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/0,,id=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!

 

[Mr._johngalt]

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

JG

 

[BUM]

CPA schmeepeaaaa

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]

Re: CPA schmeepeaaaa

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?

 

[Mr._johngalt]

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]

Re: CPA schmeepeaaaa

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]

We've always done our own taxes.

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]

Re: We've always done our own taxes.

(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]

Re: quicken/turbotx

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.

 

[Mr._johngalt]

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]

Re: Quicken/Turbotax

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.

 

[BUM]

Martha,

I bought TurboTax 2004 Premier ($50something at Sam's) and entered all the info my cpa did on his "pro-program". I liked it. OK on section 179 and 168(k) dep. skeds.

Figuring out depreciaton schedules is not hard just time consuming. Especially easy if your assets are already being depreciated.

What I did was buy a copy of TurboTax 2003 on Ebay. Backed in my "pro-prepared" 2003 returns...migrated into 2004 editorialized a bit then compared my cpa's figures. Differences were negligable.

Work with your new cpa but why not try what I did or take a futuristic approach and TT the 2004 and '05 returns? I also found historic sessions with my guy very productive. He is a fine cpa. I always challenged him to find me, "one good idea per year"...anybody can just crank out returns. Most years he exceeded my expectations. Hope your experiences are likewise.

BUM

 

[cute fuzzy bunny]

Yeah I have a few feelings about quicken and turbotax.

If you own mutual funds with ameritrade and have the dividends paid out to you in cash instead of reinvested in the fund, they do it fine and then report to quicken that a zero dollar dividend reinvestment occurred. Quicken cant figure out where the money in your bank account came from and when you tell it that its from the ameritrade zero dollar 'reinvestment' transaction, it allows you to manually repair that bad transaction. The good news is that on your next download quicken will fix it back for you.

Later on, when you download your quicken information into turbotax, it will find itself completely unable to handle wash sales, even though it has all the information to do this annoying little calculation for you, you'd better pull out an envelope and pencil. It will subsequently improperly format your schedule D by placing only the trading symbol for some funds and stocks and not mentioning the number of shares transacted.

If you try to download your financial data into quicken, then use turbotax to download the same transaction data from your broker (say...vanguard...) and then sync turbotax with quicken, it will gladly double every single transaction without making any notice that they're two sets of the same.

Just when you feel like you've really got your moneys worth from your software purchase and the hundreds of hours of time spent entering transactions, you'll discover that half of your financial institutions havent paid royalties to intuit to use their 'direct connection' download, so you'll have to log in to the bank or credit card company and force a manual download for each...and...every...sub-account.

I have to do one for my savings, checking, money market, bank visa, and one each for every CD I'm holding. Sucker doesnt even keep you logged in to let you do them sequentially...

I decided after 3 long years of trying very, very hard to make this work that it wasnt worth the effort. My numbers were never entirely right, the IRS kicked back one of my tax returns for an improper schedule "D", and I had to check everything manually to be sure the #'s were even in the ballpark.

But if you have the right banks and financial institutions, you're severely anal retentive and love nothing more than to type in your credit card statements for hours on end, and love pie charts of how much you spent on canned vs dry pet food over 1, 3 and 5 year periods, I cant recommend it any more strongly.

 

[haha]

Re: We've always done our own taxes.

Well, I am stuck with the K-1s.  Still debating whether to do our own taxes next year.

Hi Martha. I just finished my taxes. I have several K-1s, and Turbo-Tax gets better at this every year. I am satisfied. Not crazy about paying the tax, but satisfied that it is reasonably accurate.

Because of capital gains, I paid more tax this year than ever before.

BTW, Fidelity records download seamlessly into T-Tax. ALthough I use MS Money, I don't use it directly in record keeping other than expenses and balances. I use Fidelity, with backup by Excel. I find Excel perfect for its complete malleability. Especially helpful with partnerships, royalties, etc, where basis must be kept accurately and where it is affected each year by several inputs.

Mikey

 

[Martha]

It is the 14th. Have to go out of town for a hearing today and still have not heard from the accountant.

Based upon all of your helpful comments, I think I will buy Turbo tax and imput my 2005 returns and see if I want to do them myself next year.

 

[deserat]

Ahh, Quicken and Turbo Tax - I really liked my old DOS 6.2 version of Quicken....then went paper based for a few years while in Europe...then came back and tried to use the new Quicken - have finally got it figured out - as for downloading form institutions - forget it. I know too much how computers can screw things up and I'll just use the paper statements I get every month to manually enter it is - gives me time to really review it anyhow. I really don't like how Quicken has complicated transaction entries - I feel as though I'm filling out a survey everytime.

Taxes - for Schedule D, I set up an excel spreadsheet and listed all of my transactions over the last four years (this was painful this year) - but now I have a nice template and can just use that to determine what my capital gains (losses) really are.

Taxes, I usually do them by hand---I like to know what my government is up to - pretty scary sometimes reading just the directions, especially for the CA Part year resident form - sheesh - you need a degree in mathematical gymnastics to figure out what game they are playing to include/exclude what is/isn't taxed. I try not to have a perpetual grumpy mood this time of year.....but didn't succeed this year.

Bridget

 

[Nords]

It is the 14th.  Have to go out of town for a hearing today and still have not heard from the accountant.

That means they don't charge you for filing the extension, right?

I hate being held hostage like that.

 

[Nords]

But if you have the right banks and financial institutions, you're severely anal retentive and love nothing more than to type in your credit card statements for hours on end, and love pie charts of how much you spent on canned vs dry pet food over 1, 3 and 5 year periods, I cant recommend it any more strongly.

Hey, I resemble that remark!

After three years of ER, it suddenly dawned on me that there was no reason to print & spouse-review the monthly budget. So this year we're going quarterly. Without pie charts...