What I learned in 1040 class.

[retire@40]

I wonder how the SSA can determine whether or not one is 'making up' income.  If a self employed person files a return and pays the tax due and the IRS doesn't return the tax paid saying this income is 'disallowed', who is the SSA to say it isn't income?  If the SSA doesn't like people generating income (and paying all applicable taxes) to reach the $4,000 threshold, they shouldn't have a threshold. 

I would really like to learn more about this.  Sounds like the feds are once again trying to use an unfair taxing system to cause regular folks undue trouble under the guise of 'fairness.'

Don't waste too much of your time on this. It's not happening as much as you think, if it's happening at all.

If you report income and pay tax on it, neither the IRS nor SS is going to force you not to report that income as nontaxable.

 

[Martha]

Don't waste too much of your time on this.  It's not happening as much as you think, if it's happening at all.

If you report income and pay tax on it, neither the IRS nor SS is going to force you not to report that income as nontaxable.

I agree it probably isn't happening much. But I understand that the issue is on the radar screen with the SSA. Think about it. You are a few credits short of eligibility and are no longer working. You are divorced and were married less than 10 years so you aren't covered under your spouse. Why not claim a couple of thousand bucks income from babysitting, pay the self employment tax, and get a couple of credits towards your 40 credits? The IRS won't care but the SSA might.

 

[farmerEd]

I don't quite the "40 credits" thing...is it really enough to get the 40 credits? If your 40 credits are all from making $1000 per quarter for 10 years, you'll probably only get a pittance from SS anyway...right?

Isn't it more important to get 40 credits with high earnings in order to qualify for max benefits?

I've defintely got my 40 quarters...and all at max contribution (and then some)...wonder what it will do to my SS benefits if I don't get any more working quarters for the next 25 years...?

 

[REWahoo]

...wonder what it will do to my SS benefits if I don't get any more working quarters for the next 25 years...?

We discussed that subject here:

http://early-retirement.org/forums/index.php?topic=4921.msg86007#msg86007

Bottom line, you'll need to go to the SS calculator on their website and plug in your numbers to estimate the impact to your individual benefits.

 

[Martha]

You bet you want the maximum benefits.

But qualifying by having enough credits/quarters of work have a number of benefits.  Think Medicare.  Think social security disability coverage.

BTW, there is a calculator on the SSA website (http://www.ssa.gov/planners/calculators.htm) where you can find the effect of no future earnings on your future social security benefit.

 

[Gone4Good]

Taxes suck!

This entire thread is a living testimony to just how badly they suck.

The fact that our political system is incapable of fixing this disaster is proof that it sucks.

End of rant.

 

[haha]

Taxes suck!

This entire thread is a living testimony to just how badly they suck. 

The fact that our political system is incapable of fixing this disaster is proof that it sucks. 

End of rant.   

Could be. But anyone who has a wife, son, daughter, husband, next door neighbor who hasn't qualified for SS benefits should try to explain to them what a really good deal it is to qualify for minimum benefits. Can you imagine buying medical insurance in the US at age 70 without Medicare to back you up? If nothing else, your minimum benefit would qualify you for Medicare, and pay for it and your Medigap and Part D plan too.

And as Martha mentioned, the survivor benefits and disability benefits can be lifesavers.  Get in a really bad accident, and become disabled you will become eligible for Medicare at any age- given a certain (2 years?) waiting period.

BTW, Martha, very helpful post.!

Ha

 

[Gone4Good]

Could be. But anyone who has a wife, son, daughter, husband, next door neighbor who hasn't qualified for SS benefits should try to explain to them what a really good deal it is to qualify for minimum benefits. Can you imagine buying medical insurance in the US at age 70 without Medicare to back you up? If nothing else, your minimum benefit would qualify you for Medicare, and pay for it and your Medigap and Part D plan too.

And as Martha mentioned, the survivor benefits and disability benefits can be lifesavers.  Get in a really bad accident, and become disabled you will become eligible for Medicare at any age- given a certain (2 years?) waiting period.

BTW, Martha, very helpful post.!

Ha

You can have the benefits without the complexity. The idea that you should even need a 1040 class is mind blowing.

I agree, though, that thanks are owed to Martha for sharing.

 

[LEX]

I have found that I am so much better at taxes now with the help of Turbo Tax rather than decades ago slogging through the forms and hard copy tax manuals.  I have always done my own taxes, and believe it is an essentail part of being in the know regarding my financial health.

I will always file my taxes using hard copies and demanding a return receipt proof of mailing. MJ, Martha, I do not press the evelope, but I believe that providing electronic 1040 and schedlue A data helps the feds in their audit red flag program.  Why help them in their quest to become more of a problem than they already are?  The paper forms are old fashion, but so are the Federal Rules of Evidence and the tendancy for most judges to want to see the original docments when a dispute is at trial.  Its an archaic tax system, and having e-filing is not going to fix it anymore than putting a digital clock on the dashboard of an Edsel.

These are all stop gaps.  Even Russia has a more equitable tax system than the US these days.

 

[Mr._johngalt]

The idea that you should even need a 1040 class is mind blowing.

I agree, though, that thanks are owed to Martha for sharing.

Martha is very thoughtful and helpful.  Re. the "1040 class", mind-
blowing is a bit much.  I'll bet that 98% of the population could
not absorb the 1040 instructions.  Thus. a "class" may be necessary.
I am not defending it.  That's just the way it is.

JG

 

[AltaRed]

No wonder e-filing has not caught on here... Too many IRS phobias. I believe it is only a matter of time before e-filing will be customary and manual filings will be penalized.

 

[Gone4Good]

Re. the "1040 class", mind-
blowing is a bit much.  I'll bet that 98% of the population could
not absorb the 1040 instructions.  Thus. a "class" may be necessary.
I am not defending it.  That's just the way it is.

JG

Sorry for not being clear in any of my posts.

Taxes are too complicated. It is unfortunate that there is a need for 1040 classes, or Turbo Tax, or tax accountants.

 

[retire@40]

I have found that I am so much better at taxes now with the help of Turbo Tax rather than decades ago slogging through the forms and hard copy tax manuals.  I have always done my own taxes, and believe it is an essentail part of being in the know regarding my financial health.

I will always file my taxes using hard copies and demanding a return receipt proof of mailing. MJ, Martha, I do not press the evelope, but I believe that providing electronic 1040 and schedlue A data helps the feds in their audit red flag program.  Why help them in their quest to become more of a problem than they already are?  The paper forms are old fashion, but so are the Federal Rules of Evidence and the tendancy for most judges to want to see the original docments when a dispute is at trial.  Its an archaic tax system, and having e-filing is not going to fix it anymore than putting a digital clock on the dashboard of an Edsel.

These are all stop gaps.  Even Russia has a more equitable tax system than the US these days.

I don't know if you were trying to be funny, but almost everything you state in this post is the opposite of the truth.

 

[CyclingInvestor]

You are divorced and were married less than 10 years so you aren't covered under your spouse.

I have always wondered, do the ten years have to be consecutive? If A and B are
married seven years, divorce for a decade, then remarry for five years, then
divorce again, is B covered by A's SS (assuming A works full time the whole
period and B works sporadically) ?

 

[brewer12345]

No wonder e-filing has not caught on here... Too many IRS phobias. I believe it is only a matter of time before e-filing will be customary and manual filings will be penalized.

I remember seeing an article or two last year indicating that e-filed returns seemed to be getting audited at a higher rate than paper returns. I gave up on e-filed returns because 1) no way am I about to pay for the privilege and 2) I have had problems getting the filing to go through. Simpler to just print it out and put it in the mail.

 

[BUM]

An essential part of our ER streamlining was to do my own taxes. They arent easier to do since the S Corp is still open and earning a very small income. I took my last return (2003) as prepared by my CPA and bought the 2003 Turbo Tax version on Ebay. Then copied the CPA's work onto the TT program. Once that was done it was "easy" to carry forward the 2003 TT data onto the 2004 program. All this took DAYS of research and head scratching...depreciation schedules, K1s, etc., etc.

Hopefully that time will make the 2005 return easier :

Does anyone else go to these lengths to DIY?

 

[Martha]

For all the talk I do about taxes, I don't do them myself. Since our accountant retired and sold his practice to an accountant we don't like at all, I will have to do our taxes or get someone new.

Have mixed feelings about it.

One thing I learned in 1040 class was the extent choices have to be made when using software and how you still have to have pretty deep knowledge of the tax system, at least as applied to your own situation. This is especially true if you fall into or might fall into AMT.

 

[Martha]

Sorry for not being clear in any of my posts.

Taxes are too complicated.  It is unfortunate that there is a need for 1040 classes, or Turbo Tax, or tax accountants. 

I have no problem with taxes being complicated for people who have businesses and complicated investments. I do have a problem with the fact that taxes are becoming way too complicated for far too many people, thanks mostly to AMT. The different set of rules for AMT in contrast to regular tax rules should be thrown in the trash. Dump AMT and face upfront whether we want as policy to deny certain deductions and increase tax rates on those you want to pay increased rates. Because of AMT people have to do their taxes using two different systems. Because of AMT's huge marital penalty if you fall into AMT you might also want to do trial runs of married filing separately. Come on already.

 

[retire@40]

...I do have a problem with the fact that taxes are becoming way too complicated for far too many people, thanks mostly to AMT.  The different set of rules for AMT in contrast to regular tax rules should be thrown in the trash.  Dump AMT and face upfront whether we want as policy to deny certain deductions and increase tax rates on those you want to pay increased rates...

I don't know about dumping AMT in the trash, but at the very least they should increase the threshold for qualifying for AMT, say MAGI of $500K or so, INDEXED FOR INFLATION.  That would relieve most of the middle class population for whom it was not intended.

There should never be a "surprise" tax.  Taxes have two purposes: To generate revenue for the government and to shape social policy.  The surprise AMT clearly accomplishes the first goal, but also borders on extortion when it hits those that were not supposed to be affected by it's original intention back in the late 60's.

 

[SteveR]

I used to do my own taxes. Even when I had Fed, state and Puerto Rico to do, I did them all.  However, life became complicated somewhere along the way and AMT, interest carry forward, estate taxes, AMT credits etc. etc. have all made this more of a nightmare than I care to deal with while still working 60+ hours a week.  I don't have the time to keep up with the changes in the tax laws and my accountant has all the past stuff on his computer so I don't have to remember it.  I don't mind paying someone to take care of the tax returns I have to file now.  Fed. and state for DW and I and Fed. and state for my late wife's trust.  

After we retire our tax issues will be less than today and I will start doing them again.  

Be careful about using popular tax software programs.  My experience was that they do not always ask the correct question or handle data exactly the same and it can cost you.  They are far better than several years ago but knowing what they should be doing helps you keep them honest and may prevent you from paying too much.

It would be wonderful to do your taxes on a 3X5 index card but I don't see that as long as all the special interest groups have their fingers in the pie.  A straight flat tax with no deductions or credits would allow this to happen.  It will be a cold day in hell before we would ever see that in this country.

 

[Mr._johngalt]

An essential part of our ER streamlining was to do my own taxes. They arent easier to do since the S Corp is still open and earning a very small income. I took my last return (2003) as prepared by my CPA and bought the 2003 Turbo Tax version on Ebay. Then copied the CPA's work onto the TT program. Once that was done it was "easy" to carry forward the 2003 TT data onto the 2004 program.  All this took DAYS of research and head scratching...depreciation schedules, K1s, etc., etc. 

Hopefully that time will make the 2005 return easier :

Does anyone else go to these lengths to DIY?

I would have to. Too lazy so far.

JG

 

[MJ]

For all the talk I do about taxes, I don't do them myself. Since our accountant retired and sold his practice to an accountant we don't like at all, I will have to do our taxes or get someone new.
Have mixed feelings about it.

Martha, I have been using turbo tax for about 7 years and it's been a very helpful tool for me so far.
Why don't you or Greg buy TT with your state when it is on sale (about $30 with rebates) and do a parallel trial, you may be mildly surprised.

MJ

 

[Nords]

The IRS isn't your friend, your advocate or your ally.

Neither is that $400 tax preparer. Especially when the first piece of paper they hand you is an extension request so that they can clear out their customer backlog on your time do some more research on your itemized deductions. It feels too much like handing your credit card to a car dealer and saying "Pick me a winner, OK?"

I've always done my own taxes since my father sat me down with my first paycheck to show me how to get all those taxes back (some of them, anyway). TurboTax has become a godsend to automation & tweaking, although that's no substitute for looking up the pubs.

No one can become as much of an expert on your tax situation as you can. Your CPA isn't in the business to teach you either. I don't slaughter my own beef or raise my own chickens, but I figure that it's well worth my time to learn how to do our taxes and thus also learn how to avoid incurring them in the first place.

 

[Martha]

Or the $800 preparer as in our case, who also couldn't get our taxes done on time.

I might give a TT trial run against an accountant for this year. Our returns and schedules last year were about an inch thick. I dread imputing all the data for the first time. I also hate dealing with the AMT mess.

 

[uncledrz]

Do my own, important to know and keep up with the tax code for work (represent some small businesses).

I use the tax programs, and think they do a good job, but it sure does help to know where they go off, or don't properly evalute a matter.