Taxes: money well spent

Several weeks ago I finished my taxes and tomorrow I pay the additional $1k I owe the federal government (not the $5k – $7k as I originally estimated). As I do so, I reflect on how I believe I get a great return on the taxes I pay – both federal, state, and local.

My social security taxes aren’t funding my retirement (that depends on my nieces, nephews, and their children) but it does pay for my 3 grandparents’ retirement. Ditto Medicare. My federal income taxes go to a whole array of things, the ones that immediately come to mind:

  • education funding for my nieces and nephews — and my parents and grandparents’ taxes enabled me to have college loans
  • assisting the less fortunate with Medicaid and other assistance programs
  • highway construction and maintenance
  • food and drug safety
  • disease prevention & medical research
  • amazing astronomy research and all the other mind-blowing exploration NASA does (stop and consider we have machines on Mars. Mars people!)
  • and tons of others that I’m not thinking about but take advantage of daily

Are there inefficiencies in the system I wish didn’t exist? Yes. Are there areas I wish my taxes didn’t fund? You bet. But government is an imperfect system and we should never let the goal of perfection be the enemy of the good.

Politicians: stop trying to lower my taxes — or claiming to be able to lower my taxes. You’d be better served educating people about what services they receive from their taxes than selling them the pipe dream of lower taxes with the same level of services.

I make too much money

Through a series of mental tangents on the 4 block walk to the gym this morning, I’ve ascertained that I make too much money.1 Due to my agreement with B, last year and this year he will receive roughly 20% of my income. Another 15% will go to pay the mortgage for the house in Denver (the house in Austin pays for itself). Another 15% pays for my apartment here in Seattle. In short, I live luxuriously2 off of 50% of my income — not accounting for taxes.

I fully recognize how fortunate this makes me. I like to think I share my good fortune with those around me, but perhaps I should do so a bit more actively. The moral of this post for the reader is that due to the above I view money is a thing to share with others for the mutual enjoyment of all — reciprocity for meals and events for which I pick up the tab is not at all expected.

1 Cue the relevant country song that always springs to my mind with that phrase.1.1

1.1 Although the 3rd line of the chrous should be “It’s like a guy too handsome, with too-hot abs” ;)

2 I at least feel that I live luxuriously, but that’s likely because I don’t place importance in things, and thus live rather modestly by most American’s standards. John Martin – I swear we’re bothers by another mother.

Taxes and optimizations

By my early estimates, I’ll owe between 5k and 7k in taxes come April due to some oversight of mine throughout the year. I’m frustrated not that I owe more taxes, but that I didn’t plan appropriately to space that out over the year. I believe I receive ample return on the taxes I pay and could arguably pay more and still be happy.

For a few years now I’ve wondered if I would be paying less taxes if I had a CPA do my taxes for me – primarily due to my (now two) rental properties. I’ve contemplated if it would be worth having the CPA refile my taxes for the past several years.

It was this morning at the gym that I realized I had two contradictory mindsets about this. If I believe I receive great value for my current taxes, why do I feel the need to optimize the amount of taxes I pay? Because I love optimizing things – it’s why I love performance work – I’m OCD like that. This instance, however, is ridiculous. It’s not worth my time if I’m already happy with the current state.

One could view this as a sort of self-awakening, a realization of the bigger picture. While that’d be nice, it’s wrong. In reality this is just more actualization of my optimizing OCD. In this case I’m just optimizing my global time utilization instead of the more localized tax payment!

Use a credit union? Switching banks? Read this.

I’ve been a member at Amplify Federal Credit Union for over 10 years now (I joined back when it was still IBM Federal Credit Union), and I love it. When B and I moved from Austin to Denver we opened up an account at a WAMU, now Chase, for our day-to-day banking needs (ATMs, depositing checks, etc).

Recently, due to enhanced minimum balance requirements at Chase and philosophical issues, I began researching local credit unions with the intent of closing my Chase account. This only solved half my problem as I would still maintain two separate checking accounts. Then through happenstance I stumbled across CU Service Centers and discovered that not only can I access my Amplify accounts through local credit union ATMs without fees, but that I can also do other in-branch actions like depositing checks!

Today I walked into Prevail Credit Union here in Seattle and deposited a check into my Amplify checking account. I went expecting it to be an ordeal — I was armed with routing numbers and Amplify contact information. To my surprise, it was a breeze needing only my ID and my account number!

This solidifies my plans to close my Chase account and transfer those funds to Amplify. For the first time in a decade I’ll have just one checking account. The ability to access my account at local credit unions is, hands down, the best financial services find all year.

Credit unions: this feature is a huge selling point and needs to be advertised more! Particularly with the current feeling towards large banks. This feature was maddeningly undersold on the Amplify website (I’ve just sent Amplify an email with my story and suggested they fix it).

Credit union members: you have many more ATMs and branch locations available to you than you think. If your credit union is a part of the CU Service Centers network (BECU, Prevail, Puget Sound, and Salal all are), you can find a network ATM or branch here. They have an iPhone app too. As with anything else, some caveats apply for some services.

Switching banks? Give a credit union a shot. They’re obviously not just local anymore.

50% more property taxes!?

Yesterday I received the year-end escrow analysis for the rental property in Austin. They helpfully informed me that the monthly payment was going up 30%. Say what!? Digging deeper into the paperwork it appears that my total property taxes were listed as having gone up a total of 50%. That really didn’t seem right and I suspected a fubar at the mortgage company.

This morning I called the Williamson County Tax office and talked to a very helpful gentleman named Dale. I get the impression he is used to getting irate calls from people wanting to know why their taxes went up and I’m sure a call from me just wanting to validate my 2009 amount was refreshing. He emailed me a PDF of my tax statement. Sure enough, instead of the $4k listed as being owed to the Williamson County tax office, it was $1k.

Looking at the two tax lines on the escrow analysis from my mortgage company it appears that they had the RRISD taxes correct, but had RRISD+Williamson County for the Williamson County taxes. I pictured an absolute nightmare with the mortgage company to get this straightened out.

Instead, after futzing with the call tree I talked to a very helpful woman who appeared happy to take my word at what the county taxes should be. After she re-ran the escrow analysis the payment amount was back in line with what it should have been.

All in all a very simply problem to solve but it made for one really restless night’s sleep as I tried to imagine how property taxes had gone up 50% in an economy where the property values were falling.

Marriage and the Purse Strings

A couple of months ago Renee posted a blog entry on Marriage and Finances. That struck a chord with me and I thought I’d share a bit about how Benjamin and I recently changed our financial pattern to the benefit of our marriage.

For the past several years (4? 5? I lose track) B and I have shared a joint checking account where all income gets put into and out of which all bills get paid. Being the Quicken- (now Moneydance-) centric person that I am I’ve always been the one to pay the bills each month — a task I didn’t mind nor did B mind that I was responsible for. Last year finances became a bit tighter than they were previously with tuition going up, buying the house, and installing the A/C into the house. The unfortunate consequence of our system and this tightening is that I became the controller of the purse strings.

Knowing the “pulse” of our finances and the running tally of disposable income in my head I was giving B some very mixed signals: “oh sure, we can buy item A” might get followed up the next day with “no, we can’t afford item B”. This situation was taking a toll on both of us as I was stressing about managing our expenses to within our means and B couldn’t find the pattern to my mixed signals. After one heated conversation it came out that while I was really stressed out over our finances, B wasn’t stressed out at all (and why should he have been — I hadn’t been sharing enough information)!

I thought about it some and after a discussion with B we decided to move to an envelope-based system for our discretionary funds. One weekend on a trip to Target we purchased a small whiteboard, hung it in our kitchen, made a column for “money left”, and wrote our month’s total discretionary budget at the top of it. Every time we make a discretionary purchase we subtract the amount spent. If we get down to zero before the end of the month we’re stuck at home eating bread and water for the rest of the month. If we get to the end of the month with a positive balance we divide it in half and get to spend it however we want.

This approach has made me much less stressed out and, not surprisingly, has given B a healthy amount of stress and awareness about our finances. The entire process has improved our relationship and enabled us to stop arguing over money.

2008 Taxes: Filed

A few weeks ago I filed Benjamin’s taxes. Given that he had virtually no income, no deductions, and no credits, and only one IRA conversion his taxes were very simple. He didn’t get anything back, but that isn’t surprising since he didn’t pay anything all year either. I was glad to get his taxes done so I could fill out his FAFSA as early as possible.

I’d been holding out on submitting my taxes for weeks now anticipating getting a 1099-B in the mail showing me information regarding the RSU sale to cover transaction that occurred last year. I finally called Smith Barney yesterday to discover that the RSUs were done in a withhold to cover instead of a sale to cover transaction which the agent said didn’t require a 1099-B. After a bit of searching online I came to the conclusion that you don’t need a 1099-B for a withold to cover because you don’t sell the stock, per se, but when the RSUs vest the company withholds some of the stock back and “swaps” it for cash that they pay on your behalf to the government for the taxes. At least that’s how it looks on paper. Unlike the excellent tax information I was able to find for RSU sale to cover transactions, I didn’t find much at all for withhold to cover telling me that either it is more rare than the former or just so intuitive to everyone else that I’m one of the few that didn’t grok it immediately.

Anyway, with that one remaining piece I was able to submit my taxes last night. I’m getting a couple of grand back from the federal government and about $800 from the CO state government. The state refund has me shaking my head. Last year I had to pay something like $300 to the state and that was for a partial year. Putting pen to paper I calculated that due to my self-employment I was going to need to make tax payments throughout the year for 2008. I proceeded to send 4 quarterly payments of $242, only to have almost that entire amount refunded to me. The big miscalculation? The offset provided by the mortgage interest of the new house. Nothing like providing the government with an interest free loan for an entire year.

So I expect to get my refund from the Feds and the CO government here within a few weeks — just in time to send it to the Denver Tax Office for our 2008 property taxes!