Taxes for the writer guest blog

I'm guest blogging today over at Seriously Write, sharing my thoughts on taxes. A great way to start your year off right!

http://networkedblogs.com/Ssg9L

Dreading Tax Time?

In a previous life, I worked as a tax preparer and taught other tax preparers about tax law. Then, life got in the way, and Mommy duties called, so here I am. For some strange reason, I actually LIKE talking about taxes. I hear there's medication for that, but no one will tell me what it is.

For my writing friends out there who would like to learn more about how their writing impacts their taxes, I'm going to be spending some time next month teaching folks a few of my handy dandy tricks.

You can find me at these venues:

I will be teaching an online class Feb 4-March 1 for Colorado Romance Writers. You can find out more information here:
http://crw-rwa.ning.com/page/2013-onlineworkshops#february4

Second, if you're in Colorado, I'm teaching my Taxes for Writers course three times next month, so if you'd like to catch me in person, please do!

1. Colorado Romance Writers, Feb 9th, from 2pm-4pm at Anythink Library Wright Farms Branch

2. HIS Writers, February 11^th, from 7 – 9 p.m. at Barnes & Noble, 9370 Sheridan Blvd

3. Words for the Journey, Feb 19th, from 9:15-11:30 a.m. at Southeast Christian Church

 

In the meantime, if you have any tax questions, feel free to ask!

 

 

The Tax Rollercoaster

2011 was a funny year for us- income wise. For my job, I'm considered an independent contractor. What this means, for those who don't know taxes, is that I collect and pay ALL of my taxes. No deductions from this girl's paycheck. Which, to some people, is a great thing. Except for when you do the taxes at the end of the year and have had nothing withheld, so you have to pay income tax and self-employment tax (basically social security and medicare).

Our solution has been that hubby withholds extra from his paycheck so we aren't stuck at the end of the year. This saves us from the mess of paying quarterly taxes.

But here's where the unusual part of the year comes in... not only did I get a pay increase (YAY!), but hubby finally got paid on a job that he did years ago (had to sue, we won, and the guy FINALLY paid), PLUS, he was able to get another side job that paid him quite a bit. So, lots of self employment income.

I've been working on our taxes... When I first put in hubby's W2, YAY! We were getting back over $5,000. Then I put in my income. Oops. We owed $2000. Then I put in part of my expenses. YAY! We only owe $10. Then I finished putting in my expenses, and even more YAY! We're getting back $1000. Then I put in half of our itemized deductions as well as our credits. More YAY! Now we're up to a $2000 refund again.

I should be happy, right? I went over to hubby's computer to peek at where he was at with getting his business expenses. I was hoping he'd do income first so I could slip it into my computer for a worst-case scenario, but no. He's doing expenses first.

So really, as much as I think I know (like maybe we won't have to pay through the nose this year), I actually know exactly nothing about what our tax picture looks like. Yet it won't stop me from getting excited as I finish the rest of our itemized deductions (still waiting on a couple of forms), or being depressed when I finally do put in hubby's self-employment income, then being happier when I put in his expenses.

How are you feeling about your taxes this year?

The Tax Rollercoaster

2011 was a funny year for us- income wise. For my job, I'm considered an independent contractor. What this means, for those who don't know taxes, is that I collect and pay ALL of my taxes. No deductions from this girl's paycheck. Which, to some people, is a great thing. Except for when you do the taxes at the end of the year and have had nothing withheld, so you have to pay income tax and self-employment tax (basically social security and medicare).

Our solution has been that hubby withholds extra from his paycheck so we aren't stuck at the end of the year. This saves us from the mess of paying quarterly taxes.

But here's where the unusual part of the year comes in... not only did I get a pay increase (YAY!), but hubby finally got paid on a job that he did years ago (had to sue, we won, and the guy FINALLY paid), PLUS, he was able to get another side job that paid him quite a bit. So, lots of self employment income.

I've been working on our taxes... When I first put in hubby's W2, YAY! We were getting back over $5,000. Then I put in my income. Oops. We owed $2000. Then I put in part of my expenses. YAY! We only owe $10. Then I finished putting in my expenses, and even more YAY! We're getting back $1000. Then I put in half of our itemized deductions as well as our credits. More YAY! Now we're up to a $2000 refund again.

I should be happy, right? I went over to hubby's computer to peek at where he was at with getting his business expenses. I was hoping he'd do income first so I could slip it into my computer for a worst-case scenario, but no. He's doing expenses first.

So really, as much as I think I know (like maybe we won't have to pay through the nose this year), I actually know exactly nothing about what our tax picture looks like. Yet it won't stop me from getting excited as I finish the rest of our itemized deductions (still waiting on a couple of forms), or being depressed when I finally do put in hubby's self-employment income, then being happier when I put in his expenses.

How are you feeling about your taxes this year?

Taxes and Lies

Every year, I meet folks determined to cheat the system. Every year, I patiently explain to them that they are breaking the law and how they can work in compliance with the law.

But this year... this year, it's worse. This year, I've had folks who seem to be the nicest people in the world look me straight in the eye and lie. Not just lie, but when I catch them in the lie, they ask me to lie for them.

Because after all, everyone lies on their taxes. Or that's what they try to tell you.

Sorry, but no. That's a lie.

Everyone does not lie on their taxes.

Yes, it is a tough economy. Yes, I do know what it's like to not know how you're going to make it to the end of the month.

But I also know that there are a lot of decent, hardworking folks who do not lie on their taxes to get additional tax breaks. They don't tell me to fudge the numbers because no one will ever know the difference. And they struggle. They count on getting a refund because it's the difference between getting evicted and staying on for a little while longer until hopefully they find another job. They are brutally honest about the sad state of affairs. For some, it would be so easy to lie. So easy to fudge a number or two. But they don't.

What is the price of integrity? A few hundred dollars? A few thousand dollars? I don't know. But somehow, people think that they are so entitled to the government's money that they will lie to get it. Funny thing is, it's not really the government's money. It's our money. It's your money. It's the money belonging to the folks who are out there, struggling to make ends meet.

When you lie on your taxes, you are not just getting yourself a better deal. You are not just taking a deduction that you think you're entitled to that the government isn't smart enough to recognize. You are stealing from your friends and neighbors. Some of whom are stealing from you. But a lot of them- even the ones impacted by the same rough economy, the same job losses, the same fear of losing their homes- are sitting back and taking the hit.

I know, it's tempting to fudge a number or two, to "deduct" something you think should be a deduction even though it's not. But it's still a lie. Legally, it's fraud. I'm starting to get really angry at the folks who think I wouldn't mind committing a crime and facing stiff legal penalties to help perpetuate their lies. And when I'm not mad, I'm really sad. Because these same people actually believe there's nothing wrong with what they're doing. Maybe I've got the wrong version of the Bible, but mine doesn't say Thou shalt not lie, except to the IRS. Mine says something about paying Caesar what's Caesar's.

So could you please do me a favor? When you're doing your taxes, could you just be honest? Please don't lie to me and think that I don't know the difference. Trust me, I do. And please don't ask me, or anyone else for that matter, to lie for you. Just like you, the person preparing your taxes is signing under penalty of perjury. That's fancy speak for saying, "I didn't lie or know about any lies involved in this mess."

And that, my friends, is the truth.

Ooops!

So what happens when you finish your taxes and find out that you owe the IRS?

A recent article in our local paper gave some information about what happens when you owe. Unfortunately, it had a lot of misinformation and one of my coworkers sent a letter to the editor to (hopefully!) correct it. So here's my stab at clearing up a few common misconceptions about owing the IRS.

If you owe the IRS, it is NOT better to mail in your return. You should still efile. Unless you have to do a paper return based on forms that can't be efiled, ALWAYS efile. I've talked to people who've seen the inside of the IRS mailroom. Um, yeah. Efile. Please.

Also, if you owe, even if you efile your return today, you still have until April 17th to pay. So don't delay filing just because you owe money.

Finally, if you owe money, there are different ways to pay the IRS. You CAN set up a payment plan with them. OR you can also pay by credit card. Don't not pay them because you don't have the money. Send what you can. If you don't make an attempt, that's when you face the scary stuff, such as having future refunds taken away, or having worse things like tax liens happen.

Costly Spending

The most expensive money you can spend is....

Money from your retirement plan.

If you haven't reached retirement age, and you take money out of your retirement plan, you don't just have to pay tax on it, but you'll also pay penalties. A lot of folks think that when they get into a financial bind, their 401K or IRA is the perfect solution.

And then tax time rolls around.

If I got paid based on how many clients gave me the shocked comment at seeing a balance due that "they had taxes taken out", I'd have a nice retirement nest egg of my own. The trouble with people taking money out of their retirement plan, even if they have taxes withheld is that it's never enough to cover the penalty. More importantly, few will take out state taxes, so even if the person is lucky enough to have all the Federal taxes and penalties covered with extra withholding and credits, they end up with a huge State balance due.

It's actually cheaper to take out a loan than it is to pay the taxes and penalties on an early distribution from a retirement plan. If you must raid the good ole nest egg, make sure you set aside more than you think you'll need for good ole Uncle Sam. Otherwise, come tax time, you're going to be in a bigger bind. Plus, when it comes to retire, you're not going to have as much to do it on.

Those pesky doctor visits!

And yes, I know, not only am I behind on my blogging, but I'm behind on my tax tip. Tonight, you get two for the price of one. Oh yeah, I don't charge.

Anyway, I got off work Saturday and pretty well collapsed. I nearly killed a guy I work with. Everyone started leaving, and there was still a huge pile of work left, so I asked him to stay and help (which would have taken him ten minutes). He looked at me and said, "I've worked twelve days straight, I'm out of here." Which, on one hand, I understand-he was tired. But you know, I'd worked more days in a row, and I was tired too. And basically, because he and a few others didn't have enough of a work ethic to stay and help me finish some work that was everyone's responsibility, rather than everyone staying ten minutes late, I stayed an hour. I came home, loaded up the fam to go out for dinner. (And oh MY, it was REALLY good!)

I fell into bed after dinner, and didn't leave until Sunday afternoon. I know, I'm a sluggard. Did I mention I was exhausted? Ran a few errands on Sunday, and went back to bed. :)

You'd think that would be a happy ending to the weekend, however, just as I reached that blissful state of drifting off, and the baby began screaming. I spent the night off and on comforting screaming baby, losing all the make-up sleep I'd gotten. She finally fell asleep at dawn.

So this morning, I called the doctor, and we got to pay our first visit for being sick, as opposed to well-baby checks, or visits because she did something to injure herself. The diagnosis-ear infection. Wahoo us.

Anyway, it reminded me of an important tax tip I frequently share with my clients. When deducting your medical expenses, are you also including your mileage? For the past two years, we didn't have enough medical expenses to deduct. Until I added in the mileage. 18 cents a mile adds up. One of my clients, who lives in a rural area, had over 4,000 miles because she has to see a specialist in the big city. That's a BIG deduction. But, you say, I don't have that many miles. Are you sure? I live 12.6 miles from my doctor. Round trip, that's 25 miles. Four doctor visits, and that's 100 miles. Between me and the kids, we easily do 10 doctor visits a year. When I was pregnant, or they were babies... we did a lot more.

"But I don't keep a log," you whine. And your point is? Allow me to teach you how to re-create a mileage log. Go to mapquest. Put in your address and get directions to your doctor's office. Along with the directions, you'll get the mileage. Now go through your day planner. Count the days you went. Or, if you don't keep track on the planner, you can look at your bank records-the days you wrote a check for a copay, you probably went to the doctor. But if you want to be really sure, most doctors are happy to give you a year-end printout itemizing all your visits. Then, multiply the number of days you went to the doctor by the mileage (don't forget return mileage), and badda bing! You've got medical mileage to deduct.

Don't forget to keep the mileage info and formula you used with your tax records. That way, if you get audited (and many audits are completely random), you've got it right with your return and you don't need to scratch your head to figure out how you came up with those numbers.

And now I'm going to bed. Maybe I can catch up on sleep tonight.

Did you think I forgot?

Yep, it's our weekly tax tip. :)

Are you getting a refund? Or do you owe? The thing to be looking at right now is your withholding. Huge refunds may mean that you don't need to have as many taxes taken out of your paycheck. A big balance may mean that you haven't had enough taken out.

Why do this analysis? For some people, adjusting their withholding may mean an extra $50 a week in their paychecks. For others, taking out that extra $25 may mean that you don't have to write that big check at the end of the year.

A few people will argue that they like big refunds, because they plan on it every year for things like vacations. Here's a tip: the IRS does not pay interest on your taxes for the year. Which means they're using your money for free for a year. If you're using it as a personal savings account, you're better off stashing it in a regular savings account where you will at least get paid some interest. Especially if your employer has direct deposit options, it's not that hard to have a portion of your paycheck direct deposited into a savings account, rather than it all into your checking. OR, which is what I do, I have bimonthly automatic withdrawls from my checking account to put money into my Roth IRA (you could also put it into a regular savings account). As I tell my clients, even if you only put $25 a month into savings, it only takes a few years for that to turn into thousands.

Yes, I know, I can hear you all saying, "But I'm BROKE." And you're gonna stay broke unless you can find a way to start putting aside some money. Let's face it, we all throw away $25 a month. Why not do something good for yourself?

So if you're getting a huge refund every year, consider adjusting your withholding, taking that money, and putting it aside for yourself. Maybe you're being conservative, like me, and putting it all for retirement. But maybe you want a new house. Or your first house. Or maybe, for once, you're going to take your dream vacation. But this is a gift you can give yourself.

For those of you who dread the big day, save yourself some stress, and have an extra bit taken out of your check. Even if you do $25 a month, it'll be a much smaller bill and you won't give yourself another ulcer trying to figure out where the money is going to come from.

The Extenders Bill

Heard of it?

If you haven't, you may be missing out on some important tax savings if you file before February 3rd.

Because Congress did not pass certain tax legislation until the very last day of the the last session, and the IRS had already gone to press with the new forms, a lot of the tax provisions for this year can't be efiled until after February 3rd. Many people are under the impression that they can't get these tax breaks this year, so take note!

Affected provisions:
1. Tuition and Fees Deduction
2. State and Local Sales tax deduction
3. Educator Expense Adjustment to Income

Also important to note, if you don't efile (and why NOT? You get your return processed more quickly when you do.), the forms will not reflect these items and they have to be written in and properly notated in order for the IRS to process them.

So if you're able to take advantage of these deductions, take note! Tax savings from the relative we love to hate, Uncle Sam!

The magical earned income credit

I'd sorta mentally planned on blogging tax tips Saturday nights. So we're going to try for installment number two.

Today, we're going to talk about the earned income credit. Here's the deal: Some folks get a credit based on the amount of their EARNED income. It's designed to help out the taxpayers in the lower income brackets. But since it's the "earned income" credit, it's based on the income you earn. Aka if you have no job, you ain't getting it.

I feel the obligation to explain this because every year, I get people who walk into my office, having not worked a day in the entire year, demanding their earned income credit. And when I politely explain that no income equals no credit, they get a little hostile. Just because your brother's cousin's ex-sister in law used to know someone who did taxes and that person said you get an earned income credit does not make it so.

Which leads to my other point about the earned income credit. It's a bell curve. This means that the more you earn, the more you get. UNTIL... the magic moment where you hit the top of the curve. Then it curves back down until it tapers off to nothing. Sooo... once you start making a certain amount of money, you don't get it anymore.

Today I got to explain that curve to yet another client fallen victim to *gasp* getting a raise. She was upset because she didn't get as big of a refund this year. So I had to do the math for her. Using approximate numbers here, for obvious reasons, but basically, she made $5,000 more and got back $500 less.

Now, here's the logic she didn't get. Yes, she didn't get as big of a refund, but all in all, she was still $4500 ahead for the year. And yes, I also realize how hard it must be to raise three children alone on half of what our family lives off of. Having been there (well, except for the single part), I understand how hard it is. But I don't make the rules. That would be Congress and the IRS.

My recommendation: if you don't like it, write your representatives.

Until then, please remember what the earned income credit is-and isn't. It's designed to give a hand up to taxpayers with minimum income, and once they start to reach higher income levels, that hand up tapers off. And yes, we can argue about whether or not those amounts of money can really be constituted livable or higher income. However, I don't set those limits. Again, I refer you to Congress.

There you have it-earned income credit in a nutshell. Next week, I'll have another fun little tidbit for you. And if you do have tax questions, do post or email me or whatever, and maybe it can be a future topic of the week. :)

Tax Time Fun

I had a most brilliant idea this afternoon as I was training our newbies. We have these popup articles that keep us up to date about the latest news in taxes. One of the recent articles talked about things Americans don't know about taxes. Huh. I know stuff about taxes. Do you know stuff about taxes?

So occaionally, along with my rants about being homicidal, children peeing on the floor (twice today, tyvm, we're potty training), writing, and the occasional inspirational ditty, you'll find some posts about the topic everyone loves to hate-taxes!

Tonight's tax tip: Start getting ready now. Okay, maybe not this exact second, because I'm probably the only person awake right now. However, don't put this one off. Start organizing your tax records and receipts now. I know, most people haven't gotten their W2s yet. But, if you wait until then, something else is going to come up, then something else, and before you know it, it's going to be April, and you'll be scrambling like mad to get it all together. So take some time now. Get those records together. Besides, it's a lot easier to find that "missing receipt" now, rather than doing the April scramble and missing out on something you could have otherwise have deducted.