It’s February 1st and while for most Americans, taxes are still a distant thought, my business taxes were filed last weekend and my personal taxes are “in the envelope,” so to speak.

I’m not trying to be an A+ student, I simply want my money back.

While I strive for the $0 refund every year, I inevitably make some unexpected tax moves throughout the year. The good thing is that they usually bring down the amount of taxes I have to pay.

History

I personally do my taxes every year, relying on products like TurboTax for the necessary advice and paperwork. Every year, I manage to learn something new or develop 20/20 hindsight that will help me down the road, and this year was no different.

As a benefit to new readers, what follows is my list of the “top 10″ things I’ve learned about taxes since this blog began. For more in-depth coverage, head back to my tax lessons from 2009, 2010 and 2011.

1. Marriage and kids will affect your tax bill in profound ways, usually for the better.
2. Unless your taxes are ultra-simple, or your income is low, it’s unlikely that you will be able to file for free (unless you fill out the forms yourself).
3. Keep immaculate records throughout the year.
4. Simplify your accounting in any way possible, including fewer accounts.
5. Input your (even rough) data as soon as you can to get an estimate of what you’ll owe or get back.
6. Stay generally familiar with what’s changing in the tax world.
7. Pick a tax software or system you like and try to stick with it. It makes tax season more seamless.
8. Always double-check your W-4 at the start of the year.
9. File in late February, unless you’re as ambitious as me to get your refund.
10. Don’t get frustrated with working a bit to get the breaks you deserve. Case in point: my 2011 credits (it’s lesson #3 in the post).

New This Year

There are plenty of new things happening with my taxes for 2011. Last month, I revealed my 2011 decision to form a business that would handle all of my online income, which now comes with its own set of tax implications. We also made greater use of our Health Savings Account last year, which had a positive impact to our taxes.

I separated this year’s tips into my business taxes and personal taxes, since the business component won’t apply to everyone. However, since I’m encouraging everyone to diversify their income as best as they can, I hope that it will apply to most of you sooner or later.

What follows are my 2012 tax lessons–

Business Taxes:

(1) Simulate filing. My records for this year were not extensive, with probably 100-150 transactions to catalog in total. Nevertheless, getting a head start on what I needed for tax season would have saved a lot of time.

If you’re serious about your new business and your records will be any more complex than mine (very likely), invest in a copy of last year’s TurboTax and simulate filing your taxes, even if you only have a month of two of transactions under your belt.

If you’re like me, you’ll find that setting up your income and expense categories a bit differently will make your life much easier.

(2) Plan for the worst, hope for the best. Put away the maximum amount you expect Uncle Sam to demand at tax time (or for your estimated tax payments). The best-case scenario is that this savings becomes “extra money” at the end of the year if you don’t need it. The worst-case scenario won’t happen because you’ve prepared.

(3) Consider tax due AND tax prep when organizing your business. Most people (I hope, anyway) consider the tax implications of what form their business takes when they first organize it.

For example, LLCs are typically considered pass-through entities because the individuals owners end up paying all LLC taxes on their own tax returns. That is exactly how my business is set up.

However, equally important for small businesses are the costs and time involved in preparing your records throughout the year, and your tax return at the end of the year. Our little LLC had an impact both in cost (the money required to prepare and file a separate return), and time (to prepare said return, distribute all the required paperwork, transfer the data to our personal returns, etc.).

Be sure that both components are offset by the benefits that your chosen business structure gives you over a less complex structure.

Personal Taxes:

(4) Give  yourself plenty of time. Don’t wait until the last minute to make end-of-year tax moves that have to be in by December 31st. I did this with my HSA account, and had to make several phone calls to make sure the money would flow over in time. The same goes for any IRAs, 529s, 401(k)s, etc. that you have to open or fund by the end of the year.

Note: Many account types will allow you until April 15th of the following year to make last year’s contributions. Double-check!

(5) Don’t make assumptions about next year. For example, we have always and continue to use the “standard deduction” on our taxes, simply because we don’t have much to deduct at the end of the year that doesn’t already come off before taxes are calculated (e.g. student loan interest, HSA contributions).

However, that doesn’t mean that the same will apply this coming year, and we especially can’t predict that as early as January.

As a result, we’re keeping track of everything we donate this year as if we could itemize it, until further notice. Last year, keeping track of educational expenses helped us during tax season, even though we weren’t sure about the tax implications while we were doing the actual tracking!

(P.S. We use It’s Deductible by Intuit to track all donations–it’s a fantastic program and it links directly to TurboTax.)

Something New Every Year

We learn something new every year, so I encourage you to do the same. Think back to things that worked well or didn’t work at all this tax season, and put immediate changes and habits in place that fix those issues for 2012.

As always, please please please consult a tax professional, or at least use TurboTax, since I’m a mere mortal with no formal financial training, and provide these tips only as a means of sharing what I have personally learned.

Finally, don’t forget that this year’s filing deadline is April 17, 2012 due to the weekend. Cheers!

(Photo credit)

P.S.

Fiscal Fizzle celebrates three years of service today. Thanks to all of you who made it possible and continue to support this blog by reading, sharing and voicing your thoughts.

I recently had an amazing opportunity to share some tax-time tips with a wide radio audience. The interview aired this Sunday on many of the K-Love affiliates throughout the country.

I have to give props to Marya Morgan, the Public Affairs Director at K-Love, and my awesome interviewer. She did a fantastic job at guiding me through the questions and editing down the interview.

Listen to the Interview Now!

The interview can be heard online by visiting this page, or directly at the following link:

Closer Look: Tax Time (.mp3)

The entire segment is about 18 minutes, but I’m only the first half of the interview, followed by some tips from a professional organizer about how to get your tax paperwork in shape.

Key Points

I’d like to rehash some of the main points I made during the interview and things you definitely want to follow up on.

1. IRS Withholding Calculator: If you do nothing else this year, make sure you check in with the official IRS calculator. It’s now updated and ready for the 2011 tax year, and it will help you figure out how much you can expect to owe/be refunded at the end of the year.
2. Mind your family situation. Yes, you should adjust your W-4 now if you’re expecting to get married or have kids this year.
3. You don’t have to be an accountant. Keep your eyes and ears open for the latest law changes and how they will affect your bottom line.
4. But, you HAVE to be a good steward of your own money. Remember—no one cares about it like you do! Figure out systems that work for you and capitalize on that knowledge.

Additional Resources

If you’re interested in learning more about tax time, check out some of the posts I’ve written previously on this topic:

• A more detailed look into the IRS tax calculator.
• My lessons learned from filing taxes for 2008, 2009, and 2010.
• A brief overview of why I use TurboTax.
• The first post I ever wrote in February, 2009—why tax refunds are bad.

Speaking of tax refunds, I just got mine direct deposited on Friday. Have you made time to file your taxes yet?

Finally, if you’re not subscribed to my blog yet, click here and see how you can get a constant flow of my tips straight to your RSS reader or e-mail inbox!

Disclosure: This post contains links to advertisers with which I have a financial relationship.

An interested reader posed a tough question this weekend that I wanted to put up for discussion. I’m going to shorten a lengthy email by getting to the point:

“I’m a 31-year old single gal, with a house I just bought and no plans to ever have kids. Why am I paying for other people’s public education through my taxes and impact fees? Do you think that’s fair?”

As a father of a 1-year old, you have no idea how many times public education has crossed my mind lately. I have both serious concerns and encouraging stories, but that’s a topic for another day. Who gets to pay for the public education of our kids; my kid?

The Status Quo

I guess the first question would be–who pays for it now? While I’m sure it varies from area to area, public education seems to be covered mostly by a combination of income taxes, property taxes, and assessments on new development.

Assessments pretty much cover the cost to build or upgrade schools for an increasing student population (a big issue in Florida). That leaves taxes as the primary operating source, which means that just about everyone who pays them is funding education, without discrimination. Kids or no kids, public or private education–you’re paying into the fund.

My question to the reader would be whether she benefited from public education growing up, but of course it would be an unfair one, since just about everything in government is a pay-as-you-go system. That means the money we’re paying in now is being used now, not correlating to something we did or will do at another time.

What’s the Alternative?

The most obvious alternative is to shift the burden of public education to the people who use it–those with kids in the public system.

A per-child tax system would assess families with kids attending public school with a special tax to cover the cost of their education. Whether this is a flat, per-child tax, or a more graduated or income-sensitive system, all of the cost of public education would now be covered by parents with younger kids.

Potential Downsides

The alternative I’ve shared has a few obvious downsides which I can see, and I’m sure you can spot more.

First, many people would argue that public education is the backbone of a society, necessary for the greater good and to our progress as a nation, and therefore a shared national responsibility.

Secondly, though the total cost of education would be the same, it would now be shared by only a fraction of the people who used to pay into the system, lowering taxes slightly for the many, while jacking them up for those with young kids. Can their budgets afford it?

Finally, a per-child system would shift a lot of the education cost to lower-income families, who currently essentially have their kid’s educations subsidized by higher-income taxpayers. While a more “equal-treatment” kind of system, per-child taxation may prove to be too much for poor families to take on, resulting in families who simply can’t afford to send their kids to school.

And that, my friends, is an interesting fundamental question (and one being discussed in the area of health care now)–is public education a fundamental right or a privilege?

Is There a Middle Ground?

No matter the question, it always seems like a good middle ground could be found with a little work. I’m sort of at a loss here–the case for shifting the burden makes sense on the one hand, but the arguments against it, particularly that of a shared national responsibility, are equally appealing.

What are your thoughts? Does your fellow reader have a point in that it’s unfair for her to pay for my kids to go to school, or is it something she’ll just have to live with? Can you think of, or have you seen, any alternative/hybrid systems in place for funding education?

Photo by moaksey

Last night, I finally sat down to wrap up any last-minute changes and file my taxes. Just as I have for the past 5 or 6 years, I used Intuit’s TurboTax Online to make my tax filing a breeze this year.

I know many of you have your own taxes to get to, so I’m going to keep this short and give you five reasons why I think TurboTax could be a good tax-time fit for you:

1. Guidance. For the first few years of my adult life, I filled out my tax forms by hand, reading carefully through the instructions and getting a headache in the process. Nothing compares to the ease of TurboTax’s question-answer kind of approach.
2. Community. An entire community grows up around this software each year, with instantly searchable guidance and discussions happening on every imaginable topic you need help with.
3. Growth. TurboTax grows with you—there are currently five basic software levels based on your needs. As those needs grow, so can the level of service you choose.
4. On my own time. I can (and do) log in about 5-10 times over the span of 2 months before I finally file my taxes. TurboTax lets me figure out my taxes on my own time, wherever I want.
5. History. Intuit stores your year-to-year data on their servers, which means that doing next year’s tax return will be even easier than this year’s. You can pull and compare data with a couple of clicks, or it’s pre-pulled for you in critical spots.

Maybe trying TurboTax could help you, too? Give it a whirl.

Yes, it’s that time again—time to man up and figure out how much the government is going to take away this year. Doing your tax returns is like going to the dentist (sorry, Mom)—you prepare for it all year, and in the end you don’t really want to do it, but if you ignore it for too long, things go south real fast.

Past Years

Over the years, I’ve tried to share some of the lessons I learn annually about how to do taxes more efficiently and accurately. As a public service, here’s a quick recap of lessons learned in 2009:

1. Figure out how your changing family situation (marriage, kids) affects your taxes.
2. Free e-file might not really be free.
3. If you e-file, save your work regularly.
4. Keep immaculate records for ease of use at tax-time.
5. Everyone else is not as concerned about your taxes as you are.
6. Simplify, simplify, simplify.
7. I’m not looking forward to filing business taxes.

Also, here are a few from 2010:

1. File (or at least calculate) as soon as you can to see what you’ll owe or get.
2. Keep your documents organized.
3. Stay updated on the big tax law changes.
4. Pick a tax system/software and try to stick with it.

Lessons from 2011

Just this past weekend, I had an opportunity to prepare 95% of this year’s tax return. It’s time to dig into my head for a third time and see what I’ve discovered for 2011:

Lesson #1: Have a rough idea of the damage.

If you’re following along with the plan and adjusting your W-4 on a regular basis, you should have some expectation of the refund or balance due at the end of the year before you actually do your taxes. If you do, I would guess you’re probably one of the 5% (complete guess) of American taxpayers who have any idea what’s in store for them when they file, which is a good place to be.

Case in point—when I started my tax paperwork this year and entered most of my information, TurboTax was telling me that I was going to owe over $1,000 to the IRS for unpaid taxes. After I got over the initial heart attack, I quickly realized that a key child credit was not being calculated correctly. The software had made an error, but thanks to my initial estimates, I knew I had to look for a way to fix a problem I knew existed.

Lesson #2: The best time to file is late February.

That’s not necessarily the case for everyone, but over 10 years of experience, I’ve found that this works best for me. If I start picking through my documents any earlier, or worse—get to entering them into Turbo Tax—I won’t have a complete picture of what’s going on and the whole process will take 12 hours when it should take 2.

On the other hand, if I wait too long past February to get my act together, I’ll either be passing up on a healthy influx of cash, or setting myself up to be blind sighted by a big amount owed.

Lesson #3: Getting out of paying taxes is designed to be hard.

I’m talking specifically about a few deductions I was able to go after for 2010 that were completely new to me—the HSA (health savings account) credit, and an educational expense credit.

While these credits are common to many taxpayers, figuring out what you are entitled to actually claim can be frustrating. I would estimate that 25% of my time doing my return was spent researching and correctly setting up these two credits. In the end, they were worth it, but this demonstrates that paying taxes is a lot easier than figuring out ways to pay less.

What Have YOU Learned This Year?

So that’s three things I learned from doing my taxes this year. Are you done with your returns? Is there anything you had to do differently this year? Are there any lessons you learned the hard way you could help us avoid? Share your thoughts!

All week, I ran 2011-themed posts to ring in the new year. I hope you enjoyed them!

It’s early January, which means the best time of the year to start planning for this year’s tax burden. I typically wait until January 15th so I have my first pay stub in hand when I run the numbers.

For those unfamiliar with U.S. tax laws, it’s set up as a pay-as-you-go tax system, collecting federal and state taxes from your paycheck throughout the year, and then verifying the correct total at the end of the year.

If you over-paid your taxes, you’re owed a refund and get “free money” in the mail (named thusly by me because that’s how most people treat it). If you under-paid, you’re asked to make up the difference, sometimes with penalties if the shortfall is severe. Neither are terribly good extremes to be in, if you ask me.

For tax planning purposes, my goal is always to get as close to level-zero as possible, neither owing or being owed money at the end of the year. This ensures two very important things:

1. I don’t have to write a check in April for money I haven’t planned to pay.
2. I’m not letting the government borrow interest-free from me for an entire year.

Your goals might be different, so adjust your strategy and expectations accordingly.

IRS Tax Calculator

The best tool I’ve found for this purpose is the IRS tax calculator, which will let you enter your information and calculate your options. The calculator asks you simple questions, such as:

• Your expected tax status (single, married, etc.)
• How many jobs you have
• How many kids or other dependents you have
• Total planned income
• Expected adjustments to income
• Taxes you had withheld on your last paycheck

Here’s what that looks like:

The IRS computers then run their secret analysis, and viola! The program then spits out a screen that looks like this:

You can use this information to make a very educated decision about how to fill out your W-4. Next time your friendly HR representative says “most people just put 0,” you can tell her most people are following blind advice.

Take control of your taxes this year–fill out your W-4 with confidence using this quick and easy tool. Unfortunately, the tool still reflects 2010 tax laws as of this writing, so we may have to wait a few weeks for the IRS to update the calculator.

Photo by alancleaver_2000

Hey, I didn’t say I’d eliminate your headache. Taxes are still a pain in the you-know-what. But over the years, I’ve learned that a couple of key measures we take personally really help when it comes to tax time.

My guess is 75% of you will file sometime in the next 20-30 days. The other 25% will either procrastinate until April 14th (hey, I was in that boat once, too!) or have braved it and filed pretty early.

With tax season in full swing, let me give you my “Top 4″ tips for 2010:

Pre-File Early

What is pre-filing? No, it’s not something you can do with the IRS. It’s what I do with my online e-Filer as soon as I get my W-2′s in the mail. This tells me, very roughly but very quickly (5 minutes or less), whether I am likely to owe money or get money this year.

Why is this important? Well, if you owe money, you’ll probably want to wait as long as possible to file taxes (or file, then pay before April 15th). You’ll also want the heads-up in case you need to come up with the cash.

On the other hand, if you are getting a refund, you’ll probably want to file as soon as possible. You’ll also want to start thinking about how you’ll use it so it’s not a complete surprise and waste when the check comes in.

Either way, you’re also able to modify your W-4′s one to three months earlier based on “feedback” (refund/payment) from last year. That will make next year’s taxes more to your liking!

Even if you normally do your taxes with an accountant or brick-and-mortar service, you can still start a return with a service like Turbo Tax Online, and preview your payment/refund for free.

Try it this year! Even if it’s a little late, as soon as you get the “bulk” of your income and deduction documents, get them into a tax system. Get an idea of where you stand, even if further income or deductions are on their way. If your taxes are similar year-to-year, you should get a “feel” for what else is coming and whether it’ll affect you in a good or bad way.

Get Organized

Yeah, no kidding. Well, why is it so hard for people to do, then?

Keep a catch-all folder on your computer and your desk for all tax documents coming in. That’s because some things now come in online, and some still get sent by snail mail!

If you do get something by email (usually it’s a notification, not the actual document), go to the website and pull your documents immediately (or you will forget!). Then save it in your computer folder for later.

When it’s time to do taxes, pull out both folders and cross-check your master account list (all of your known accounts and income sources) with what you’ve received. Is anything missing? (Believe it or not, I have had W-2′s go missing on more than one occasion!).

Stay Updated

Being “in the know” on the latest tax code changes is important. And I don’t mean every single line of new law–but the major changes that happen each year.

One example was the home buyer credit that everyone talked about this year. Did you know debt forgiveness through foreclosure is now not considered income if certain conditions are met? How about the latest deductions for energy-efficient cars?

Being informed throughout the year helps you make better choices with your entire financial picture in mind.

Stick With One System

We’ve used Turbo Tax Online for as long as I can remember (eh…about 5 years). Staying with one tax provider is awesome, because last year’s information is automatically imported, so I don’t have to repeat myself (and it helps to cross-check the numbers!).

I’m familiar with the system and know how to navigate it to get the answers I want quickly (see pre-filing above).

Look for discounts through your bank or brokerage–both usually offer me some sort of % off the retail price on Turbo Tax, and I take full advantage.

What’s Your Favorite Tax Tip?

Well, there you have it–my top 4 tips for this tax season. How about you?

What is your #1 tax tip for your fellow Fiscal Fizzle readers? I can’t wait to hear it!

Photo by alancleaver_2000

Well, it’s official–we have a date. Friday is the day my son will greet the light of the world and join us in this crazy thing called life.

As you can imagine, things will be quiet for me on my social outlets for at least a few days, as we get settled in to the new lifestyle.

First and foremost, thank you for the outpouring of support I’ve already received via email, tweets, and comments, and those that I’m sure will continue coming in over the course of the next few weeks. It’s great to have such a large community to cheer us on and provide support in terms of ideas and suggestions.

Since we’re talking about babies today, I thought I’d tackle an important topic that only crossed my mind a few weeks ago–financial “checklist” items after the birth of your baby.

We get so wrapped up in the excitement (I know I did) of waiting for the baby that some of these can quickly slip through the cracks and cost us a lot of lost money. I’ve put together a quick list of 5 that we’ll be doing soon after birth, but if you can think of more, by all means–please chime in below.

1. Adjust W-4. This is something I did as soon as the year turned the corner, and should see significantly less taxes coming out of my paychecks starting next week. Consult with your tax professional, but my understanding is that even if you plan to deliver in late December, you can still claim the new baby for the whole year. (Ours, of course, decided to wait until early January).
2. Open a college savings account. We’re not going to wait very long after birth to get the little guy started on his way to college. Time is on our side, and the more we can contribute early on, the easier things will get as the years go by.
3. Add the baby to health insurance. Most insurance companies will cover costs associated with your baby (not your birth), as long as you add the baby under your existing policy within 30 days of birth. This can range from routine care to more serious stuff like NICU.
4. Quote life insurance. It’s crazy to think about it, but now you’re responsible for someone else’s life–someone who can’t take care of themselves if something were to happen to you. That’s a lot of responsibility, and it means you should make arrangements in case disaster strikes.
5. Modify legal documents. There’s a whole list of possible places your baby would need to end up in writing, but some obvious examples include any account beneficiaries, wills & testaments, or any other insurance company that would need to know about your kids.

Have I missed anything? Do you have suggestions on any of these items from personal experience? I’d love to hear your stories.

Photo by gabi_menashe

Today, I’d like to introduce my readers to a wonderful resource I found a few weeks ago that can tell you exactly where your tax money is going. Produced by Jess Backman at WallStats.com, this 6-square-foot poster of goodness describes, in painstakingly articulate detail, each branch and department of government and how much of the budget it consumes.It has sold over 5,000 copies to date.

I have never before seen a “mind map” style chart so well done. The “Death and Taxes” poster was created in 2004 and caught on in popularity about 2 years later. The poster has been updated every year with additional departments, newer graphics, and more accurate information. From WallStats’ about page:

“It took me a few years to understand the complexity, redundancy, and general obfuscation the government uses in the budget process, then I had to make sense of it all to the viewer.”

WallStats.com is the result of a migration to a new webpage for the 2009 version. You can view the entire poster with zoom level details on the site, and purchase the printed copy for $24. I’d love to have this sucker hanging on my wall. Let me know what you think!

I finally got around to completing my taxes for 2008 today (thanks to the craziness of moving a few weeks ago, and not being able to figure out if I had accounted for all my information in the process). The middle of March is pretty late for tax filing for me, as I usually try to get everything in by the last few weeks of February.

Here are a few things I’ve learned this year that I hope to apply toward making life easier next year:

1. Marriage affects taxes. Usually not in a bad way, but I was “stalled” in my pursuit of the $0 refund. If you plan on getting married this year, evaluate how it will affect your taxes now and adjust things accordingly.
2. Beware the free e-file. I started out with my TurboTax software in “free” mode, but ended up having to upgrade because I had investment income that required the $14.95 version to work. I wasn’t terribly upset, because I half expected it, and because I’ve respected and used TurboTax for the last 5 years. However, if you’re really shooting for free e-filing, be sure to read about what’s included before you commit to a service and realize you may have to pay.
3. Save your work. After three hours of working on my taxes this morning, I was ready to file, when TurboTax suddenly said…Bzzzt! I had to restart everything, but thankfully the online program backs things up after every click. If you’re using home software or another online service, make sure they do the same, or save manually and often as you work.
4. Detailed accounting saves detailed searching. Track tax-related income and expenses all year long with tax season in mind. This takes a little pre-planning to know exactly what would be considered taxable income and deductible expenses. Make sure you know in January what to look out for and discuss things with everyone else in your family, so that receipts don’t disappear.
5. Not everyone is on top of things. Don’t expect to get tax paperwork from everyone you dealt with. In years past, there have been W-2 forms that never made it to my mailbox, and this year, I didn’t receive several interest statements from a few of my accounts. While it’s true that there are established thresholds for when a financial institution has to send you something (for example, I believe for interest paid, that’s $10), don’t assume that you can overlook the income if you didn’t get anything.
6. Simplify your account structure. One of the main reasons I had so much legwork involved in preparing for my taxes this year was the web of accounts I’ve woven over the last several years. Many of these are inactive and serve no purpose besides…well, nothing really. I intend to close them and get rid of the headache involved in tracking mounds of paperwork.
7. Business taxes are scary. Well, probably not as scary as I think. I didn’t have to file any business income this year, but I was curious and did take a peek. With the establishment of several blogs planned for 2009, business taxes are not something I am looking forward to. Hiring an accountant will be a serious consideration as things begin to pick up, especially if I decide to protect things under an LLC.

What did you learn this year about tax preparation?