The Tax Man Cometh

For the 2008 tax season, I made the mistake of buying Turbo Tax too early and missing out on subsequent price cuts and sales. This year I decided to be patient and just as I expected, Costco issued a $10 off coupon that's effective between 1/27 - 1/24/10. My taxes are relatively straight forward so I purchased Turbo Tax Deluxe (Federal and State) for $39.99. I spent a good part of Saturday morning estimating my tax liability for 2009.

I was a bit worried about my 2009 taxes in light of the fact that I got a significant windfall on New Year's Eve. The most I've ever paid in taxes was back in 2007 when I temporarily halted my 401k contributions and sold off a bunch of my stocks to pay down a significant chunk of my debts. In 2007 I had to pay $653 in Federal taxes and $489 in State taxes.

I thought my taxes in 2007 were pretty bad. Do you want to venture to guess how much I approximately owe this year?

Wait for it.... wait for it...



$916 for Federal taxes and $2,359 on State taxes. Oy! If you consider the amount of tax that had already been taken out, I'll be paying an obscene amount (IMHO) this year. I never ever thought I would pay this much tax.

I'm not complaining, mind you. I've always believed in a progressive tax system. In my opinion, taxation should be based on one's discretionary income and ability to pay. I also actually agree with Justice Oliver Wendell Homes that you pay for the privilege of living in a civilized society by paying taxes. There's absolutely no excuse for cheating on taxes and I'm prepared to pay my fair share.

Besides, I already suspected that I would I owe about $3,679, so I mentally took that amount off the top of my windfall from the get-go. There are no disappointments or surprises here.

Actually, I did learn something new while estimating my taxes. I sold my company stocks for a $305.97 loss earlier this year. In a separate transaction, I sold the stock for a realized gain of $405.91 for which I was hoping to take an offset of my $306 capital loss. Unfortunately, I am subject to the wash-sale rule and can only take a part of the capital loss.

A wash-sale rule occurs when you sell a stock for a loss and acquire the same stock (or a substantially identical stock) 30 days before and after the sale. The rule was established by the IRS from preventing taxpayers from creating a tax loss while still holding a position in the same stock (and thereby avoiding capital gain taxes). It is irrelevant whether you intended to harvest a loss or not.

Anyhow, I can only claim $168.31 of my loss in my tax returns this year. The $137.66 loss that I'm prohibited from taking this year can be used to reduce my cost basis for the stocks that I acquired during the 60-day period, though. I guess if I'm really motivated (or bored), I'll read the IRS Publication 550 - "Investment Income and Expenses" to learn more.

My Rant Against Tax Cheaters

I mailed in my taxes on Monday. I paid $50 to the Federal government and I paid $694 to the State of California. I would've owed much less had I not sold any of my company stocks last year. But I've reaped some nice gains, so it's only fair that I pay taxes on it. Besides, since I've held the stocks for over a year, I benefited from a lower capital gains tax rate.

And this leads me to my soapbox rant:

There is something wrong with our tax system, which allows people of means to manipulate their tax obligations through their claimed capital gains and capital losses. It's one thing to practice legally recognized tax avoidance (like selling stocks within a Roth IRA) and another to engage in tax evasion.

[Disclaimer: For obvious reasons, I am not going to go into specifics. Furthermore, I have no knowledge of anyone actually engaging in the conduct described below. This is just a general rant and is not directed at anyone in particular. Any resemblance of facts and circumstances to an actual person is pure coincidence. But if my rant hits home, I'm talkin' to YOU.]

Frankly, it's wrong of you to claim capital losses when in fact you haven't suffered any. And guess, what? Your reliance on a tax preparer really doesn't excuse you for claiming a loss that you haven't realized. You may have legal recourse against the tax preparer, but the bottomline is, it's your signature at the bottom of the tax form. YOU'RE responsible.

It's also wrong for you to out-and-out lie about your cost basis so that you can get a tax refund. And, no, ignorance of your true cost basis is never a defense. And besides, you're not ignorant -- your act is intentional. It's the difference of being stupid vs. a liar, and I know you're not stupid.

It's amusing (*NOT*) how you find burglary, shoplifting and any other forms of theft morally repugnant, yet have absolutely no problem evading taxes. Here's a newsflash: when you lie about your capital gains (or losses), you ARE indeed stealing from other taxpayers. If you owe it, pay it -- it's your obligation as a citizen.

And this whole argument by you and other like-minded people, that paying higher taxes is unpatriotic, is completely mind-boggling. You further justify your actions by claiming: (a) that the government is wasting taxpayer money, (b) you already pay enough tax and (c) rich people have other tax loopholes unavailable to the hoi poloi. Even assuming these arguments have any merit, which they do not, it's no excuse for lying on your tax return.

It is utterly hypocritical for you to accept the benefits of governement protection and programs, yet shirk paying your fair share of taxes. I understand that you don't like paying taxes. Neither do I. But guess what? To paraphrase Justice Oliver Wendell Homes, you pay for the privilege of living in a civilized society by paying taxes. (Justice Holmes' actual quote can be read here.) By evading taxes, YOU are unpatriotic, my friend.

And when you get audited (which I doubt you will), I won't be lending you a sympathetic ear but I'll try not to say, "I told you so."

I'm So Stimulated!

Woo hoo! My paycheck today has an extra $6.79 due to the stimulus federal income tax reduction. And I thought I wouldn't qualify for a tax cut, silly me!

Ohhhh... what should I get with the extra $6.79/paycheck?

• 6 songs from iTunes?
• 6 items from the 99 Cent Store?
• 2 boxes of Little Debbie Marshmallow Pies?

But alas, it's not enough to buy:

* An Aqua Globe ($9.99 on sale at CVS);

* A Flirty Girl DVD set ($9.99 for "Teaser Pack") [Note: It costs $10 to learn how to chair dance? I'm afraid to know how much it costs to learn how to pole dance!]

* An Old Navy Towngown ($25.00).

Speaking of towngowns, looks like everything old is new again. Oh Gawd. These dresses are giving me flashbacks of my fashion-challenged, misspent youth!! (See below, circa late 70's.)

Note to Parents: Dressing your children like this is child abuse! (Exception: Unless you're a cult member.)

Anyhoo, I'm just kidding about spending the extra $6.79. I'll bank it since I'll probably stimulate California by passing it through via my increased state income tax. (For cryin' out loud!)

Have a great weekend folks!

Shtinkykat Has A New Laptop

I've been without a home computer for over a year now. I set aside some money last year to pay for a laptop but I instead used it to pay for my cat's vet bill and a set of new tires. This year, I set aside some of my bonus money to buy a new laptop, but I didn't plan to buy one unless I absolutely needed to (i.e., when I get laid off).

Before I go on, have you ever prepared for an event only to forget its purpose?

I wrote a semi-smug, self-congragulatory post about setting aside money to cover future cost of living increases. But I boneheadedly forgot that I should probably buy a big-ticket item before California sales tax goes up effective 4/1/09. (Click here to see your city's new sales tax rate.)

Thankfully, I've got the financially savvy Miss M, watching my back. (A shout out to Miss M: Thanks for the reminder!)

So I took the plunge and bought myself a pink laptop. Yep, pink. Sad to say, that was my sole criteria for my new laptop, so I was limited to buying a Dell Inspiron laptop. (I realize I may be too old to be buying pink computers but Dell is going donate $5 to the Susan G. Komen Foundation if I went "pink". That'll be my excuse to the world.)

Anyhow, my final price for my laptop was $907.93, including 7.75% sales tax. This is within my budget and I feel great that I'll be paying for my laptop with cash, but I can't help feel a bit of buyer's remorse.

In hindsight, I made the stupid mistake of upgrading components while I was building my computer online. Did I really need 3GB vs. 2GB of RAM? Did I really need a 320GB vs. 160 GBHard Drive? This is gonna gnaw on me for awhile.

On the bright side, the upgrades bumped the price above the $799 threshold, thereby giving me free shipping and handling ($25 off) and allowing me to take advantage of a 20% off coupon code ($208.80 off).

I guess part of the remorse came about after seeing an ad from Fry's that sold comparable laptops for much less. Oh well. I guess I paid a premium to own a pink laptop. And atleast I didn't pay an additional $9 in taxes.

Update: Now that I think about it, I guess I did have several other criteria: I wanted an Intel (not AMD) processor, I wanted to own a name-brand laptop and no refurbished laptops, based upon my experience from owning 3 prior laptops.

To Harvest Stock Losses or Not...

I purchased Turbo Tax Deluxe from Costco for $49.99 (plus tax) this weekend and I gave it a whirl. I don't have my W-2's or my 1099's yet, but I always try to estimate my potential tax liability in December so that I can start saving up any money that I need to pay by April 15th.



With the exception of last year, I've been fortunate to break even or nearly break even with my taxes (i.e., tax liability less than $100 for both Federal and State taxes). Last year I owed $1,142 in State and Federal taxes due to the fact that I stopped contributing to my 401k to increase revenue and to bring my debt under control. I also sold a bunch of my company stock for a profit, again to pay down my debts.

This year, I contributed to my 401k again which should help reduce my tax liability. But I also sold 14 shares of my company stock for a nice profit.

At this time, Turbo Tax doesn't have my State Forms available yet. (Estimated date of availability 12/30/08.) But based upon my guesstimate of my income and taxes paid, I'll owe about $500 solely on my Federal taxes! If I owe on my Federal, I'll definitely owe on my State taxes. Assuming the $500 estimate is correct, I may owe another $375 in State taxes. I currently have $350 set aside for paying taxes. Like everything else in my life, looks like I'm short yet again. (Story of my life!)

But, if I sell the ETFs (stock ticker: VTI, VEU and TIP) that I purchased in March 2008 for a short-term loss, my Federal tax liability goes down to about $386 and the sales proceed will help gap the estimated tax shortfall. This may be a viable option but I'll need to act before 12/31/08.

To be frankly honest, I wouldn't mind taking the loss to reduce my tax liability. I hate the fact that every time I look at my investments, I'm reminded of the massive losses of the past few months. I can always re-purchase these ETFs at the lower price after 30 days anyways.

But at the same time, I purchased these ETFs with a long-term horizon in mind. I could keep it and dollar-cost average by purchasing additional shares. Maybe I should just suck it up and try to find a way to pay my taxes without selling my ETFs? Dilemmas, dilemmas.

No More Social Security Payments For the Rest of the Year But...

I looked at my most recent pay check and discovered that my pay increased by $160.92. Why? This is because I've now paid the maximum yearly Social Security limit. For the final 3 paychecks of the year, my pay should increase by about $220 per pay period.


The bad news? Looks like my "temporary pay increase" is going to be eaten away by increased costs in 2009.

For example, I only signed a 6 month lease with my apartment in July due to the uncertainty of my job. I was just told my rent will increase by $20/month in January. (Happy New Year to me...) I'm probably again only going to sign another 6 month lease so I'm expecting another rent increase in July '09. (Total expected rent increase in 2009 = $360.) (I'm not even going to think about the possibility that I may have to move into a 2 BR for now.)

My car registration ($193) will come due on 12/8/08 and I currently only have $105 saved towards it.

Additionally, with benefits open enrollment starting soon, I'm expecting to pay another $10/month $17/month in increased health and insurance costs in 2009. (Total expected increase: $120 $204.) [Note: Open enrollment started at my company today. Like always, I've underestimated the increased costs.]

I socked away my most recent "temporary pay increase" in to my emergency fund. But with the anticipated increase in cost of living for 2009, I'll just earmark future "pay increases" it into a Cost of Living Adjustment Fund which will not count towards my savings.

Sigh... story of my life. Whenever I find extra money to save, it seems to go elsewhere. That being said, although it feels like I'm futilely running in place, I feel very good that I'm taking advantage of this temporary Social Security payment reprieve to plan ahead.

Why Did My Paycheck Go Up?

Last Friday was payday. Hooray! But I also noticed that my paycheck was $18.47 higher than usual. Double Hooray!! But why? I'm always suspicious of unexplained (and undeserved) pay increases...
I compared my current paycheck to my last paycheck and discovered that my withholding for the California State Disability Insurance (SDI) tax went down $18.47.

According to ADP's State Tax Fast Facts website, the maximum employee withholding for this item is $693.58. As of this pay period, I've maxed out my withholding and I'll be getting $31.09 extra per pay period.

Unfortunately, this increase will all go towards repairing my windshield. As an update to my prior post, I got my windshield repaired yesterday and it cost me a little over $267. I checked my auto insurance and my deductible for comprehensive damage is $250. Sigh... I've decided it's not worth making a claim for $17.