Income Tax Returns

[Dark One]

Our taxes are a little more complex. We use an accountant. He charges $275, but he's good at what he does.

I can see the value in this if you don't want the headache of dealing with it at all and you also have some complex items other than salaries. Putting it in someone else's hands can provide a level of comfort not achieved when submitting it on your own, particularly when you have a joint return or multiple returns.

We also have to pay about $2,000 each year (not because of the accountant, but because of how we choose to declare), but that's the way we prefer it.

Wow, really? Obviously it makes sense for you, but I'm extremely curious as to how this is to your benefit? (don't mean to pry or anything, you just really piqued my curiosity).

 

[Dead_Lioness]

I still haven't gotten my W2's... 3 more days until I go batshit crazy on some payroll people.

You and me both!
but I'm calling today.

 

[General Zod]

Wow, really? Obviously it makes sense for you, but I'm extremely curious as to how this is to your benefit? (don't mean to pry or anything, you just really piqued my curiosity).

Most folks like the idea of the "forced savings" that their income tax return provides. And it's good for those people who would have spent that money had it been in their paycheck. However, the value of that money has diminished in value over the course of the year, while it's been in the government's possession. Conversely, if I hold on to the $2,000, that I would have otherwise paid to the government, I'm able to move that money into investments and make money on it through out the course of the year. Another way to think of a tax refund, is as the government finally paying you back on an interest-free, one year loan you gave them. And I have no desire to give our government an interest free loan.

In addition, this works for us because we both get our bonuses in March, so writing that check isn't a hardship, nor is it a disappointment, as it's not unexpected.

Zod

 

[skyrefuge]

Obviously it makes sense for you, but I'm extremely curious as to how this is to your benefit?

Because he's not giving the government an interest-free loan for the whole year. It's ALWAYS better to owe money at tax time than it is to get a refund.

I got five pieces of mail yesterday (which is sort of a lot for me), and every single one of them was a tax document of some sort. Woo, I think I'm ready to go!

I exercised some stock options this year, which will add a slight bit of work, but I'll still do it on my own, especially if it costs $275 for someone else to do it! I've also used online-TurboTax for years now. Usually Vanguard (my 401k company) has a link where you even get a discount, so it ends up being like $10-$15 or something. Illinois has its own free e-file site for state taxes, so that's nice. If I had to pay the $29.95 for state filing, I'd just do it the old fashioned way instead: on paper!

Neil

 

[Jim LotFP]

Wow, really? Obviously it makes sense for you, but I'm extremely curious as to how this is to your benefit? (don't mean to pry or anything, you just really piqued my curiosity).

Well you pay the same amount either way, and this way he hasn't given the government an interest-free loan.

I haven't had any earned income or lived in the US since 2005, so... I don't even know what I'm supposed to do. heh.

 

[Dark One]

LOL @ three separate responses at the same time generating basically the same reply.

Yes, absolutely, I understand wanting to invest that money instead of waiting to get it back at tax time without any additional interest income. I wasn't 100% sure that's what he meant by the $2,000 so I was looking for clarification. I thought he may have been paying for the ability to file under a separate tax category of some kind or something.

The "forced savings" factor of having additional tax money withdrawn from your paycheck is true in that the money isn't sitting in an account you can withdraw from easily, making the "forced" factor a bit higher. That's not to say it's a good investment since you are basically using the government as a "mattress" to stash your cash under. However, it is easier to be more disciplined with your money that way, unless it's truly extra income and you're well off enough to be able to get by without even thinking about the invested money (which, of course, is the main reason why people who can invest, do invest).

Jason

 

[General Zod]

Yes, absolutely, I understand wanting to invest that money instead of waiting to get it back at tax time without any additional interest income. I wasn't 100% sure that's what he meant by the $2,000 so I was looking for clarification. I thought he may have been paying for the ability to file under a separate tax category of some kind or something.

Sorry about that. I don't recall what the wife and I are respectively declaring. I just know, that each year, we end up owing about $2,000. I could obviously make a change in my declaration, so that we came out even or ahead, but choose not to.

However, it is easier to be more disciplined with your money that way, unless it's truly extra income and you're well off enough to be able to get by without even thinking about the invested money (which, of course, is the main reason why people who can invest, do invest).

Your point about being able to afford it, is well taken. However, unless you you need that refund check in April (no real reason you should, as you do without that check the other 11 months of the year), you'd be better advised to up your 401K contribution. This would still be a forced savings, however, you'd be making making money, you'd have a lower taxable income, if your company would match that extra money you'd make even more, you'd be saving for your retirement, and you wouldn't be loaning the government money. However, if you're someone who plans something big each year with that refund check, than it's not a horrible solution.

Zod

 

[Dark One]

Sorry about that. I don't recall what the wife and I are respectively declaring. I just know, that each year, we end up owing about $2,000. I could obviously make a change in my declaration, so that we came out even or ahead, but choose not to.

No problem, it makes perfect sense now.

Your point about being able to afford it, is well taken. However, unless you you need that refund check in April (no real reason you should, as you do without that check the other 11 months of the year), you'd be better advised to up your 401K contribution. This would still be a forced savings, however, you'd be making making money, you'd have a lower taxable income, if your company would match that extra money you'd make even more, you'd be saving for your retirement, and you wouldn't be loaning the government money.

Yeah, this is clearly the better solution if you don't plan on doing anything immediate with your funds and can get by comfortably in the interim.

However, if you're someone who plans something big each year with that refund check, than it's not a horrible solution.

And that's pretty much how I do annual trips, etc.

 

[Thanatopsis123]

Employers do taxes for their employees in Japan. I'm not complaining.

 

[Krilons Resa]

Dorian Gray pretty much said the same exact thing as what Zod and his wife do. He said it in my car speaker thread but deleted it for some reason. I found it very interesting.

But I dont invest because I am a pussy and dont like taking risks. I freely admit to not understanding it either. I find it almost akin to gambling but with obviously a lot less risk. I dont even do any of that 401K shit. I just think that economy is on the downslope of the bell curve.

 

[Dark One]

But I dont invest because I am a pussy and dont like taking risks. I freely admit to not understanding it either. I find it almost akin to gambling but with obviously a lot less risk. I dont even do any of that 401K shit. I just think that economy is on the downslope of the bell curve.

I don't do it because for the time being I don't have the extra cash to spare. If you have it though, there are plenty of safe investing options out there that will net you more interest than a traditional savings account (even if you don't want to look at stocks, IRA's, etc.). You can invest in CD's at your local bank and make 5% in 6 months (or other timeframes) then keep rolling it over once it matures. You'd be amazed how fast it grows when you put as much $$ in as possible. Those are FDIC insured accounts as well, meaning those funds are every bit as safe as those in your regular checking/savings accounts.

Jason

 

[Krilons Resa]

Hmm...that CD option looks interesting. I didnt know there were CD's that were less than, say, 5 years. I dont know why I always thought that.

 

[Reign in Acai]

I was about to invest in a CD less than a year ago, but decided to jump on a high interest savings account instead. Due to the downward spiral of our economy, that high interest account is now yielding me a whopping 3.2%. I'm close to diving in to the world of mutual funds, but can't decide which one to throw my money towards.

 

[General Zod]

I dont even do any of that 401K shit. I just think that economy is on the downslope of the bell curve.

You need to keep two things in mind:

1. Over any 10 year period, in the history of the U.S., the stock market has produced a 10% return on investment (ROI).

2. Downturns in the economy, don't have a great deal of impact on the long term investor in a diversified fund portfolio, which is what a 401K is.

Let's say you have $10,000 in your 401K. You built that up by contributing $100 per month and your employer matching with their own $100 contribution. Right off the bat, you have an investment vehicle that has a 100% ROI, because your employer gave you $100 merely for contributing $100. So, you've doubled your money before you accept an ounce of risk.

Now, that $200 is worth more than the $200 in your paycheck, because the $200 in your paycheck has been taxed, the $200 in your 401K has not. And because that $100 you contributed is not reported as taxable income, your taxable income is lower than it would have been otherwise, and could even keep you in a lower tax bracket. Also, you wouldn't actually miss $100 from your paycheck. Given that the government takes their share, out of that $100 before you see it, you're probably only lose $70 out of your net.

OK. Let's get back to why downturns don't have an adverse impact on long term investing. Let's say with that $200 contribution, you're buying one $200 share of fund ABC. Now, fund ABC takes a huge downturn, and their stock is now worth $100 per share. However, with your next $200 contribution, you're able to buy two $100 shares, instead of the one $200 share. Although you didn't double your money (yet) you've doubled the amount of stock you're purchasing. Now, when that fund bounces back, you not only have the original shares you had been holding on to during the downturn, but you also have all the additional shares you were able to purchase during the downturn, at the reduced price.

401Ks are quite literally a no-brainer.

Zod

 

[Dark One]

Hmm...that CD option looks interesting. I didnt know there were CD's that were less than, say, 5 years. I dont know why I always thought that.

Yep, I've heard of ones for 3 months, 6 months, 12, 18, etc. Obviously, the longer period you commit to, the greater the return; however, as most CD's assess a penalty if you need to withdraw funds early, you may want to stick with shorter lengths of time unless you know for sure you won't need those funds immediately for any reason.

Go for it!

 

[skyrefuge]

401Ks are quite literally a no-brainer.

Excellently stated. The only thing I would add (or rather, re-emphasize) is that if you're posting on this board, you're probably pretty young relative to retirement age, and the short-term ups and downs of the stock market are totally meaningless when it comes to long-term savings. So even if you hit that rare year or five when the market goes down, that'll be more than made up for over the next 20 years.

Picking individual stocks with the goal of making a quick profit basically *is* gambling. But making long-term investments in broad-based mutual funds is quite a different story. The long investment period takes a lot of the randomness out of the equation.

Yep, I've heard of ones for 3 months, 6 months, 12, 18, etc. Obviously, the longer period you commit to, the greater the return;

True most of the time, but there are periods when short-term CDs have a better return than long-term, depending on which way banks think interest rates will be moving in the future. At the moment, the rates are pretty constant across all maturities (and pretty shitty, too!)

I have some money in CDs, but it's really just a place for me to hold mid-term savings. If the goal is to save money for retirement and you have access to a 401k, I would highly, HIGHLY recommend contributing to that first. The advantages are just so enormous compared to a taxable CD.

Neil

 

[Krilons Resa]

I just dont like the idea of a 401K. If I had children, I woudl probably think otherwise. But I dont. I save well on my own and thats how parents/grandparents/etc did. I dunno...Im extremely stubborn and I guess a complete control freak when it comes to this stuff. And stupid.

Plus, I could die tomorrow.

Yeah, I know.

 

[Reign in Acai]

I just dont like the idea of a 401K. If I had children, I woudl probably think otherwise. But I dont. I save well on my own and thats how parents/grandparents/etc did. I dunno...Im extremely stubborn and I guess a complete control freak when it comes to this stuff. And stupid.

Plus, I could die tomorrow.

Yeah, I know.

I feel the exact same way.

 

[Krilons Resa]

Dont you get royally fucked if you have to suck the money out of a 401K?

 

[Krilons Resa]

I feel the exact same way.

You should just move to MA so we can get married.