Maybe I Can Still Beat the Tax Man?

The frequent commenter that posts anonymously but signs her comments "Rache" is one of my co-workers. Not only does she read about my latest obsessions here, but she also gets the added privilege of hearing about them during the day at work. Usually, when she's had enough, she sends me an article that either supports or refutes my claims and attempts to secure herself a few moments of peace. To be honest, it is not a bad plan at all.

When she finally tired of hearing me moan about having to plunk down some dough with my federal tax return, she sent me this article from MSN. Apparently, I am not the one banging my head against the wall this tax season.

I had thought about most of the ideas brought forward before I read them in this article. Unfortunately, I don't have a "green" car, nor did I install energy efficient windows last year. I didn't pay college tuition, either. For that matter, most of the discussion points from the article are things that you would have had to do back in 2006 to have any effect on your tax return now....except one. And, I can actually take advantage.

This will cause a collective :gasp: from the personal finance blogging community....but, I have not yet contributed to my 2006 IRA. I still have a traditional (deductible) IRA. I don't make the maximum contributions because, quite frankly, I cannot afford to stash an additional $4,000 away - with no real ability to touch the money for another 30 years. I would love to - but, I just cannot afford another $4k for retirement savings. But, what if I were getting a discount on the money invested in the IRA? In essence, that what will happen, if I contribute.

TurboTax estimates that for every dollar of deduction that I have, I will save about 18 cents in taxes. So, for every $1,000 deposited into my IRA, it will really only cost me $820 out of my pocket. Since I need to pay Uncle Sam anyway, the money really is discounted. If I were getting a refund, the same theory might be true, but it would have less of a real effect on my thinking. Crazy, isn't it? Sometimes logic has less to personal finance than "personal" has to do with finance.

Still, where am I going to come up with the $1,500 it will take to alleviate my tax bill? While TECHNICALLY I have the cash to make the contribution, it would be coming from money that is earmarked for something else. I do have about $1,000 worth of Motorola stock that I could deposit (actually, I am not sure if I can contribute stock directly and I must be losing my touch with "The Google," because I have yet to find a concrete answer). I just don't know how to apply the tax issue, and I need to make a phone call to TD Ameritrade, the folks who hold my IRA account. Can I deposit the stock directly? What is the amount that is deductible? The tax basis? The fair market value? Would I be better off to sell the stock and just deposit the proceeds (seems like it makes less sense to pay an extra set of commissions to buy and sell, but it wouldn't be the strangest thing I have ever heard)? Of course, another day in the market like today, and I won't need to worry about it, as the MOT stock is just plummeting, of late.

I need to get this situation squared away soon, and still figure out where the difference between what I own in stock and what I still need to contribute to abate my tax obligation is going to come from. The clock is ticking, though, and with one month to go until the filing date, I have little time to secure additional funding.

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I Owe, I Owe - It's Off to Work I Go!

It was an unhappy weekend here at the Fortress of Solitude. Yesterday was tax preparation day. I'd been putting off this relatively easy task for a month-plus now, mostly because I was sure that my refund was going to be extremely small this year. If I was expecting enough money to fund a summer vacation, I would have been all over this at the beginning of February.

After plugging in all of the information from the W-2 and 1099s, deducting all of the deductions, exempting all of the exemptions, and ciphering until I could cipher no more, it turns out that I owe $222 to my Uncle Sam. This, of course, led me to believe that there must have been some mistake - I NEVER owe. I usually get a smaller-than-everyone-else refund, which I am OK with, because it means that I have had more of my money to do with as I please than those who get huge refunds. But, I don't OWE. In 18 years of filing a 1040 (or equivalent), I have never owed money on April 15. This year, when all of my friends are talking about spending their tax refunds on a vacation to Bermuda, I am going to be squealing as I write a check that will help subsidize their Hawaiian shirt wearing behinds.

How did this happen? Well, I did make more money this year than last (a good problem to have) from my day job. I also worked as an independent contractor this year (more than last), from which there was no money withheld. On top of that, I also owe self-employment tax on that money. Passive income was up, too. Thanks to my ING account, my interest earned was better than 20 times what I earned last year in my feeble Wachovia account. Unfortunately (fortunately, from a tax paying standpoint), my interest paid was also up on my student loans. I have a decreasing outstanding loan amount, but my interest paid increases....UGH!

From a tax standpoint, my problem is that I don't spend nearly enough. My medical expenses, including health insurance premiums, were well below the required threshold for deductibility. If I got sick more often, I would spend more money on healthcare, and I would save on my tax bill. My mortgage is abominably tiny - and therefore, so is the interest I pay on my primary residence. It is so small, that I also do not meet the minimum threshold for itemizing deductions. If I spent more money, to get a bigger house (that I neither need, nor can afford), I could save money on my taxes. I could also contribute more to charity, make a large capital purchase (sales tax savings), or sell stocks at a loss to reduce my tax burden. Unfortunately, I didn't - so, I can't.

One thing that really chaps me is the low income tax credit for retirement savings. This money is designed to encourage those who would otherwise not contribute to a self-funded retirement account to save money. Obviously, this is a win for the government. If they can get more people to save for retirement, there may be less of a burden on the social security system in years to come. Unfortunately, they think that "low income" caps out at $25k/yr for single filers. By just bumping that up to $50k, it would appear that more people would participate (I am thinking of the 20-something colleagues that I know that have no concept of retirement savings), which would alleviate some government burden in the future, and cost relatively little in present day dollars. Of course, the most important benefit would be that I would have my tax bill eased.

Today's patron saint of this blog is Mr. Pink, from 'Reservoir Dogs' who said it best. "It would seem to me that The Travelin' Man belongs to one of the many groups the government @$^%s in the $^% on a regular basis."

And, it hurts. :-(

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Men Don't Know Jack About Retirement

....or anything else, for that matter. That's our little secret. Let's hope the women folk don't find out.

MONEY Magazine's recent article discusses the lack of retirement savings savvy inherent in men. The article, of course, fails to mention that women don't seem to know any more about retirement than men do. So, maybe, they should have retitled the article "Nobody Knows Jack About Retirement."

I don't claim to know everything about retirement, but I know a few rock solid facts:

• There is no reason to not start a retirement savings plan. It doesn't matter how old you are -- as a matter of fact, your money has a longer period to earn for you the earlier you start. No matter what, if you haven't already....get started in your employer's 401k/403b plan or start a Roth IRA.
• In almost all circumstances, it is not advisable to take an early withdrawl from your retirement plan. You will likely be on the hook for a penalty and outstanding taxes. On top of that, you no longer have that money working for you to grow over time for your retirement.
• If your employer offers a match, you should at least contribute the amount to which your employer will match your contributions. In other words, if your employer will match your 401k contributions up to your first 5%, then you should at least save that much. The money that your company matches is like making 100% on your money right from the get-go.

This article focuses on what to do when you reach retirement age. I am still a ways away from that, so I am less concerned about what to do 30 years from now than I am with what I am supposed to do today. I am concerned with building my pot of gold as best I can. Even with the relatively low salary that I make, I have always contributed as much as I can possibly afford. I have tried to maintain an aggressive approach to investing; which, for me, means investing primarily in growth stocks, international investments, and some real estate. I figure that I am relatively young, and even if my whole nest egg were to evaporate tomorrow, I still have enough time to save for retirement (less time, but I would still have time).

I don't know if I am going to pass any quizzes from MONEY Magazine any time soon, but I am pretty sure that my retirement planning is one of the few financial things that I have done right over the years -- when so many other things have been wrong!

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Mail That Makes You Smile

I remember when I was a kid racing out to the mailbox to get the mail. Excluding the week or so preceding my birthday, the odds of me finding anything in that mailbox for me was pretty remote, but I still chased after the mail more than the average barking dog. A I've gotten older, I get more mail -- but, the only difference is that now I usually don't want it! I figure that most adults now feel roughly the same way I do about mail - bills, bills, and more bills. Occasionally, the bills are interrupted by a pre-qualified credit card offer, an offer to consolidate my student loans, and a carpet steamer advertisement.

This week, though, the mail was pretty good -- and it isn't even my birthday!

I received a free park-hoppper ticket to Universal Studios -- no obligation, otherwise. I have seen the "free offers" that require a time-share presentation. Yuck. No -- this was an actual, bona fide, free ticket to Universal Studios Orlando and Islands of Adventure. Attached to the free ticket was another coupon offering an additional six tickets (who is really going to Universal by themself?) for only $35, which is a sizeable discount.

I can't think of the last time that I paid to go to one of the central Florida theme parks. It seems like if you live here for any length of time, you just know someone who knows someone who has a friend that always has free tickets. Plus, I am not a theme park junkie. I could do without standing in outrageous lines for hours to spend less than five minutes on rides. Factor in the overpriced food, screaming kids, and European tourists (tour-ons, for you locals) and it just doesn't seem like a way I would want to spend my day.

I have a friend who works part-time at Disney. She gets access to the annual Christmas deal for employees (almost enough of a reason to work at Disney!). She gets a ticket (park hopper) for herself and up to three or four friends, free popcorn and drinks in the park, a 30% discount on souvenirs, and a 50% discount in the restaurants. We usually go on one of to see the holiday candlelight processional, where "famous" (B-list celebrities, usually) people perform a holiday reading and high school choruses sing holiday tunes. While I am not a huge Christmas fan (could be my Jewish upbringing?), Disney really does the holidays right. And, for free, the price really can't be beat, either.

So, I will likely use my free pass to Universal, and if I have friends visiting from out of town at some point, I may even use the $35 discount coupons, too.

If you want to read more about my good mail this week, check below the fold...


People that know me, know that I am a travel whore. I love to travel and I love even more the perks I get through airline miles and hotel points. This week, the travel mailbox overflowed, as well.

Apparently, there is a class-action lawsuit against Starood hotels. Apparently, I am a member of the affected group. Apparently, I have no recollection of how I became a member of the effected group. I received two $14 discount coupons off of a future paid stay at the listed Starwood resort properties. Of the listed properties, which I assume are the ones that were mentioned in the lawsuit, I have only stayed at the Westin Diplomat and the Westin Savannah Harbor. The Diplomat waived the resort fees for me, but I may have paid them in Savannah. Even stilll, the Savannah stay was only one night -- and it was a cash and points night, so I didn't really gripe about the resort fee. You can only use the coupons at the listed resorts, and the odds of me paying to stay at one of these places is pretty remote, but it is a nice gesture. I also received a similar coupon for $3 for a concurrent lawsuit fighting other unfair automatically billed, but undisclosed fees. Of the hotels listed, I can only assume that my infraction occurred at the former Four Points by Sheraton in Rochester, NY. I remember them billing me for a hotel safe that I never used. The charge was removed from my bill at the time, which amounted to a minor inconvenience at check-out time. Of course, that hotel now operates under another brand, so I won't be using my $3 discount there. Of the other hotels listed, there is one at which I stay periodically for business, so if I get the chance to use it, I will. If not, the circular file will see some new contents.

I also received my Hilton Hhonors credentials for the year. I (somehow) managed to earn Silver VIP elite status with them for the coming year. I think my last paid stay at a Hilton property was at the Milwaukee Hilton for the 2004 NACAC Conference. I had one award stay last year. So, somehow, Hilton felt that was worthy of their silver elite status. The letter that accompanied my new card also offered me the opportunity for a fast track to Gold VIP status. If I stay four times or ten nights in two months starting May 1, they will bump me up to gold status until next April. Mmmm....whatever. I am Platinum Elite with Marriott and Starwood, and prefer those programs to Hilton's. Still, I may manage four one-night stays during May at the Hampton Inn Commack, if it fits into my travel schedule. I did always like THAT hotel.

My Hertz #1 Club Gold Five Star credentials for this year also came this week. Enclosed was a certificate for a free one-day rental! Joining Hertz #1 Club Gold is definitely one of the best things I have done to make my travel life easier. The perks of Five Star are just a bonus. I usually get a one-class upgrade, but sometimes the upgrades are less than desirable -- right now, I don't really want a giant, gas-guzzling SUV. But, being able to arrive at the airport, take the rental car shuttle to Hertz and walk straight to my car and drive away is a huge, HUGE time saver. My last non-Hertz rental was when I took vacation last year to southern California. My buddy took care of the rental car, and we waited no less than two hours in line for a car at Thrifty. The long queue was just a volume issue -- there was no shortage of cars. They just couldn't move people through quickly enough.

Lastly, my quarterly statement arrived from my Fidelity 403b retirement plan. I will take a gain of 5.7% for the first quarter -- and hope that things continue on that upward trend. I suppose tracking money that I CANNOT use for almost another three decades might be a little obsessive, but I like to know that I am making progress towards a reasonable retirement.

Something tells me that my mail luck may not continue into this week, as I am expecting a few bills to arrive, but I can always hope, right?

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