What Did you Learn From Doing Your 2009 Taxes?

[TromboneAl]

My mistake was that I could have converted $22,000 to Roth (instead of only $10,000) and paid zero taxes on it. The reason for the mistake:

• I only did a rough estimate of my taxes in December.
• I looked at the sale of stock, but didn't consider that it would be a loss rather than a gain.
• Since I'd paid zero estimated tax (intentionally), I worried that I would convert too much and have to pay a penalty.

No big deal, but next year, I'll get an early copy of TaxAct and run through the taxes in December.

 

[ziggy29]

Nothing new from mine, but as I recently posted in another thread, I learned a lot from doing my mom's taxes this year and discovered just how much even a small RMD on a moderate income can kill you on taxes.

 

[W2R]

I learned that retiring part way through the year was a really good idea, because my salary income was less than if I had worked the full year so my marginal tax rate was lower than in past years. Consequently, I got an unexpectedly large refund.

 

[TromboneAl]

Also, I wonder whether I should skip the Q&A path when doing the taxes in TaxAct next year. As the taxes get simpler, it might be faster to just do the forms. It seems that I spent a lot of time with irrelevant questions (Are you a minister who is deducting more than $42,000 in farm equipment, worked as rail engineer, and served in the armed forces?).

 

[CuppaJoe]

I've got the Roth forms halfway filled out, will complete them when I sit down in my office again to do the census and so on. I, too, find the forms method a better fit.

 

[DangerMouse]

I learned that it is much easier to complete my tax scheduler for my preparer when I have fewer investments to enter. All I can say is TG for consolidation, it save me a couple of hours of entry this year.

 

[FIREd]

I learned that it sucks to be in a high tax bracket with few deductions and that it's gonna suck even more starting in 2011...

More seriously, I have learned that having a tax-efficient portfolio makes a big difference on the amount of taxes owed. And I have learned that I should be more aware of wash sales because they can be a nightmare to deal with at tax time. And I learned that Turbotax's technical support team is a bunch of jerks.

Last March, in an effort to make my portfolio more efficient and harvest some losses, I sold the shares of Vanguard Wellington I had accumulated for years in my taxable account. A couple of weeks later, I added more money to Wellington held in my wife's IRA. It didn't even occur to me that it would trigger a wash sale but it did. Vanguard did not catch it either and showed no disallowed loss on the cost basis statement I received in early 2010. So I was left to figure out how much of my short term and long term losses were disallowed. I spent hours and hours researching it, trying to understand the mechanical rules that determine whether the disallowed loss is short term, long term or both. I still couldn't find a definitive answer. So I had to input manually my purchase information into Turbotax (70+ transactions over many years) and let TT do the math for me. I would have never guessed the answer! I still don't know how those mechanical rules work.

 

[TeeRuh]

I learned that I like the 15% bracket much better than the 28/33% bracket! (First full year of retirement with only DW's income to report.) Paid almost $35K less in taxes! WhooHoo! (It's great to have no income. Wait I need to think about this a little ....)

t.r.

 

[Payin-the-Toll]

I learned that even though I take the standard deduction on the 1040, that you could also deduct property taxes in addition (sched L). Hope I learned that I couldn't use sched M and get $800 deducted because all our income was passive, and none of it was 'earned income'-(if I'm wrong please correct me--got taxes done but never send them in until April 14th--which is just me being a superstitious jerk). I learned that the state of Indiana (where I live) is a jerk (IN state taxes used to consist of 2 pages both sides, and now it's 5 pages both sides--what's up with that?) My daughter called about her taxes (1st newborn 12-14-09) and wanted to know about extra deduction for child credit. She and DH made $110k together, and I said, "No way-that deduction is for poor people."---I was wrong.

 

[Moemg]

I learned that I really need to learn more about taxes in retirement since mine seem to be different each year and I'd like to smooth it out .

 

[Nords]

I learned that I don't enjoy estimating our taxes in December so that I can fill out the FAFSA and the CSS PROFILE in January.

Our kid learned that Hawaii has a law allowing the state to delay refunds until July.

 

[LOL!]

I finally got to deduct the cost of my tax prep software since I went over the 2%-of-AGI floor for miscellaneous itemized deductions by cashing in two 529 plans at losses that ended up being mostly deductible.

I learned how to get the Foreign Tax Credit without jumping through too many hoops. I've always gotten the credit, but I was making it hard on myself in previous years.

Last year I learned to send a copy of the check sent in earlier when I filed for an extension with the tax return I filed in October. That way I don't get stupid, "We can't find your check" dunning notices from the NY state tax folks.

 

[ksr]

I learned that just because one is retired (or semi-retired), does not mean the tax return is any simpler. In my case, my taxes seem to have gotten more involved, with more attachments, since leaving full-time employment. I now have an HSA (which requires a form), some small pt self-employment income (2 forms), a property tax deduction without otherwise itemizing (another form), etc. And to complicate matters more for myself, I had done a Roth conversion in 2009 and then re-characterized in 2010, requiring some explanation with those tax forms.

That said, I am SO much happier being in a lower tax bracket!

 

[Payin-the-Toll]

I also learned that I need to buy my sister a calculator for her birthday. Calls me up like ususal to help figure her taxes and it's taking her for ever to complete the calculations to match mine. I finally say, "Don't you have a calculator?" She says no, the batteries are dead. What about your cell-phone?--doesn't have one. She was doing everything by multiplying it out long hand. I had to laugh--multiplying $46,708.89 by 3.4% would even take me a little while.

 

[Khan]

I also learned that I need to buy my sister a calculator for her birthday. Calls me up like ususal to help figure her taxes and it's taking her for ever to complete the calculations to match mine. I finally say, "Don't you have a calculator?" She says no, the batteries are dead. What about your cell-phone?--doesn't have one. She was doing everything by multiplying it out long hand. I had to laugh--multiplying $46,708.89 by 3.4% would even take me a little while.

Windows has a calculator as does Google.

 

[lucija]

There was nothing unexpected on our taxes, but in helping others I have learned...

...if you have a family of 5 and you make less than $23k in income, you will have no tax liability, but (surprisingly) you will also receive another $10k from fed/state govt --- amazing

...one can get a refund and be charged a penalty at the same time!

 

[calmloki]

I learned that my gal's earned income would allow her to contribute about $200 to an IRA. Total. We ain't a'gonna bother. Being as I'm a layabout subsisting on unearned income, my IRA contribution will be the normal $0.

Learned we made more than I thought in interest income and that interest income could avoid a state tax if we were to move to, say, Nevada, but the rental income in Oregon would still incur a state tax, about 8% here in Oregon.

Learned that selling a fully depreciated rental house means big windfall for our partner Uncle Sam and a smaller one for Oregon. Good thing is that now the state can send out some of those refund checks to other deserving filers (not necessarily tax payors).

 

[hakuna matata]

I for the first time ever was able to utilize the health care deduction. I broke my hip last summer and was off work for part of the year, my wife had some major dental work done, etc and lo and behold (on a total whim) I decided to add it all up. All the stars aligned and I was able to deduct a huge amount from our taxes using that deduction and am actually getting a fairly large refund too! In fact overall it dropped us to the 15% tax bracket which I haven't been in since I was in my twenties.

My wife has another major dental thing to do this year, so now I am considering doing Lasik on my eyes so that we can lump all that medical together again. If you get a couple major things that aren't covered by insurance then the little things add up fast!

So I guess I learned to not take that deduction for granted as it can save you some big bucks in certain situations and to lump major medical expenses in one year if you can.

edit--I am glad that something good came out of my hip being broken because I will say it was the *#&(# worst summer of my 50 years! 22 weeks on crutches is not a fun way to spend your summer!

 

[walkinwood]

My mistake was that I could have converted $22,000 to Roth (instead of only $10,000) and paid zero taxes on it. The reason for the mistake:

• I only did a rough estimate of my taxes in December.
• I looked at the sale of stock, but didn't consider that it would be a loss rather than a gain.
• Since I'd paid zero estimated tax (intentionally), I worried that I would convert too much and have to pay a penalty.

No big deal, but next year, I'll get an early copy of TaxAct and run through the taxes in December.

I made a similar mistake and moved too little money to a ROTH. Instead of doing the Qualified Dividends & Capital Gains Tax Worksheet, I went straight to the tables. duh!

I did use TurboTax (downloaded from Vanguard) but not having the 1099R in hand, I had a hard time answering the questions so abandoned that approach.

 

[jimnjana]

I haven't learned anything new, but then again, I am procrastinating again this year, still working on schedules A,B,C,D, and E.

 

[donheff]

I learned that since DW "ERd" but will retain a stipend from her firm for many years to come I will still have to wait until the end of March to get her K1s or whatever those partnership forms are.

 

[RedHawk]

Last March, in an effort to make my portfolio more efficient and harvest some losses, I sold the shares of Vanguard Wellington I had accumulated for years in my taxable account. A couple of weeks later, I added more money to Wellington held in my wife's IRA. It didn't even occur to me that it would trigger a wash sale but it did.

I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

 

[donheff]

I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

I was wondering the same thing. Can some of you tax gurus chime in, in the future, if I sell from a taxable account and buy the same thing in an IRA does that constitute a wash? If so I will need to make sure that I use slightly different funds in IRAs/taxable.

But what if you sell for a gain in taxable but invest immediately in an IRA. Does that "wash" out the gains?

 

[Sue J]

I always do a rough estimate in Oct or Nov so I knew what was coming. 2009 was our last year for having any kind of meaningful tax break. Our younger son graduated from college in Dec 2009 so that's the end of the lovely education credits. He was our last dependent so from here on out it's just the 2 of us, MFJ with no deductions except for the standard deduction (the additional $1000 for Real Estate taxes is only for 2008 and 2009 unless they extend it) and then the 2 exemptions for the 2 of us. We'll still be in the 15% bracket, I just have to look back fondly at all those years of Child Tax Credits and Education Credits.

 

[FIREd]

I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

The IRS (Rev. Rul. 2008-5, http://www.irs.gov/irb/2008-03_IRB/ar08.html) says that if you sell shares at a loss in a taxable account, any purchase of the same or substantially identical security by a related entity (such as a spouse or an IRA) triggers a wash sale.

In my case, the loss became permanently disallowed. I should have been more careful.