Money, Debt, Waste

Is it better to earn a million dollars or save a million dollars? For me, the answer is simple. What good is making a million dollars, if I spend two million dollars? I would still be in debt.

The same holds true for governments. The U.S. government is more than $15 trillion in debt. What good is raising taxes to increase revenue if you don’t also cut spending?  You hear a lot of talk about taxes but the key to deficit reduction lies with reduced and more efficient (less wasteful) spending.

We all know the government is wasteful (and inefficient) with our tax dollars. Below are just a few examples of how your tax dollars were spent wastefully:

• $592,000 on a study to figure out why chimpanzees throw poop.
• $35 million allocated for political party conventions in 2012.
• $475 million worth of oil for the Afghan army that just disappeared and the US can’t account for where it went.

If you want more detailed information, you can read U.S. Senator Tom Coburn, M.D. report on Government Waste http://www.coburn.senate.gov/public//index.cfm?a=Files.Serve&File_id=b69a6ebd-7ebe-41b7-bb03-c25a5e194365

Instead of Democrats and Republicans arguing over taxes, shouldn’t the discussion be focused on how to cut wasteful and inefficient government spending?

Tax Tips

Don’t file your return until you’ve grabbed every last break. The due date for your federal income tax return this year is April 18^th and not April 15^th.

Before we discuss tax tips, I want to talk about refunds. Refunds are bad. Trust me on this. Sure, it’s exciting to get a check from the U.S. Treasury but that money was already yours. The Feds are just giving it back. When you get a refund, it means you gave the Federal Government an interest free loan and they are just returning it back to you without interest. Conversely, if you owe money, then the Federal Government gave you a tax-free loan and you are just returning it in April. It’s interesting when you think about it this way.

Here are 30 last-minute tax tips from the Wall Street Journal http://online.wsj.com/article/SB10001424052748703461504576230743028469786.html?mod=WSJ_PersonalFinance_PF4

IRS Tax Humor

Tax season is a stressful time for many people but it really shouldn’t be. There are lots of software programs that walk you through the process or you can hire a tax professional. If you run into problems, check out IRS Publication 17 (Tax Guide 2010 for Individuals). It’s a comprehensive collection of information that closely follows Form 1040 and is very helpful. The IRS website is www.irs.gov or you can call toll-free at 800-829-1040.

If you are still feeling stressed, take a break and enjoy some 1040 tax form humor. http://www.msnbc.msn.com/id/42364146/ns/business-picture_stories/displaymode/1247/?beginSlide=1

Can’t Pay Your Taxes?

Your tax return is done, but you realize you don’t have enough cash to pay Uncle Sam. What should you do? Don’t panic, you are not alone. You won’t go to jail unless the IRS can prove you intentionally didn’t pay your taxes. The IRS has some options and will work with you. You should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You should also contact the IRS to discuss payment options at 1-800-829-1040. Here are some of the options:

• File an extension using FN 1127. This provision allows you time to pay without incurring penalties if you have a severe financial hardship. You will still have to pay interest.
• Work out a payment plan using FN9465. You may qualify without having to give any more documentation if you don’t owe more than $25,000. Refer to IRS Publication 17 for more information.
• Ask for a settlement. This is a last resort and there are stringent criteria to qualify.

Whatever you do, don’t fail to file your taxes. Don’t try to hide because things will only get worse.  You may want to consider hiring an enrolled agent (EA), CPA, or tax attorney to help you negotiate with the IRS.

Tax Filing

Have you filed your taxes yet? Do you e-file or paper file your returns? Last year, it cost the IRS 19 cents to process an e-filed return compared to $3.29 for one on paper. To encourage e-filing, the IRS ended its practice of mailing paper packages to taxpayers. Learn more: http://online.wsj.com/article/SB10001424052748704396504576204522429318798.html?mod=WSJ_PersonalFinance_PF2

Free Tax Preparation Sites

With April 15^th deadline quickly approaching; many individuals will start looking for fast, efficient, and inexpensive ways to file taxes. The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) offer free federal tax help for tax payers who qualify. In most states you are still going to have to file a state return and the state return isn’t free. Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper. To locate the nearest VITA site, call 1-800-906-9887. For more information on TCE, call 1-800-829-1040. Here are a few sites that offer free filing services:

• http://www.hrblock.com/taxes/partner/index.jsp?otpPartnerId=180
• http://www.Taxact.com
• http://turbotax.intuit.com/taxfreedom/

Is Your Tax Preparer Legitimate?

Everyone knows about common IRS red flags and things you must not do to avoid an audit. Don’t lie about income and don’t exaggerate deductions are two examples.

But a bigger question for me is “how do you know if your tax preparer is competent and honest?”  After all, taxpayers are legally responsible for their tax return even if it is prepared by someone else. To find out if your preparer is legitimate, visit the two links. The first article comes directly from the IRS and provides useful tips when choosing a tax preparer. The second one is from Smart Money and is also quite interesting.

http://www.irs.gov/newsroom/article/0,,id=120129,00.html

http://blogs.smartmoney.com/tax/2011/02/18/just-how-trustworthy-is-your-tax-preparer/

Common Tax Mistakes to Avoid.

April is quickly approaching. To help you file your tax forms correctly, I listed some common mistakes you want to avoid. IRS tax publications are guides that help you with nearly every tax situation. Some commonly used ones are also included.

1)    Taking a refund anticipation loan (RAL). The rate on RAL’s is sky-high and should be avoided. For example, a $61 fee for a RAL of $1,500 translates into an APR of 149 percent. If you need a quick refund, file electronically and have your refund direct deposited into your account. The IRS typically deposits refunds within two weeks.

2)    A big refund. Most people like the idea of getting a large refund every year but this just means the government took too much money from your paycheck during the year. You gave the government an interest free loan on your money and they are just returning it back to you a year later with no interest. Why would you ever loan the government your hard-earned money with no interest? I would rather have that money each pay period invested in my 401(k) or an interest bearing account. If you owe money, the reverse is true; the government loaned you money and you are just repaying the government back with no interest.

3)    Forgetting to deduct old refinancing points. If you refinanced your mortgage, you can deduct the points over the life of the loan.

4)    “Oldster” deduction. If you are over 65 and single, you can add $1,400 to the standard deduction if you don’t itemize.

5)    Overpaying for tax preparation services. Over 50 percent of taxpayers have their taxes prepared professionally but professional tax preparers are expensive and sometimes make mistakes. If you are a wage earner who takes the most common deductions, try Turbo-tax or some other tax program.

6)    Incorrect or missing social security number. The IRS will automatically reject your return if your social security number is incorrect.

7)    Sending the IRS your only copy. Make sure you keep a copy for your own records. You will need them if you get audited.

A partial list of IRS publications is in the table. The complete list can be found at http://www.irs.gov/publications/

Publication number	Title
463	Travel, Entertainment, Gift, and Car Expenses
503	Child and Dependent Care Expenses
504	Divorced or Separated Individuals
523	Selling Your Home
526	Charitable Contributions
550	Investment Income/Expenses

Tax Facts.

It’s a fact of life that everyone has to pay taxes. As Congress debates tax reform, I’ve decided to take a lighter approach and share with you some odd tax facts throughout history. Here are five of my favorites:

1. Income tax repealed in the United States after 1865: The government simply had no need for the extra revenue after the Civil War had ended. If only that was true today.
2. Beard Tax: Peter the Great introduced a beard tax in 1705. Everyone except priests had to pay a tax to keep his beard.
3. Window Tax: Introduced in 1696 by King William III. Every home owner had to pay a window tax. The more windows, the greater the tax.
4. Witchcraft tax deduction: In the Netherlands, you can deduct the cost of training in witchcraft.
5. Urine Tax: Emperor Nero introduced a urine tax in the 1^st Century A.D.

2010 Tax Filing Delay.

The Internal Revenue Service reported that taxpayers who want to claim itemized deductions will need to wait to file their 2010 tax return at least until mid February. Because of late congressional action to extend the Bush-era tax cuts, the IRS needs more time to get it’s systems up to speed.

 Taxpayers who want to claim deductions for mortgage interest, medical bills, state and local income tax, or other items will be affected by the delay (WSJ, 12/24/10).