Remember that feeling either of joy or dread that everyone felt back in January when the tax forms and information started to roll in? Taxpayers are divided into two categories – those that are getting a refund, so the savings account will get a bump or that new refrigerator seems possible – please issue that refund before the Presidents Day Sale, and those that will owe money, and thus will be standing on tiptoes on the cliff of mid-April before filing.
During the time that Herself and I were working, we requested the “married, but withhold at the higher single rate” option. That way, we usually got a nice bit of change back at filing time. I know, I know. The specialists tell you to figure out your refund and bank that amount each month so you don’t “overwithhold” and, essentially give the Treasury Department your money for a year. That requires a degree of fiscal discipline that, quite frankly, I’ve never possessed. So, we’d let the IRS keep our money in their coffers until January or February of the next year. I’m ok with that, as long as I get it back eventually.
Upon retirement, we’re dealing with a new dynamic. I assumed that the state retirement systems – we deal with two – would figure it all out and take what they needed in a prudent and responsible manner. Not so. The first year, we got slammed. The retirement systems did almost but not quite what they should have, but social security pushed us over the top into “you owe”. I took corrective action, and the following year, much better, but still owing. I took more corrective action, I thought, but one of the retirement systems actually reduced their withholding, so again, manageable but still an OOPS. I’ve gone into another round of increasing withholdings, so next year, we should be in fair shape. Fingers and toes crossed.
One of the big things about the tax system is deductions. I used to keep track of these meticulously and have everything ready when it came time to file. Property taxes, income taxes because I worked for years in a state that had them. Here in New Hampshire, where we live free or die, there is no state income tax. Hence the beaucoup upper income retirees that live here. I’d tally up our medical expenses, our job-related deductions, membership dues and fees. I’d keep track of our charitable deductions, and felt guilty at the end of the year at what a paltry amount we were giving. Oh, well – I’ll let Bill Gates and Warren Buffett cover that for us again this year.
There are a couple of years when I went to a tax preparing service for assistance. The first was the year we bought our first house. Then later, I needed help with inheritances and those tax implications. For the most part, though, I’ve done ours, and so far, knock on wood, the Feds have not appeared at our door or tapped our phones. For a number of years now, I’ve used online services and electronic filing. It’s always reassuring when I get back from the service, “your taxes have been filed”, with a subsequent email, “the IRS has accepted your return”. I’m not sure what would happen if they didn’t, because the software is overly cautious. They give me a warm round of applause when I’m done, followed by “let’s run the checks six more times just to be sure”. The first time through, there is a box I missed or one I checked off because I had no idea what it meant. Something to do with the nonrailroad former employee trust fund. In the springtime, I judge some music festivals, which are considered “miscellaneous income”. That throws the whole system into spasms. Am I “self-employed”, and thus subject to a new array of forms, qualifications, and taxes? I read somewhere that we have Uber and Lyft drivers to thank for these new additions to our tax filing joy. Last year, my miscellaneous earnings were just over the “forget about it” threshold, and I believe I ended up having to upgrade the software package and pay “self-employment” taxes, where I became a business, and that amounted to taxes of roughly 126% of what I actually earned. This year, I may just tell the festival organizers to keep the money and give me a nice gift card.
So, what’s still deductible? Some of my readers may be old enough to remember when credit card interest was a legitimate deduction. A neighborhood fruit stand could deduct shake-down payments to Guido. Three martini lunches and vacations in Barbados were just “costs of doing business”. No more. In fact, the three-martini lunch expense isn’t even listed on Schedule A. On the plus side, the standard deduction is now bigger than anything my facts, figures, and fertile imagination could dream up. I laugh in the face of mortgage interest and medical copay. However, the software still insists on “walking me through it”, and their warnings are worse that PCH – “STOP, GO BACK” and “You’ll need to check off box 52 on Schedule Q.” We put everything in, and then it tells me that it “thinks the standard deduction is the best way to go”. I could have told you that going in.
The last couple of years, I’ve helped our dear friend, Lady Peacock, with her taxes. Her belief is that withholdings are an abomination and should thus be minimized. She’s also a specialist in maximizing her deductions. I should mention that I insist on complete anonymity when it comes to her taxes and any further interactions with the IRS. I had no part whatsoever in her tax preparation, and will delete the files from my computer if they contact me. Here are some of the discussions we’ve had:
- No, monthly condominium association fees are not deductible. They’re not bank fees or interest paid. It’s merely something you pay to live there. No, it may not be fair, but it is what it is.
- No, your “skimmed milk with extra whipped cream” at Starbucks does not qualify as a Weight Loss Program. Skipping lunch doesn’t count either, nor can you deduct the cost of your emergency snacks resting comfortably on the back seat of your car.
- How exactly did you arrive at that figure for “charitable deductions”? No, you really should not use full retail value for a top that’s been hanging in your closet for ten years and you’ve worn a few dozen times. Let me introduce the concept of “depreciation”.
- “You drove how many miles to and from the doctor’s office”, I ask in stunned disbelief? I forget that she has standing weekly doctor’s appointments. It’s rather like Air Force One on constant standby for take-off to Mar-A-Lago, with a fully stocked cheeseburger station.
For those of you that have been cruising along thinking that you have months before dealing with the tax cycle, guess what – we’re closing in on March. You’re down to: if you have an official tax preparer, sit back and have another glass of Cabernet. If you do your own, you’ll begin to feel that tingle of anxiety that comes with collecting the W-2’s and 1099’s, assembling the numbers and preparing to do battle with the dark forces of taxation. I read somewhere that in Japan, the government sends you a 3 X 5 card telling you what you owed, and that they’ve already deducted it from your bank account. Now there’s a system.
I'm Thinking...No! 