What Did you Learn From Doing Your 2009 Taxes?

[whitestick]

I learned that the suppositions regarding that your tax bracket should be lower, and that paying off your house, both need to be re-visited with the negative consequences of increased taxes in retirement. Also, that when most of your taxable income is due to short term capital gains due to the significantly higher returns, you continually flirt with higher tax brackets then you would not like to be in. And that the expiration of the bush era cuts, will likely result in a 3% higher rate in 2011 and beyond for these higher brackets.
In short - I pay TOO D*@# much tax. I don't mind my fair share, but I feel like I'm paying a couple of somebody else's shares as well. Tax free Roth IRA growth of income is looking better and better.

 

[jebmke]

I learned that the suppositions regarding that your tax bracket should be lower, and that paying off your house, both need to be re-visited with the negative consequences of increased taxes in retirement. Also, that when most of your taxable income is due to short term capital gains due to the significantly higher returns, you continually flirt with higher tax brackets then you would not like to be in. And that the expiration of the bush era cuts, will likely result in a 3% higher rate in 2011 and beyond for these higher brackets.
In short - I pay TOO D*@# much tax. I don't mind my fair share, but I feel like I'm paying a couple of somebody else's shares as well. Tax free Roth IRA growth of income is looking better and better.

Why are you taking short term capital gains??

 

[audreyh1]

Someone remind me next year not to file my tax return until before April 1. Just received a correction of ordinary dividends and qualified dividends for 2009. Filed my tax return just a week ago because I got my final k-1 statement. What a headache for such a minor difference. Time for a med.

Yep - that's why we wait until just a few days before April 15 to file.

And one year - we still got an corrected 1099 just after anyway!!!!!

Audrey

 

[ziggy29]

I hate K-1s with a passion. I've sworn off all investments that issue 'em.

 

[MichaelB]

Lets see. Things I already knew and are reaffirmed:

I don’t like to pay taxes
I should keep better records during the year
We are very fortunate
Our tax rate has declined drastically since I stopped working
The tax code is growing in complexity faster than tax SW ability to manage the complexity.

New this year:

form 1116 is still hard, just less so
Turbotax automatic transaction download is very time-saving
H&R Block tax at home won’t let you declare foreign income without using form 2555
Next year my default SW program changes - it's turbotax in spite of their poor customer service record.


My final thought – detailed knowledge of taxes and personal tax strategy will be a significant advantage over the upcoming decade.

 

[JDARNELL]

I hate K-1s with a passion. I've sworn off all investments that issue 'em.

I agree! I also learned that it does not pay to work.

Tomcat98

 

[ERD50]

I hate K-1s with a passion. I've sworn off all investments that issue 'em.

Agreed. I somehow ended up with a small investment in one of these years ago. Since it was small, I just did the best I could to enter the info and I am not sure I got it right or not. But I never got audited. I sold it and also decided to avoid them, just not worth the hassle factor for me.

The tax code is growing in complexity faster than tax SW ability to manage the complexity.

I heard someone comment on this recently, can't recall where, but I think he made a very pragmatic point. The line of thought went something like this:

1) A basic tenet of most 'modern' law (the past several hundred years?) is that 'ignorance of the law is no excuse'. And that makes good, common sense - allowing for ignorance would simply be unworkable.

2) But, if we are to expect the 'common man' to not be ignorant of the law, then those laws need to be reasonably understandable by the common man.

3) Current laws are so complex, not even lawyers or the legislatures that passed those laws understand them. They often disagree on the interpretation.

4) It is unreasonable to expect the common man to not be ignorant of such complex laws.

5) The system is broken.

I thought that was a very good take on it.


-ERD50

 

[samclem]

What I learned:
- If you have a small mortgage or no mortgage, it takes a lot of itemized deductions to get up to the standard deduction. We gave cash to charities and many boxes of carefully logged items to Goodwill, and only got a couple grand above the SD. Even with two-year bundling, it's probably not worth the hassle for us anymore. I'll probably do more Freecycling.
- I need to change tax software. I used TaxAct last year, but it didn't function right (I had to reload the program for every session). I've been a longtime H&R Block TaxCut user (now "At Home"--ugh), but that program has gone downhill. Far less information in the "help" menus, and their wording is imprecise (e.g. "Did you contribute to a 'Solo 401K' in 2009?" When the real question should have been "Did you contribute to a 'Solo 401K in 2009 or do you intend to make a contribution for tax year 2009?"). The cynic in me wonders if a company that sells in-person tax services might have a hidden agenda in selling less-than-stellar DIY tax software. So, despite reservations, I'll be a TurboTax user next year.
- I did a good job of estimating our taxable income and selling enough assets with CG to use up all of the 0% allowance on that. This year I'll go a step further and see if both DW (no income) and I (some earned income) can contribute to a deductible IRA--if I'd done that this year I could have gotten my taxable income down even lower and sold more CG at the 0% rate.

We have a terrible tax system. If it doesn't make you into a liar, it makes you into a lowly schemer consumed by beating the system. And those who escape both those fates come to believe they are patsies. And they are right.

 

[teejayevans]

I learned that North Carolina is NOT giving refunds because they don't have the cash.
Nice!
TJ

 

[davemartin88]

I learned I may have done something wrong? Received my tax refund this week and it was $2500 bigger than what was on the return I filed. I assume I'll get an explanation letter at some point.

 

[easysurfer]

What I learned:
- If you have a small mortgage or no mortgage, it takes a lot of itemized deductions to get up to the standard deduction. We gave cash to charities and many boxes of carefully logged items to Goodwill, and only got a couple grand above the SD. Even with two-year bundling, it's probably not worth the hassle for us anymore. I'll probably do more Freecycling.
- I need to change tax software. I used TaxAct last year, but it didn't function right (I had to reload the program for every session). I've been a longtime H&R Block TaxCut user (now "At Home"--ugh), but that program has gone downhill. Far less information in the "help" menus, and their wording is imprecise (e.g. "Did you contribute to a 'Solo 401K' in 2009?" When the real question should have been "Did you contribute to a 'Solo 401K in 2009 or do you intend to make a contribution for tax year 2009?"). The cynic in me wonders if a company that sells in-person tax services might have a hidden agenda in selling less-than-stellar DIY tax software. So, despite reservations, I'll be a TurboTax user next year.
- I did a good job of estimating our taxable income and selling enough assets with CG to use up all of the 0% allowance on that. This year I'll go a step further and see if both DW (no income) and I (some earned income) can contribute to a deductible IRA--if I'd done that this year I could have gotten my taxable income down even lower and sold more CG at the 0% rate.

We have a terrible tax system. If it doesn't make you into a liar, it makes you into a lowly schemer consumed by beating the system. And those who escape both those fates come to believe they are patsies. And they are right.

I know what you mean by sometimes it's just simpler to take the standard deduction and not itemize.

One year I had many donations to Goodwill and kept good records, expecting my effort would be rewarded with a good deduction but found out I was better off just taking the standard deduction that year. This year though, it was still better to itemize for me.

The process of donations should be easier when you switch over to Turbotax as they have their Itsdeductible website that you can enter, keep track of deductions during the year, then Turbotax will automatically import this info when using it to prepare the return.

 

[Dog]

Starting my taxes this weekend...UGH.

 

[packrat44]

I also learned that it does not pay to work.

Tomcat98

Unfortunately there are many people on welfare that have learned the same thing.

 

[KB]

I learned to keep better track of my Vanguard statements. I have them going back to 1997 and I'm sure I don't necessarily have the same investments now.

 

[RonBoyd]

Unfortunately there are many people on welfare that have learned the same thing.

Then there must be some truth to it.

 

[donheff]

Unfortunately there are many people on welfare that have learned the same thing.

Welfare has pretty much gone the way of the dodo unless you count unemployment compensation.

 

[simple girl]

What I learned:
- If you have a small mortgage or no mortgage, it takes a lot of itemized deductions to get up to the standard deduction. We gave cash to charities and many boxes of carefully logged items to Goodwill, and only got a couple grand above the SD. Even with two-year bundling, it's probably not worth the hassle for us anymore. I'll probably do more Freecycling.

Learned the same thing last year. This year, I knew better and saved myself the effort of trying to itemize everything I gave to Goodwill. Much easier!

 

[ERD50]

Welfare has pretty much gone the way of the dodo unless you count unemployment compensation.

Welfare Spending Chart in United States 1995-2015 - Federal State Local

400 billion dodos?

And yes, when unemployment benefits are approaching two years, I think that needs to be considered welfare, not just helping someone get through a gap between jobs.

-ERD50

 

[freebird5825]

Learned the same thing last year. This year, I knew better and saved myself the effort of trying to itemize everything I gave to Goodwill. Much easier!

Same here.
If I have something of decent value, I try to donate it to 501(c) organizations.
See http://en.wikipedia.org/wiki/501(c)
I take pictures of the items with my cell phone and compose my own donation letter in the proper format (i.e. IRS guidelines). I estimate the value by looking for same or similar item on sale onthe internet and print out two of the best asking prices. I print the photos for my tax records.
All the recipients need to do is sign and date two letters...one for me, one for them. Piece of cake.
For all low value items, not worth the time to do this approach.

 

[free4now]

My surprising lesson: It's good to have some tax liability (so I can take advantage of tax deductions).

Since I'm just a few years into retirement, this was the first year I was able to get my federal income taxes down to zero. Near the end of last year I estimated my tax situation and exercised enough capital gains to barely keep me under the $34k income limit for 0% capital gains rates. But since my estimates of the stock dividends I would receive at the end of the year weren't perfect, I ended up about 1.5k away from the bracket where I would have started to owe CG tax.

I had assumed that owing approximately zero federal income tax would mean my deductions would be under the standard deduction. But that turned out not to be the case and I was a few thousand over the standard deduction due to having paid lots of state taxes last year when my income was higher. So I missed out on some deductions that I could have taken if I had tax to deduct them from, and even missed out on an educational credit. All in all I probably only gave the tax man an extra $200 or so, so more frequent/accurate tax estimates that would have alerted me might not have been worth the effort.

Next year I should be under the standard deduction so this shouldn't be an issue. I am intentionally NOT going to take this experience as a reason to be more obsessive with estimating my taxes; I'm already too obsessive with that kind of thing.

 

[deserat]

1) I didn't want to pay the money for the tax programs, so did it all by myself using the pdf forms and manuals from the IRS
2) I'd forgotten the iterative nature of calculating the taxes so if you make a mistake or are missing some information in a previous sum, it ripples through the rest of the forms - ACKKKK!
3) If you have a small mortgage and no other deductions to speak of, you will be using the standard deduction - I haven't done that in.....oh gosh, I don't know how many years.
4) If you have foreign income, you will only be given a tax break on it as if it was a single income (i.e. at the lower bracket, not at your final bracket), and calculating your final tax, if you also have qualified dividends is a PITA.
5) Being off on any of your estimated taxes can have serious consequences - why they penalize you for an *estimate* is beyond me. Seems to me they want you to 'overpay' so they can use the money and then give you less back (especially if you would have invested that extra). I will be paying a bit more this year on my self-employment income - oh and when your investments start to kick in more income, the estimated taxes become more important as well. Juggling all of the different taxes is mind-boggling.
6) Thank goodness I no longer have state taxes....especially a very expensive state.
7) Whoever writes the forms and how you calculate the different lines on the forms must be crazy. I think they purposely write it that way so you don't see the different equations and how they monkey-rig the system (see foreign taxes and qualified dividends above). After going back and forth among three different worksheets and forms, I figured out what they were doing - of course it's like gambling in Vegas, the odds are in favor of the house - in this case the IRS.....
8) I may do my taxes this way again - we're going to run the numbers against an on-line program to see how we did and if it works out well, the stubby pencil, calculator and eraser method may be our in the future for awhile. As I said before, it allows me to see what my federal government is doing to me.....and how much of my money they would like to extract from me.
9) Being in business for yourself certainly makes you see how much in taxes are paid - the first 15.3% is the full social security/medicare hit (self-employment taxes they call it). After that it's federal income taxes - I see now why prices can be so high - especially when you are paying up to 50% of what you make in taxes - i.e. you don't see it.

 

[audreyh1]

Well, so far I have learned that you can eFile for an extension!

That's handy!

Audrey

 

[whitestick]

Why are you taking short term capital gains??

I'm living off of options trading, and usually sell 1 to 2 months out, sometimes as much as 6 months, but vary rarely anything over a year. I've gone back to 2006 and compared monthly the returns, and while they fluctuate wildly, month to month, over a year, or over multiple years, they are fairly consistent. The percentage rate is high enough that it beats anything else I can do, I just have to deal emotionally and financially with the paying of the income taxes.
Long answer, but felt the additional was needed to provide an understanding.

 

[target2019]

1)
9) Being in business for yourself certainly makes you see how much in taxes are paid - the first 15.3% is the full social security/medicare hit (self-employment taxes they call it). After that it's federal income taxes - I see now why prices can be so high - especially when you are paying up to 50% of what you make in taxes - i.e. you don't see it.

You are 100% correct that being in business shines a light on many things.

You do get to deduct 1/2 of your self-employment tax above the line. So you are not really paying the tax fully. If you're paying 50% of your income in taxes, it might be too high. Our effective tax rate was 6.84% this year, and we're in the 25% tax bracket.

When my business income was higher, I looked forward to year's end, and tax time. At year end you do preliminary taxes, and see how much to spend on Sec. 179 deductions, etc. before Dec. 31. After doing the taxes early Feb., you decide how much to put into retirement account, and reduce your taxes further.

These I still enjoy, to a lesser extent, but certainly things that regularly-employed citizens can't see.

Those estimated taxes are a real pain. You avoid penalties by paying 100% of the previous year's taxes. If you look at things closely on a quarterly basis, you can tell if it's enough, or too little. Still, it is best to make the 4 payments and cover 100% of previous year's taxes. Then file in early Feb. and get the excess back as soon as possible.

 

[samclem]

Those estimated taxes are a real pain. You avoid penalties by paying 100% of the previous year's taxes. If you look at things closely on a quarterly basis, you can tell if it's enough, or too little. Still, it is best to make the 4 payments and cover 100% of previous year's taxes.

That's what I do. It's lazy, but I just divide up last year's amount into 4 payments and send them in on time via EFTPS. In March when I do my taxes I'll either have to scratch around to come up with some extra money to send in, or I'll get some money back, but I'll never have to pay a penalty.