3

Monday, February 23, 2009

Weekend Assignment #256: Taxing

One of the reasons I read Karen's blog faithfully is that she's another member of the ABA (Association of Blogging Accountants - which I just made up, but I think we need one!) - and in the current Weekend Assignment, she asks us to think about one facet of accounting that affects nearly everyone at this time of year:

Weekend Assignment #256: Tax time for individuals in this country starts in late January when the tax forms arrive, and runs through April 15th or so when the tax return is due. Do you file your taxes as soon as possible, at the last minute, or somewhere in between? Is there a particular reason for this?

Extra Credit:
Who actually does your taxes, and with what software or other resources, if any?

Just FYI: please do NOT come to this blogging accountant for tax advice! While I earned my bachelor's degree in the subject and have worked in the profession for over twenty years now, I am not a CPA and my work experience has been in nonprofit organizations, where taxes generally aren't an issue.

We had planned to get to work on our taxes this weekend, but as plans often do, it fell through, partly due to the somewhat more urgent matter of replacing Tall Paul's car. We're not usually in a real rush to get our taxes done anyway, since we are in the unfortunate subcategory of "have to pay" on our Federal taxes. And even if we don't owe the state of California any additional taxes, they'll owe us; they'll be issuing IOUs instead of refunds.

During my first marriage, I learned the hard way that the tax code is not friendly to dual-earner couples with decent incomes, less than two children, and no mortgage-interest deduction. For at least the last fifteen years, I have had taxes withheld from my pay as if I were single rather than married - at the very least, this prevented me from the shock of a decreased paycheck during the post-divorce years when I actually was single.

That fact is at the top of my list of reasons why we need tax reform, and leads to the only piece of tax advice I have. If both spouses can swing the higher withholding, you might get lucky and see a refund when you file your return. On the other hand, you can just accept that you will pay and won't get a refund, make your withholdings as high as you're comfortable with (ideally, at least one spouse should withhold as single with minimum exemptions), and either pay estimated tax on a quarterly basis or set aside the additional tax money in your own savings account instead of letting the government have it in advance. As long as you've pre-paid most of your taxes one way or the other, you will most likely not be subject to interest or penalties.

In any case, when you know there's no refund in your future, there's less incentive to file your taxes as soon as possible. However, we're the kind of people who don't like to push too close to deadlines either, so we normally have our returns filed by mid-March.

As I mentioned, I'm not a tax professional, but I've always done my own taxes. While my tax situation may cost me more, it does have the advantage of not being very complicated. I started e-filing several years ago, although I was still preparing my tax returns on paper at the time, but since Tall Paul and I have been together, we have used TurboTax and we swear by it.

So, are your taxes done yet?
And remember, if you get a nice big refund, it is nice, but it's your own money and not a gift from the government, so you might want to think about reducing your withholding a little.

9 comments:

  1. We're two-income, no kids as well, but I suppose our withholding, the mortgage and my student loan interest more than offset that. Still makes me nervous, though. And yeah, replacing a car definitely trumps paying taxes early!

    ReplyDelete
  2. Karen - We do get one child exemption per Tall Paul's divorce decree, but it's for the older child, so it will run out in a few years. The big thing for us is not being able to itemize deductions. But we think our shortfall will be smaller this year and we've already saved more than we need to cover it - we just need to find out for sure. It definitely is nervous-making, at any rate.

    ReplyDelete
  3. I do our taxes and got started on them yesterday. What a pain in the behind they are.

    ReplyDelete
  4. The irs.gov website has a calculator that can help you estimate your withholdings, which I did last year. I haven't done my taxes yet (TurboTax rocks), but I expect that I should get a very tiny return. From the feds, anyway...

    ReplyDelete
  5. Kathy (Bermudaonion) - They're not exactly a party, are they? Good luck!

    April - TurboTax definitely rocks. And thanks for mentioning the withholdings calculator - the IRS website is actually a good, useful government product (!). Oh, and don't spend your California IOU all in one place :-). Sheesh.

    ReplyDelete
  6. We used to get dinges pretty well until we had the kids and bought the house. Now we tend to get a little back, but not much.

    An IOU? That stinks. Maybe things should be changed so an IOU goes to them out of each paycheck. :)

    ReplyDelete
  7. Mike - The state FINALLY passed a budget, but they announced the IOU thing back in December, so even if we have a refund coming, we're not holding our breath. Good point about the IOU to the state, though :-).

    There's still a belief that married people have a tax advantage, but in my experience, it's not true if they're non-home-owning, two-earner small families - and that applies to a LOT of taxpayers in today's economy.

    ReplyDelete
  8. As a foreigner (alien really when it comes to knowledge about taxes), I can tell you
    1) that my government just takes what they want before giving me anything
    2) in Danish the word "skat" means "tax", but also "darling" or "honey".

    ReplyDelete
  9. Dorte - That sounds like a real linguistic quirk to me. I don't think anyone uses terms of endearment for their taxes :-).

    ReplyDelete

Now it's YOUR turn - speak your piece, please! Or just let me know you were here; I always like that. But you'll have to leave a name - I've disallowed anonymous comments due to some recent spam problems. Thanks!