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Wednesday, April 15, 2015

Tax Refunds are for Morons

I admit I’m a moron.  My wife and I got over $11K in state and federal refunds this tax season.  That’s ridiculous.  I can’t believe I gave Uncle Sam that much money to hold interest free for over a year.  I made nothing on that $11K!  And that pisses me off.  Upon being given the bad news by my Enrolled Agent, I emailed my Human Resources department and informed them I’d be submitting a new W-4 (Employee’s Withholding Allowance Certificate) immediately.  I was only claiming my wife, Jessica, and myself, having neglected to change my allowances after the birth of Rehani in 2011 and Ajani in 2013.  I say neglected because in 2012, 2013, and 2014, I received similar hefty returns, but I was too weak-minded to do anything about it.


Jessica likes the idea of using taxable income as a form of savings.  Pay more taxes each month, more than you need to, and then get it back in late February of the subsequent year.  This was her thinking: Since we don’t have our home’s property taxes impounded each month, let’s use our tax refunds to pay both installments.  Our yearly property taxes are $4950. Meanwhile, we got back $10K in 2012, $9K in 2013, back to $10K in 2014 and $11K this year.  Meaning our strategy of saving for property taxes by over-paying our taxes was a poor one.  After paying our installments, we still had $5K plus left over.  I was disgusted.  “Do you know how much money I could’ve made with that extra monthly income available to me?”  I’d ask Jessica rhetorically.  Change in the money habits of a couple is slow to take shape sometimes.  In our case it took four tax filings for me to finally be given the green light to submit a new W-4.  Now I’m happy to say my allowances are at 4, and my monthly net pay is over $300 better!

http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/refund/

I want you to see how much money you’re leaving on the table when you get a tax refund.  I found this great article: http://fivethirtyeight.com/datalab/dont-be-so-happy-about-that-tax-refund/ that allows you to enter your tax refund amount and see how much money you’d lose in stock market gains AND if you don’t invest, how much money you could’ve devoted to paying down credit card debt.  Do you feel stupid now?

Online Tax Preparation Service



Many people don’t know enough about how taxes work.  They overpay because they’re afraid of owing the IRS money at the end of the year.  But you don’t have to be scared.  The IRS provides a site where you can calculate how many withholdings you should have: http://www.irs.gov/Individuals/IRS-Withholding-Calculator so that you submit the best case for a neutral tax return.  You can also work with your CPA to ensure you’re not under paying your taxes each month.  Don’t be like the Obama’s.  They over-paid to the tune of $25,641.  See: http://www.cnbc.com/id/102589022. The Gomez’s saving grace (that’s my family) was that at least we’re NOT paying at the tax rate typical of an “employee.”  Thanks to deductions coming from my real estate business, my personal business: Common Core Money, LLC, and my expenses as an Author (my Educator deduction amount is a joke!), my tax rates were,


Federal Nominal, 15%
Federal Effective, 13.2%


CA Nominal, 6.25%
CA Effective, 3.1%


President Obama paid a bigger piece of his pie.  A total of $146,465 in taxes paid places him in the 33% federal income-tax bracket.  What an American!  He truly does pay his fair share of taxes, maybe even more than his fair share.  Of course he’s not in the business of using the corporate tax code to his personal benefit as is Warren Buffett.  


Buffett is the largest shareholder of Berkshire Hathaway, but because he’s the boss, he gets to decide against any dividends for himself and his shareholders.  He’d be in a world of tax hurt if he did pay himself income in the form of dividends.  Berkshire is also allowed to use tax deferment, meaning, not pay company taxes in anticipation of needing that money to make another acquisition.  And Berkshire acquires many companies.  Owning individual shares of BRK A or B is like having a diversified stock portfolio.  It’s very American for Mr. Buffett to give his billions to charity once he dies; he kind of owes it to America, however, for all the years he has gotten away with not paying his fair share.  Yet this is what he’s asking wealthy Americans to do.  Maybe he should lead by example and stop using Berkshire-Hathaway as his tax saving machine?  It’s not his entire fault.  The IRS gives him a pass.  What about you, friend?  Is the IRS giving you a pass?  No?  Stop being an “employee” with a single source of income then.  Create or buy other business with that extra money you will get once you correct and submit a new W-4.


Thanks for reading!  Got questions?  Email me: info@commoncoremoney.com.

3 comments:

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