As I was preparing our taxes and filing our taxes this week, along with Her Ladyship’s conversation with our friend, Lady Peacock about her taxes, it seems an appropriate time to go back in time long ago, to a period we thought ripe with prosperity and good will. February, 2020. Here are excerpts from that blog, along with a couple of strategic revisions and updates.
Remember that feeling either of joy or dread that everyone felt typically in January when the tax forms and information started to roll in? Every year, I’d receive that joyful packet from the IRS, and sit down to get everything ready and fill in the blanks. Today, of course, it’s all online, so what comes in the mail is long after I’ve printed out the information from various websites.
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. There’s a third category this year that will unfortunately cause anxiety and anguish – those received unemployment benefits in 2020, and come to the awful realization that those benefits are all taxable. My heart goes out to those folks, because we all know they used those benefits to merely keep heads above water.
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 “over-withhold” 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’ve dealt 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 us”. I took corrective action, and the following year, much better, but still owing a bit. That’s better, but still not great. 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 this year, wonderful, we’re back in the “your refund is . . . . . “
One of the big things about the tax system is deductions. I’d 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. In the golden age of deductions, we could also include credit card interest, but that’s gone the way of the hoop skirt and cigar roller. I’d keep track of our charitable deductions, and usually feel guilty at the end of the year at the 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. 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, 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. There’s also “farm losses” – wonder if I could deduct some of my container gardens that didn’t work out.
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 understand 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” tax that amounted to just a bit more than what I actually earned. This year, with all festivals cancelled, not a problem.
So, what’s still deductible? There were the aforementioned credit card interest deductions. Businesses could deduct shake-down payments to Guido in Brooklyn, I’ll assume. Three martini lunches and vacations in Barbados were “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. However, the software still insists on “walking me through it”. I 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 twenty minutes ago.
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 she should do everything she can to reduce them. So far, after years of this, she still is just a bit in the dark about how that will bite her in the butt at filing time. To give her credit, though, she’s a virtual magician at maximizing her deductions. I should mention once again that I insist on complete anonymity when it comes to her taxes and any further interactions with the IRS. Mine are anonymous fingers inputting information that she dictates, and will delete the files from my computer if they contact me. So picture this – I’m seated at the computer, while she paces nervously behind me giving figures in a commanding voice, a look of concentration and disappointed anticipation on her face.
Here are some of the more fanciful discussions we normally have:
- No, monthly condo 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” from Starbucks is not an officially sanctioned “Weight Loss Program”, and thus is not a qualified deduction. Skipping lunch doesn’t count either, and your emergency snacks in the back seat of the car do not qualify as “nutritional supplements”.
- And no, the cost of your dating app is not a “business” deduction.
- Your “charitable deductions” seem a bit large, based on your income bracket. Oh, you used the full purchase price for a top that’s been hanging in your closet for ten years and you’ve worn at least a few dozen times. I tried introducing the concept of “depreciation”, to no avail.
- “You drove how many miles to and from the doctor’s office”, I ask in amazement? In the interests of full disclosure, I never knew that milage to and from medical appointments was even deductible until my tax association with Lady P. I forget that she has standing doctor’s appointments and a full battery of medical staff on Code Red alert around the clock.
My guess is that this year, the tax preparers and software have been going nuts trying to figure out not only the typical yearly changes but too the effects of bailouts, unemployment, stimulus checks, and other complicating factors. It’s worth repeating that I read something about Japan’s system. The government sends you a 3 X 5 card telling you what you owed, and they’ve already deducted it from your bank account. Now there’s a system to model, and perhaps to make hackers salivate.
I'm Thinking...No! 