Tax Dilemna

Hi All

A funny thing happened on the way to the Forum said Marco. The tax collectors were all sitting on their thrones gathering the tithe that the emperor had declared, “a pound of flesh from every living being in my kingdom”. Times certainly have not changed since ancient Rome. We now just drop our hard earned coins into the Federal Withholding coffer.

It’s Tax Time again and like everyone else, you get all your files and receipts ready to do the calculations yourself or bring them to the tax man. I generally do my own tax calculations and filing. Sometimes its pretty simple and if I have all the data I can do it in an hour. However, there is always a glitch in the system.

I use the short form 1040A since I can’t accumulate enough deductions to itemize so consequently I take the Standard Deduction for Married Filing Jointly. You can also get a little more than the standard deduction if you pay Real Estate Taxes and also bought a New Car in 2009. Instead of the $11,400 Standard Deduction, I could get a $14,600 Standard Deduction.

I then figured my adjusted gross income and read the tax from the tax table and was surprised. I owed about $700 more than what was taken out in my Federal Tax Withholding. Normally I break even. I was confused. What happened?

I discovered that as a result of the Federal Stimulus Act for 2009, less Federal Tax was taken out of weekly or monthly paychecks to give more money to citizens to use weekly rather than give them a bonus $200 check at the end of the year as was done previously. For me I had less Federal Withholding in 2009 than I had in 2008, 2007, or 2006 even though I had more income. I would rather have more withholding during the year and then get a refund than have to pay.

If this new rate of Federal Tax Withholding continues next year, I will have to have more money deducted from either my state pension or Social Security Benefits just to break even or more to get a refund.

To double check my calculations I then tried Turbo Tax online which is free for Federal Taxes and about $19 more for State Taxes and they will E-file for you. After inputting all the data in Turbo Tax online I ended up with the same dilemma and still owed Federal Taxes.

I also tried to get some energy credits since I put insulation in my attic and spent about $800 for materials. I did all the work myself. This included the insulation, air baffles, eave vents, staples, special staple hammer tool, attic fan with thermostat, electric wiring and switches. However, you need a special form to take an energy credit (Form 5695). I downloaded the form from the IRS web site and filled it out and learned I could only take 30% of the total cost of the insulation job which amounted to $240 which is 30% of $800. This was not much help since it only reduced my taxes by $45 on the Tax Table. I also discovered that to get an energy credit you have to Itemize Deductions instead of taking the Standard Deduction. However, next year you can take the energy credit right on your 2010 tax form instead of using a special form. Why am I always a day late and a dollar short?

Maybe I can apply for some Federal Bailout money. Well its only $700. But I will have to make some adjustments. Maybe I won’t go out to eat as much to make up the difference. The average cost for a Romeo Lunch is about $35.00. That would be about 20 lunches. However, I could do it in half the time if I used the advice that I got in a Plugger Cartoon. See attached.

See you soon. Anyone want to be my lunch buddy?

Mark