January 22, 2010

• Tax Deductions for Dummies

  Tax Deductions for Dummies

  I've been paying income tax for almost forty years. I always used the EZ tax form, since I'm single, and don't have investments or own property. In fact, up until February of 2009, I never owned a home. I always rented apartments and houses, and watched the rent money disappear, while I kept having to move from one place to another when the rent got too high or I needed to get closer to one of the many places I worked.

  I make pretty good money, but I never thought about "itemizing" my deductions, since I didn't think I really had that many of them in the first place. All my expenses are usually of the "entertainment" variety, and bigscreen TVs and laserdisc collections aren't deductible.

  Even when I lived with Pat in the early 90s, we filed separately. We weren't married, and I couldn't really qualify as "head of household" since we split everything down the middle. I prepared Pat's taxes for her, since she always paid to have them prepared before I came into her life. I remember thinking that she was getting quite a good deal using her two children to get more money back on her return, especially since I paid a lot of money myself to put food in their mouths and to provide a roof over their heads.

  When the Federal government offered "TeleFile" in the late 90s and early Aughts, I used this simple service, where all I had to do was call out my W-2 amounts and filing information over the phone using prompts, and the tax calculations were done for me. For most of the past decade or so, I would get about a $600.00 to $800.00 refund. The only time I "cheated" on my taxes, and I did this because I was simply uninformed (or naive, if you will) and not deliberately trying to cheat the government out of monies I owed them. It was in 1982, the year FedMart went out of business. I collected a severance benefit equal to about six months pay, and I claimed that, but I also filed for, and received unemployment benefits during that time, and neglected to claim them, so a couple of years later I was audited and had to pay the back taxes plus interest. I was working by then, and it wasn't a burden, but since then, I have made sure I don't make any more stupid mistakes regarding what "income" I've received.

  Only once did I ever receive a "windfall" in any form, and it was money I knew I would get eventually. My father passed away on the job in 1974, and he was shop steward for the Teamsters union for warehouse workers at his place of employment. The Teamsters were able to get the family about $20 grand for his death benefit, but it wasn't paid out until 1977. The money was split amongst my two siblings and I, and I got a check for about $6,000.00. I bought a new stereo system and a much needed car (with cash, which was the first and last time that's ever going to happen). I was unemployed for about a third of that year, so the money really came in handy.

  As soon as I bought my mobile home last February, I knew I would itemize deductions for 2009. No more EZ tax form for the Mikester. I didn't read up on what was involved. I talked to our accountant and CFO at work, and was prepared to investigate as much as I had to in order to find out what documents I needed, and what forms I needed to fill out. I figured I'd go on the irs.gov website to find the forms.

  Our accountant offered to 'do my taxes' for $20.00. This seemed like a good deal, since I'd never itemized before, but I've filled out many forms, and though I'm terrible at math, I can operate a calculator and I know how to create an Excel spreadsheet. I talked to our CFO and told her I felt weird about giving our accountant any information about how much money I made. (The CFO does the payroll.) Our CFO advised me to get a computer program like the one she uses to do the company's taxes. The one she recommended is called TurboTax.

  I'd heard about TurboTax before, but I'd never really thought about using a computer program to do taxes. I did a priceline search yesterday to find the lowest price on the version I needed, which is called "Deluxe Federal + State" and they pointed out that Staples was the least expensive purchase. (The fee for Federal tax online is only $29.99 but filing state costs another $36.00) I found out when I went to the store that the cheaper price was through their website. I paid $49.99 for the program, ten dollars off list, pretty much what Office Depot and Best Buy were selling it for. Turns out this was the best $50.00 I ever spent.

  I installed the program last night, as the rain poured on the roof, and the wind whalloped my home from side to side. (not literally, although it seemed that way from the sound) After it loaded, with my financial statments in front of me, I began to go through the prompt screens. Tax preparation for dummies. Let me tell ya, if you pay for tax preparation, and think it's too much, and you can follow simple directions, I'd say goodbye to H and R Block and hello to TurboTax. (There's a less expensive program called "H&R Block Tax Preparation" (previously TaxCut) but I bought the TurboTax because our CFO uses it, and I knew I could ask her questions if any were to arise.)

  Forty five minutes after I installed the program, I was finished. I nearly had a heart attack as I saw the "refund amount" tabulate at the top of the screen.

  $4329.00 Federal refund amount. (ka-ching)

  I was stymied. Flabbergasted. This is another windfall. How could this be true? I must have made a mistake. I went back through the numbers. Well, I saw where I could have made a mistake. The tax refund would be $1329.00 (which is still twice what I usually get) but I qualified for the "first time home buyer" credit, which is nearly 10 percent of my purchase price of the mobile home: $3,000.00. (I can't move for two more years or else I have to pay it back.)

  The questions the program asked were about buying a "home". Nowhere was the term "house" or "property" mentioned. I double checked. I triple checked. There was even a section I filled out about "porperty tax" paid in 2009. Since I don't own property, I answered "no". The term "moblie home" never came up in the program, so I was still unconvinced.

  Either I was getting $1329.00, which will do a lot of good reducing my debt, or I was getting $4,329.00, which would nearly obliterate everything except the consolidation amount. I felt as if I'd won the lottery. But I still wasn't convinced.

  TurboTax quides you through the deduction process. And since it's a computer program, it remembers for next year, and if you pay for the upgrades (which I don't know the cost right now, but I'm sure is cheaper than buying the $50.00 program each year) your tax history is all in one place. The program even files the taxes for you online, (although I haven't gotten to that point yet.) and will do the state taxes. If I had paid over $3,000.00 in medical expenses "out of pocket" last year (I only paid about $800.00) including copayments to my HMO, dental work, and prescriptions, that would have been deductible. This means that if I pay my $3000.00 bill for the hospital stay in 2009 this year in total, it will be deductible on 2010s taxes. Nice to know. With the money I'll save by paying off a good portion of my debt, I might even be able to do that.

  The interest I paid on my mortage loan was deductible. Also the mysterious "hidden payment" of $1800.00 I had to come up with for "points" is deductible. (If I had bought a hybrid car, that's deductible). I searched in vain for the receipt from Goodwill when I gave Joel's clothing away (although that was in 2008). Charity donations are deductible. I even qualified for a $400.00 credit because I didn't get a $250.00 stimulus check this year, since I wasn't on Social Security. I wouldn't have known about this. (I'm sure it's on the written tax forms, but using the program is just so "easy", as the Staples ads always say.)

  Besides the fact I still didn't believe I was going to get almost 5 grand back as a refund, I kind of like doing these "deductions" myself, with the help of the TurboTax program, of course.

  After I saved my work and closed the program, I felt like perhaps 2010 is going to be even better than I'd supposed. I've been living in a negative cash flow situation for so long, I don't remember what it was lke to actually "make" money. I still didn't believe that the government was going to give me 3 grand for buying my "little house". So I went over to irs.gov and investigated. Sure enough, a mobile home, even one on "leased space" like mine, is eligible for the credit. A "travel trailer" is even eligible. A  motor home is not. It counts as personal property. So, attention, anyone who bought a "home" as their primary personal residence in 2009 is eligible for a nice chunk of change. Here's a handy link which explains it.

  On top of the "windfall" from the government this year, I will get $1425.00 back from the mobile home park in February as a refund for the 'security deposit' . Besides the $29,000 I owe on my consolidation credit account, I should be able to pay off my overdraft credit card, and nearly all of my other "emergency" credit card amount. 

  As I cooked dinner last night, I didn't even think "Boy, I can start going to restaurants again." I thought, "Boy, maybe I can get some more cooking implements" instead. I'm still going to be "frugal", and might be able to pay my medical bills as they come up. Book that cataract surgery, doc.. Although I'm "seeing" a bit better right this minute. I'm seeing a light at the end of a very long tunnel.

  • 10:27 am
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