Tag Archives: government

Eliminate Surprises for 2011 Tax Year

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So Monday was Tax Day, and for some of us, it wasn’t a good day.  If you were “surprised” this year, the best thing to do is start planning now for next year.  I am not only equating the “surprise” to the requirement to pay additional taxes.  If you received a huge refund, tax planning can be beneficial to you too.  After all, why should you “loan” the government money at 0% interest? 

Depending on your perspective, one may feel it’s better to receive a refund than to have to write a check.  I once agreed with this philosophy, but my outlook is different now.  Generally, no one wants to pay more taxes, but how is your tax bill different from any other bill?  It’s only a problem when you don’t have the money.  While it doesn’t feel good to write a check to Uncle Sam, I now understand that doing so means that I didn’t “lend” my money interest free.  Ultimately, a goal of breaking-even is a good idea.  Included below are some key considerations that can assist in eliminating surprises for the 2011 Tax Year:

Keep an “Eye” on your Adjusted Gross Income (AGI) – Your AGI is a significant element in determining you taxes.  Your AGI is your income from all sources minus any adjustments to your income.  Adjustments to your income can include, but are not limited to:

  • Certain business expenses (teachers, reservists, etc.)
  • One-half of self-employment tax
  • Alimony Paid
  • Penalties for early withdrawal of savings (i.e., certificate of deposits)
  • Student loan interest
  • Contributions to 401k or Individual Retirement Accounts (IRAs)

The best way to reduce AGI is to contribute to a 401k or retirement account.  The taxes on contributions to retirement accounts are typically deferred – meaning this reduces your taxable income and lowers your taxes.  Typically, you have until the tax deadline to contribute (i.e., Monday, April 18, was the last day to retroactively fund a retirement account for the 2010 tax year.)

Identify Ways to Increase Your Tax Deductions – The two terms that you should be familiar with for deductions are standard and itemized.  Most people can take a standard deduction, but each year, you should assess whether or not you can itemize your deductions.  Itemized deductions include, but are not limited to:

  • Mortgage Interest
  • State Taxes
  • Charitable Donations
  • Personal Property Taxes
  • Tax Prep Fees

Once you’ve identified your itemized deductions, you should use the higher of your standard or itemized deductions.  The key to leveraging this element is to plan!  If you have not been giving charitable donations, doing so can decrease your taxes significantly.

Explore Opportunities to Take Tax Credits – Tax credits directly offset the amount of tax you pay.  There are tax credits for college expenses and adoption.  In recent years, there have also been credits for first time homebuyers, energy efficient upgrades to homes, and certain tax credits for the elderly.  As a part of planning for your tax year, you should speak to your accountant or research tax credits to ensure that you are aware and able to take advantage of any that may be applicable to you.

If you find yourself with the opposite scenario, you are receiving a significant tax refund check each year, you should explore ways to limit the amount of taxes that are being taken out of your wages throughout the year.  This can be accomplished by adjusting your withholdings.  An article by Center for Personal Finance Editors, Adjust Your Withholdings Now for 2011 Tax Year, reported that approximately 100 million Americans overpay their tax bills each year by $2,200.  If you find yourself in this scenario, increase your number of allowances.  To complete this task, you will need to submit a new Form W-4 to your employer.  The IRS has information on their website, www.irs.gov, which can assist you in determining the appropriate amount of allowances for you. 

Filing your taxes does not have to be a stressful event.  With proper planning, you can figure out your tax liability for the year, and plan the best approach for your situation.  For many of us, it becomes stressful because we have to react to activities that occurred throughout the year and have certain tax implications.  A key element to wealth building is tax planning.  You can’t do one without the other.

 

For The People, By The People… What Are We Doing?

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There has been a lot of rhetoric by politicians on who’s to blame for the current state of our economy.  We recently had a mid-term election that many of us didn’t take time to vote in because we didn’t think it was important.  Many Americans are out of work and their spirits are low.  Although there are signs of economic recovery, it’s not happening fast enough for most of us.  As I began to ponder the direction of this posting, I decided to provide a quick review of our government structure and the role of “we the people”.  That being said, let’s take a trip down memory lane to the 5th grade.

Our government is made up of three branches.  A quick overview of each branch is included below:

  1. Legislative Branch.  The Congress.  The Congress is comprised of the House of Representatives and the Senate.  The primary duty of Congress is to write, debate, and pass bills, which are then submitted to the president for final approval.  Bills are laws or policies that help to govern our Country.  Because of the recent tax bill, I want to place emphasis on a specific job that the House of Representatives has.  The House is the only governmental body that can start laws that make people pay taxes.  A key job to highlight for the Senate is that they have the final say on anyone that the President recommends for jobs (i.e., Cabinet offices, Supreme Court Justices, and Ambassadors).
  2.  Judicial.  The judicial branch of the government is made up of the court system, with the highest court being the Supreme Court.  As a refresher, the courts interpret the meanings of laws, how they’re applied, and whether they align with the rules of the Constitution.
  3. Executive.  The executive branch of government makes sure that the laws of our Country are obeyed.  The President is the head of the executive branch.  This branch is comprised of :
    • President – leads the country, commands the military
    • Vice President – President of the Senate and steps in as President of the country if the President can no longer do the job
    • Departments & Independent Agencies – advises the President, and helps to carry out policy and special services

So, what does this mean to “the people”?  All branches of government are important.  While the role of the President is very important, and the Office does indeed influence policy that the legislative branch passes, the President does not run the country alone.    Historically, we’ve placed significant emphasis on the presidential election, while minimal attention is given to mid-term elections that have a significant impact on the make-up of the legislative branch of our government.  Remember that this is the branch of government that is responsible for creating policy that impacts our economy (i.e., stimulus bill, tax bill, etc.).

I never thought that I’d say this, but we blamed President Bush for the state of affairs during his presidency without holding Congress accountable for their actions.   We are now doing the same thing to President Obama.  Make no mistake, I believe that leaders should be held accountable for their decisions, but this holds true for all leaders.  Congress should not be able to blame the President for everything that’s wrong in our country.  I cringe when I hear Bush tax cuts and Obama care. 

As a result of the recent mid-term election, Republicans took control of the House of Representatives.  I am personally in favor of a balanced approach as long as it does not create a stalemate.  I am not a proponent of one party controlling the three branches of government.  I do not believe that it is representative of “the people” that make our country great.  It does not celebrate our differences.  Although I am somewhat concerned about how we will pay for all of the concessions that are being given to try and boost the economy, I do believe that the recent tax bill was necessary and to some degree balanced.

I hope you’ve enjoyed your trip down memory lane, and the refresher on our governmental structure.  Now, what can you do?  Remember to stay abreast of the decisions that your elected officials are making and hold them accountable during election time.  Do you know who your elected officials are?  If not, that’s your first assignment.  This information can be found by visiting www.votesmart.org.  In 2011, there will be a lot of noise in the media because we are approaching a presidential election year.  You will need to be able to separate facts from fiction.  We have a lot to do before the 2012 election.  Roll up your sleeves and become a part of the solution.