hypercritical by some (DW?) .
I have a few professionals that I deal with who are
batting close to 1000 with me (not easy). My CPA
is one. Asks the right questions. Seldom catch him in an error (I used to be an accountant) and his fees
are reasonable. I would guess out of all "professionals"
I have had the most trouble with doctors, with lawyers
a close second (sorry Martha).

JG

[BUM]

What does the company electing not making a SEP contribution in 2004 have to do with the deductibility of your IRA?

retire@40,

Nothing really but company cash flow being what it isn't... an IRA contribution is whats affordable this year. Not to mention SEP date has passed. Not too late for an IRA contribution though.

<rant> What got me started was the lack of communication. CPA just turned the crank and whatever came out got shoved my way with a cute little "sign here" sticker. I know they're busy this time of year...but come on! Bad enough the fees are what they are but then I have to turbotax my way thru the swamp?

Sure I could have called them and said add an IRA contribution and reprint. But I'm going it alone (no cpa) in 2005 anyway since the biz is closing and I wanted the experience of having personal and s corp returns all on turbotax so the 2005 return wouldnt be a square one job.

I'll feel better about firing him now.

God, do you think I may have had too much coffee this morning?


BUM

[Martha]

The CPA we have used for a number of years for our taxes retired at the end of 2004 and sold his practice. I really liked working with him. Before he did our taxes, we would sit down with him, go through his form we filled out, and talk about any issues. We had some great arguments! Lots of give and take and we both probably learned something.

The jury is still out on the new accountant. As usual, I brought my stuff in late, last Wednesday. I met with her about 20 minutes and talked about the issues I saw for the year. She didn't really ask any questions but said we were well prepared. Haven't heard back from her yet and she hasn't called with any questions.

We shall see. I am thinking that when I retire fully I will prepare our returns. There are two reasons I currently don't. One is that we still live in our 4-plex, our last rental property. I would have to figure out all the depreciation issues. Does turbo tax do depreciation? Does it allow you to select whether to take an equipment purchase as a section 179 expense or depreciate?

The other reason I don't do our own taxes is all the k-1s we get for partnership income. I never have really figured them out. Does turbo tax, etc. address k-1 income?

[Nords]

Doing your own taxes forces you to keep up with tax rules (the Sunday newspaper articles in the Business section is as complicated as that gets), which keeps you aware of ways to minimize your tax exposure. If we had a CPA doing all that work we would've been much more ignorant and more hesitant about refinancing, investments, bailing out of sinking mutual funds,... the list is endless.

CPAs have to be general experts on everything, which makes them a mile wide and an inch deep. (My brother-in-law the CPA says his main answer to his employee's questions is "Go look it up.") You only have to be an expert on YOUR tax situation-- an inch wide and a mile deep.

TurboTax promises that its most expensive "Premiere" version will handle Section 179 and other depreciation issues. This year's "Deluxe" (one tier down) did the depreciation calculations automatically but it didn't discuss them. Intuit's TurboTax website will tell you what features they have this year; it's a pretty good guess that next year will be similar (another good guess is that it'll be more costly). It can be a hassle, especially if you have a lot of stock/mutual fund transactions, but I think that CPAs are worse.

I hate K-1s. Even if Warren Buffett was starting up a personal account for me but had to issue me a K-1, I STILL wouldn't invest with him. TurboTax is smart enough to ask you about K-1s and to help you transfer the numbers over, but I doubt that it can do any better than "Taxes for Dummies" or the IRS website.

[Martha]

(My brother-in-law the CPA says his main answer to his employee's questions is "Go look it up.")

Hey, that's what I tell my employee's too: "did you read the statute?"

TurboTax promises that its most expensive "Premiere" version will handle Section 179 and other depreciation issues. This year's "Deluxe" (one tier down) did the depreciation calculations automatically but it didn't discuss them. Intuit's TurboTax website will tell you what features they have this year; it's a pretty good guess that next year will be similar (another good guess is that it'll be more costly). It can be a hassle, especially if you have a lot of stock/mutual fund transactions, but I think that CPAs are worse.

I hate K-1s. Even if Warren Buffett was starting up a personal account for me but had to issue me a K-1, I STILL wouldn't invest with him. TurboTax is smart enough to ask you about K-1s and to help you transfer the numbers over, but I doubt that it can do any better than "Taxes for Dummies" or the IRS website.

Well, I am stuck with the K-1s. Still debating whether to do our own taxes next year. Haven't heard from the accountant yet which is a bit iratating. I might wait to see what she charges before I decide.

[Martha]

Nords and all, I see that Turbotax will import Quicken data. I am thinking of getting Quicken if I find a good deal. Does Quicken help keep track of stock and mutual fund buys and sells? Do any of you know whether the discount brokers like Scottrade and Ameritrade import data to quicken or turbotax? I am trying to figure out a better way to keep track of these things other than on "the back of an envelope". Thing is that I never have used a computer program to do any of these financial management things, beyond a simple spreadsheet.

[MRGALT2U]

Hi Martha. I don't have your answer, but my computer
experience is similar. I only learned to do what I needed
and nothing more (laziness). Now, I have returned to
"back of the envelope" operation. I wish I was more organized but this "Throw it in the cardboard box and
see if you can find it if you need it" is pretty well ingrained now.

JG

[Nords]

Nords and all, I see that Turbotax will import Quicken data. *I am thinking of getting Quicken if I find a good deal. *Does Quicken help keep track of stock and mutual fund buys and sells? *Do any of you know whether the discount brokers like Scottrade and Ameritrade import data to quicken or turbotax?

Oh, yeah, Quicken tracks the heck out of it. I've been a Quicken hostage user since my DOS days and I've entered over 100,000 transactions on it (as claimed by my Q05 "upgrade"). I haven't balanced a paper checkbook since the 1980s.

But I've never been happy with any of Quicken's import functions from banks, brokerages, credit-card companies, etc.

One recent problem has been Intuit's transition to a new downloading data format that requires your financial institutions to pay lots of money license it. Many of them haven't converted. Another problem has been duplicates. I like entering transactions as I spend the money, and when I download a credit-card statement it has many duplicates that may or may not be caught by the software. And a couple years ago the download software converted everything to upper case-- kinda difficult to read and absolutely no contrast. But since I haven't tried downloads in a couple years, Intuit and the financial companies may have fixed all of that by now. (Sure.) And eventually everyone will upgrade to Intuit's data-exchange format.

In earlier Quicken versions you could get away with just about any sort of investment transaction, but Q05 requires you to fill out a highly-formatted form for each investment transaction. (Non-investment accounts still use the traditional line-entry registers.) The form is a pain if you're doing more than one or two transactions but it's more of an "upgrade snivel". I'm sure I'll eventually come to appreciate its rigor & discipline.

TurboTax swears that it'll do a good job of importing Quicken data but I don't trust it for Schedule D. (I prefer to enter stock & fund sales by specific shares, not average cost basis or other methods.) And I also don't do it for Schedule E because the interview process forces me to go back over my rental records and ask "Was this a maintenance or a repair or a supply?" To get a good Q download into TT you have to be very careful in setting up categories and in linking them to tax forms, which I just haven't cared enough about to do well. And I don't have anything near that foresight when I enter the transaction. Usually I'm only trying to slot a transaction into a budget category and tax-prep planning is the last of my concerns (until about the middle of March).

Quicken will set you back $50-$70 depending on how hard you look for bargains. TurboTax is around $25 with buttloads of rebates on filing, state tax software, & Quicken bundles. However once you start using Quicken, you'll be on the upgrade carousel with a two- or three-year cycle. After that Intuit drops support for bug fixes and even for data formats.

If I sound a little cynical about Intuit's altruistic motives, it's because I think they make Microsoft look like a charitable foundation. I think TH has a strong opinion opinion or two on this, right? You can also check C|Net's product review, especially the unfiltered comments by the users.

If you're not trying to port over old data to a new program, and if you're starting Quicken from scratch, then I'd go with Quicken 2005 Premiere (for the rental stuff) and try to fit all your 2005 transactions into Quicken's default categories (unless a transaction has no bearing on your taxes). Verify that each category is linked to what you'd consider an appropriate tax form. You'll be spending lots of time looking at the rental & Schedule E setup to make sure that it doesn't mess with your current depreciation schedules or other carryovers. If this doesn't sound like something you (or your spouse) would enjoy and make a part of your daily routine, then I'd consider making good friends with a CPA.

Quicken's online banking campaign is relentless, but I use Fidelity for free electronic bill paying and it works just fine. Quicken may actually be valuable but there's no need to use their online products unless they fulfill your needs.

FWIW, Quicken has done more to get my kid interested in checkbook-balancing & financial management than anything else. Kids are used to entering data into a program and then seeing the results broken down every which way (with full-color exploding pie charts, of course). You just can't expect that thrill from a paper checkbook and a pad of graph paper any more!

[Martha]

TurboTax swears that it'll do a good job of importing Quicken data but I don't trust it for Schedule D. (I prefer to enter stock & fund sales by specific shares, not average cost basis or other methods.) And I also don't do it for Schedule E because the interview process forces me to go back over my rental records and ask "Was this a maintenance or a repair or a supply?"

I keep track of stock sales the same way you do. It also looks like schedule E would be a pain. I am thinking that Quicken might not do the job for me and is overpriced.