3510 Taxes

Thursday, April 12, 2012

Don't join dangerous cults: Practice safe sects.

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On Monday, The Angel sent me drafts of my federal and state tax 1040s for approval. Yesterday I spent some time in Piper's office going over some questions I had, including a 45-minute phone call to The Angel, who was not at his office in Fishkill at the time, but in Manhattan. I was amazed that even though he didn't have access to my files there, The Angel was still able to remember actual numbers from my 1040s.

There is news that is either very good or is going to get me audited, and some bad news.

The bad news is that my total income for 2010 was $20,000 less than it was for 2009 and for every year of the decade before.

The "eh" news is that I paid about $14,000 in real estate taxes in 2010 for the two houses, and it's all deductible. Bad in one way, good in another.

The good news is that for the first time since I retired and started paying quarterly estimated tax, I'll be getting a refund. Over the past year, I paid the same estimated tax as the year before, but with the lower income (all those lost dividends from the stock I sold to buy the house and car) and the higher deductions, my taxable income is TINY! I mean below the poverty line. So low my bracket is like 5-6%. My tax due is about 1/5 what it had been in prior years. So I grossly overpaid estimated tax, and I'm getting a huge refund from both the federal and state.

If the IRS compares the previous years to 2011, That might be a red flag. I've checked all the numbers and the math, and it's all correct, but a drop like that is logically unbelievable, not to mention emotionally upsetting.

Another bit of good news is that NJ doesn't tax social security income, so I end up paying LESS income tax for the year than for a normal weekly grocery store trip. Another relatively large refund.

Then The Angel did something I don't understand. 2012's income and deductions are likely to be pretty much the same as 2011's (I can guarantee that the old house won't be sold this year), so my total tax for this year is likely to be the same. He applied part of my refund toward 2012's tax, a prepayment, so I won't have to pay quarterly estimated tax this year, which is nice, because that's always a budgeting nightmare and a scramble (although I'd rather invest that money instead of letting the government sit on it and lose the interest, but it's not a huge amount, so eh.)

These aren't the real numbers, but let's say I paid $6K over the year in estimated taxes, and my tax due for 2011 was a hair over $1K, giving me a refund of almost $5K (whoop!). The tax due for 2012 is likely to also be about $1K.

So why on earth did he put almost $4K toward my 2012 federal tax, leaving me a cash refund of 1K? And a similar proportion to the state? He's sending them each enough for two year's worth of taxes. Duh?

Uh uh. Squash that right now. Don't give them more up front than the absolute least.

When the money arrives, I get to pay the credit cards down, and pay the Hairless Hunk for his winter's caretaker work. Whoop whoop.

But it's not enough to afford landscaping or painting at the new house yet.
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