:( Taxes :(

[TMetzinger]

Put some or all of the raise into a 401K. You won't take home any more, but you'll give the gvnmt less.

Amen... The earlier you start, the better, even if it's just a little. I used to put in 10%, getting a 5% match from Uncle. When I got into the private sector I adjusted as my cashflow needs changed, but I never let my witholdings drop below whatever generates the max match from my employer (why give up free money?).

Because I've been doing this for about 18 years, in 5 more years I will be able to "retire" from engineering at age 45, take a low paying flying job, and even if I don't put in much more to the 401K, there will still be enough when I'm 65 for my wife and I to retire on comfortably, assuming "normal" returns and no worldwide war/disaster/economic meltdown.

You really don't miss the income, and you'll be amazed how quickly it grows (or put another way, you'll be amazed how quickly you age).

 

[mikea]

I have no interest to deduct.
I have no kids at home.
I have no deductions of any other nature.

I have an extra $100 taken out of each paycheck for taxes.
I have and extra $50 taken out of the SS check each month.
I have completed the short form because there is nothing to declare.



but


I still owe.

Well STOP IT TOM!! Go out and get a mortgage before you're listed as anti-American and placed on the no-fly list! Don' cha NEED a 82" HD TV?

 

[mikea]

I just got let in on what happens you give in and join the crowd. I get to stop paying full-retail taxes. I have lotso mortgage now.

It was fun changing my withholding to match the deduction.

 

[ScottM]

I am still considering cashing in some of my non-401k investments this year and paying off the mortgage. The one account that has roughly the same amount of cash as my mortgage balance earns about the same as the interest I have to deduct from the mortgage so no real saving there. But if I pay the mortgage I have zero debt, and I will still set aside that money to an investment account and I will not have the escrow for my insurance and taxes. Instead I can save that and earn a return instead of the mortgage company.

Anyone got a reason not to do this?

 

[astanley]

I am still considering cashing in some of my non-401k investments this year and paying off the mortgage. The one account that has roughly the same amount of cash as my mortgage balance earns about the same as the interest I have to deduct from the mortgage so no real saving there. But if I pay the mortgage I have zero debt, and I will still set aside that money to an investment account and I will not have the escrow for my insurance and taxes. Instead I can save that and earn a return instead of the mortgage company.

Anyone got a reason not to do this?

Capital gains and loss of mortgage deduction? AMT will probably hit harder than most years...

The question is, will increased taxation rate (based on 06/07 numbers) and inflation together beat your returns if you invest the money elsewhere? My guess is no, unless you plan to see 12% compounding returns.

Cheers,

-Andrew

 

[kevin47881]

Capital gains and loss of mortgage deduction? AMT will probably hit harder than most years...

The question is, will increased taxation rate (based on 06/07 numbers) and inflation together beat your returns if you invest the money elsewhere? My guess is no, unless you plan to see 12% compounding returns.

Cheers,

-Andrew

Andrew, the "loss of mortgage deduction" is a farce. Look at it this way, your monthly house note is $1,000, of which $500 goes to interest. At year end you "deduct" $6,000 (interest). Assuming a 28% tax bracket it equates to $1,680 rededuction.
Now, why would you send $6,000 to the mortgage company to save $1,800??? If you're in the mood, send me the $6k and I'll cut you a check for $1.8k
Capital gains is a whole 'nother ball game.

 

[Bill]

Did some bad planning last year. My tax guy called and, well, I have been absolutely nuked. Looks like the family eats like flight instructors for the next year.

Just got mine, Ramen only for a month or so, so not horrible, but I still hate how much we have to pay.

 

[ScottM]

1040 and all the extras are sitting in my car. It gets mailed out today.

 

[James_Dean]

Andrew, the "loss of mortgage deduction" is a farce. Look at it this way, your monthly house note is $1,000, of which $500 goes to interest. At year end you "deduct" $6,000 (interest). Assuming a 28% tax bracket it equates to $1,680 rededuction.
Now, why would you send $6,000 to the mortgage company to save $1,800??? If you're in the mood, send me the $6k and I'll cut you a check for $1.8k
Capital gains is a whole 'nother ball game.

I disagree. Assuming the 28% bracket a 7% home mortgage is effectively a 5% mortgage. So let's say I have a $100,000 sitting in the bank from a windfall. What will give me a higher return in 10 years? Paying off a 5% mortgage or investing in an EFT or mutual fund? I'll pick having the cash liquid in an investment account every time. Over the long term I'll win every time, even after paying taxes when I cash out.


James Dean

 

[astanley]

I disagree. Assuming the 28% bracket a 7% home mortgage is effectively a 5% mortgage. So let's say I have a $100,000 sitting in the bank from a windfall. What will give me a higher return in 10 years? Paying off a 5% mortgage or investing in an EFT or mutual fund? I'll pick having the cash liquid in an investment account every time. Over the long term I'll win every time, even after paying taxes when I cash out.


James Dean

What he said.

It essentially comes down to this - many of us, myself included, need a loan to own our own home. In my housing market, $300k gets you a starter home. In Dayton, where I'm looking, it's more like $100k. For most of us, it makes greater sense to keep liquid cash on hand and finance the purchase of the property.

Yes, you pay a fee on that, but through the tax incentives that exist, I can beat the effective 5% through my own investing, end up ahead and still have a significant amount of liquid cash on hand.

The real problem becomes capital gains and how it intersects with the cash on hand, percentage of cash at risk of gains taxes, and the outstanding value on the home note.

To some, this is an untenable and stupid proposition - why pay interest to own your home? To others, it's just another business decision.

Cheers,

-Andrew

 

[KennyFlys]

Bump Time!

FairTax.org

 

[flyingcheesehead]

I finally did mine this past weekend. Shoulda done 'em earlier - Uncle Sam's cutting me a big fat check.

 

[flyingcheesehead]

Yeah, you gotta hate that. "Woohoo a raise!" *looks at pay stub* "Odd... looks the same..."

Back when I first started this job (with highly variable income week to week), I noticed that a crappy $900 and change paycheck resulted in $700 and change going in the bank. Then I'd have a better week with $1600 gross, and... $700 and change in the bank. Crazy.

 

[James_Dean]

I finally did mine this past weekend. Shoulda done 'em earlier - Uncle Sam's cutting me a big fat check.

You mean he's returning the interest free loan you gave him?

Time to up your exemptions Kent!


James Dean

 

[jason]

I disagree. Assuming the 28% bracket a 7% home mortgage is effectively a 5% mortgage. So let's say I have a $100,000 sitting in the bank from a windfall. What will give me a higher return in 10 years? Paying off a 5% mortgage or investing in an EFT or mutual fund? I'll pick having the cash liquid in an investment account every time. Over the long term I'll win every time, even after paying taxes when I cash out.


James Dean

You've gone over all of this before, and I still don't agree with you.

You're still not taking into account your ability to invest even more even faster with no mortgage to pay. If you still need a tax deduction, then donate to your church or to charity. It's the exact same deduction, only the "5%" does good things for your community.

 

[James_Dean]

You've gone over all of this before, and I still don't agree with you.

You're still not taking into account your ability to invest even more even faster with no mortgage to pay. If you still need a tax deduction, then donate to your church or to charity. It's the exact same deduction, only the "5%" does good things for your community.

I've done the math and understand your point - I just disagree with the philosophy.

OPM! OPM! OPM!

I'm make a living running highly leveraged companies and I will never be swayed from the idea that the only path available me to true wealth is using Other Peoples Money, savvy managment, planning, and some help from the man upstairs. Good debt is healthy.

James Dean

 

[astanley]

I've done the math and understand your point - I just disagree with the philosophy.

OPM! OPM! OPM!

I'm make a living running highly leveraged companies and I will never be swayed from the idea that the only path available me to true wealth is using Other Peoples Money, savvy managment, planning, and some help from the man upstairs. Good debt is healthy.

James Dean

Leverage is a powerful thing, especially when you use it in a healthy, respectful way. Pure-cash is a tough way to do buisness and can hamper your ability to grow. I'm an OPM guy myself, but it took me a while to be really comfortable with it.

Cheers,

-Andrew

 

[KennyFlys]

I've done the math and understand your point - I just disagree with the philosophy.

PPM! PPM! PPM!

I'm make a living running highly leveraged companies and I will never be swayed from the idea that the only path available me to true wealth is using Other Peoples Money, savvy management, planning, and some help from the man upstairs. Good debt is healthy.

James Dean

And I thought that merely a good premise for a movie?

 

[flyingcheesehead]

You mean he's returning the interest free loan you gave him?

Time to up your exemptions Kent!

Unfortunately, I really never know what I'm going to get. I'd much rather have a refund than an unexpected bill.

The reason I tend to get refunds is that I have a highly variable income week to week sometimes. I also get deductions based on time on the road. ($52/day in the US, $58/day outside the US, partial days count as 3/4.) So, it's kind of a guessing game.

I was NOT expecting a check nearly this big, though. Now, what to do with it? I could buy a few toys labeled "Garmin" or half a deposit on a new Diamond Star...

 

[jesse]

I do my damnest to set my allowances so that I end up owing Uncle Sam a few hundred each year. I don't like the idea of a refund.

 

[alaskaflyer]

http://www.csmonitor.com/2007/0413/p01s03-usec.html?page=1

If you think your taxes are bad this year, wait until next April 15. Unless Congress acts relatively soon, millions more Americans will find that the tax refund they expected will disappear – swallowed up by the alternative minimum tax (AMT), a levy originally designed to make sure that millionaires pay up.
Indeed, as Americans root through receipt-filled shoeboxes to complete this year's 1040, fixing the AMT has become a priority in Congress. Lawmakers on both sides of the aisle agree something must be done, and they agree a fix will mean billions of dollars in lost revenue for US coffers. But there's little agreement on how to pay for the repair: Many Democrats envision a tax increase for the wealthy, while many Republicans favor the elimination of some broad-based deductions, like local tax exemptions. The two sides don't even concur on how much revenue will be lost: Some put the figure at as little as $250 billion over the next decade, others as high as $1 trillion.

I'm a lowly civil servant but it preliminarily appears that I might just hit the AMT too

 

[KennyFlys]

I'm a lowly civil servant but it preliminarily appears that I might just hit the AMT too

I had read sometime back the AMT was written by Congress with aim toward no more than 155 people... some very high income earners. Back in 1970, a very high income was a far cry from what it is now. It was never written to adjust for inflation.

Hence, it now reaches into the upper-middle class and is expected to dip ever slowly into the middle class, that is families who have incomes in the very low six-figures. Next year, estimates are it will hit over a half-million tax payers.

But, Congress (mainly Democrats) doesn't want to give it up as it provides far too much money for them to waste on vote-buying measures on the ignorant. And, most of those who make this income don't vote Democrat so Congress has nothing to lose. And Republicans have no gonads.

Sad, huh?

 

[alaskaflyer]

According to the article next year incomes as low as $75K could be subject to it, even with several dependants. Guess how much I make...and I have no dependants

But as a good Democrat and liberal I would never complain how much of my money is going to the gov't

 

[KennyFlys]

According to the article next year incomes as low as $75K could be subject to it, even with several dependants. Guess how much I make...and I have no dependants

But as a good Democrat and liberal I would never complain how much of my money is going to the gov't

Good... pay up more! Cuz, I'm keeping mine by every loophole I can sholve a pen into!

 

[Bill]

You mean he's returning the interest free loan you gave him?

Time to up your exemptions Kent!

Concur. Ideally, you want to be writing him a check, but not a big enough one to have to pay penalty.

 

[ScottM]

Concur. Ideally, you want to be writing him a check, but not a big enough one to have to pay penalty.

The penalty is a funny thing. I wrote a check last year that was for almost $25,000 at tax time but I did not have to pay a penalty. My accountant told me why, I did not understand her answer but it had something to do with my payment being higher than the previous year. Which sounded bizarre to me.

 

[wbarnhill]

Concur. Ideally, you want to be writing him a check, but not a big enough one to have to pay penalty.

Yeah, I've dug through the tables for 2007 and set my exemptions and deductions to where I should come out dead even or with a slight bit above or below.

I didn't even take into account my student loan interest, which will actually probably still give me a refund. *shrug*