Breaking Even, Inc.

Done!

Why I Paid A Pro To Deal With My Taxes

Two weeks ago, I sat down at my computer with all my paperwork and began my taxes. With four jobs last year, a move, and a retirement account, I was left paying over $400 in federal taxes. Discouraged, I saved the computer file I was working on and decided to call a pro. Asking around the office, I found someone who would do it on short notice and fairly inexpensively.

Today, two weeks, three phone calls, and $95 later, my taxes are done. Federal and state combined, I’m now getting $180 back. Here’s what my accountant knew that I didn’t (among probably a lot of other things):

1)      You can put up to $3,000 into your retirement account this year. That’s $3,000 saved for the future that you don’t have to pay taxes on. You can also contribute right up until April 15 for it to count towards 2007.

2)      There is also a 10% retirement credit new this year. I’m not sure what this exactly means but I think retirement account money is even less taxable than before.

3)      To make it worth itemizing charity stuff, it has to be over $5,350 worth.

4)   He was also really interested in my moving expenses. Mileage reimbursement (which I didn't count) is $0.20 a mile, which can add up if you're going far (in my case, with ferry tickets and moving van rental, the deduction was worth figuring out). A non-related piece of advice: moving on/off an island is a logistical nightmare only truly understood by those who have done it.

“Looks like you’ll be breaking even,” my accountant said.

“Oh, I do love breaking even.” I told him. He probably has no idea about this blog but with those magic words, he reassured me that hiring him was a good decision.

Tax Savings For Smaller Incomes

I’ve been scouting financial RSS feeds the past week or so for the best money-saving tax tips for the smaller income folks like myself. Here are three that sound like they may help some:

1) Make $15,500 AGI and contributed $2,000+ to your retirement? Uncle Sam has a deal for you! (Via Kiplinger’s) Don’t know your AGI? Figure it out with this handy calculator.

2) Have stock or other investments? In 2008, investors also have a rare opportunity to take profits on stocks or funds and pay no tax…While most investors pay a 15% tax on capital gains, those in the two lowest brackets, which this year means taxable income up to $65,100 for a married couple filing jointly or $32,550 for individuals, ordinarily pay 5%. This year, they pay nothing. (From Kiplingers)

3) Also CNN has ten tax breaks mainly for those with homes, retirement accounts, or kiddos.

Discuss these with your tax professional or keep these in mind when you are doing your own taxes, that is if you haven't done them already... Guess what I'm doing this weekend? 

Taxes On Your Own And Why That's Not A Bad Idea

I just finished an article from Smart Money Magazine called "10 Things Your Tax Preparer Won't Tell You". Apparently there are a few reasons for people to do their taxes on their own:

1) Tax preparers make more and costlier mistakes than the average person doing their taxes. "According to a study of IRS data, 56% of professionally prepared returns showed significant errors, compared with 47% of those done by the taxpayer. And audited taxpayers who used preparers owed an average of $363, while those who filed themselves owed $185."

2) Tax preparers are way less likely to take new clients after Feb. 1, after which they are slammed until the tax deadline.

3) The person you hire may not be the person who does your taxes. It could be some temp employee or some random person overseas. (Not that either of these things are bad. I just doubt that this is ever stated outright, making me think if if a person or firm can be dishonest about who is doing my taxes they are probably capable of larger dishonesties).

While I may have gathered my paperwork in December, I have not gotten the party started with the taxes. But it looks like I'll be doing them on my own for some good reasons besides saving some money. Meanwhile, have you started your taxes yet?

A Cozy Afternoon With Just Me and My Taxes

I finally sat down yesterday with all my tax stuff and began a new sheet of paper called "Tax Crap".

No one likes doing this. I don't like doing this. But at least I know all my tax stuff is together and ready to go. I also know what I'll be claiming for deductions. Allow me to share.

1. Charitable contributions (the key with this is you need proof... a receipt, a check copy, a credit card statement, something): about $1,500

I sponsored my buddy Marc for the Trek Across Maine (it goes to the American Lung Association). I am an MPBN member, contributed to the SPCA where I got Sadie, and gave some money back to my college. That was almost $200 right there. My donated clothes value (I kept a list of all donations and receipts from them) put me over the required $500 minimum deduction. Yipee! Being charitable pays off!

2. Moving expenses: Moving is a pain. Moving off an island, even more so. Take the Uhaul and add almost $80 in ferry tickets. My move cost $250. Exempt that, Uncle Sam!

3. IRA contribution: I'm putting $50 a week into my IRA and have been for the 22 weeks I've been working at my current job. $1100 that Uncle Sam can't tax me on.

4. Medical bills: I technically have medical insurance but it kind of stinks in that it doesn't seem to cover much. With my adjusted gross income (which I don't know how to calculate), I may have spent over the 7.5 percent on medical bills. I'll have to check this with my accountant but I have the receipts and the calculations ready to go. $500 in medical stuff may just be enough for me. Oh, and remember that dental, eye, mental health, etc. all works for this too. Count it all.

Yup, Uncle Sam is getting way less of my money this year. And it was well worth an afternoon of "Tax Crap". 

End Of The Year Tax Tips

Like most people in our great country, I thought that I make so little money that it didn't really matter whether I would itemize my deductions for tax time ('tis the season for charitable contributions after all). Apparently it does matter. If you own property or a house, have a home office, pay for childcare, have had some medical bills this year other than standard checkups, have a retirement account, are involved in education, pay student loans, have your own business, or travel for business, you can save money. Check out this site for what you can legally deduct.

A little more about charitable contributions: as of recently (in the last few years), if you donate goods you need a receipt verifying your donation. This year, for example, I really cleaned out my closet, taking care to write down everything I got rid of. I have a receipt for all my donations (and, on a side note, I thought it was kind of cool that one of my shirts made the front window display of the thrift store). Goodwill has a good way to approximate how much your donations are worth if you go on this page and check out the pdfs on the lower, right part of the screen. Donating 5 shirts and a couple pairs of jeans? That's worth $56 and I'm just going with the middle range on the value scale!

So for a few hours some weekend in December, I'm going to make myself some hot chocolate and go through the ver comprehensive-seeming tax tips recommended in this blog to make sure Uncle Sam doesn't get a huge chunk of change from me this year like he did when I did my taxes last year. And you should too because, let's face it, going through financial records is actually just as important, if not more so, than wrapping presents this holiday season. Believe it or not, you may actually thank me in April... and have more money for presents next year!