Coffee heat rising

taxes

Just when you think it’s safe to go back in the water…

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Well, all that rhapsodizing about how much extra money resides in the checking account just turned into a dirge.

Yet another piece of paper came from the Social Security Administration, informing me that my monthly checks are about to drop to $974. That’s the net on $1,257 after the dings for taxes and Medicare: a 23 percent gouge.

Which reminded me that I still haven’t signed up for Part D, another hassle and hoop to jump through. That will have to wait until next week, since the next few days are going to be very hectic. And that I haven’t paid the Costco membership. And that I haven’t paid the COBRA bill for April.

At any rate, the cut in “pay” isn’t as drastic as it looks, because the $200 to $300 a month COBRA has been lifting out of my pocket has come from net income, and so it’s really about a wash. Medicare, Medigap, and Part D will add up to about $240 a month, about $40 more than this month’s COBRA payment that includes Delta Dental. So even though the paycheck drops precipitously, the amount I have to write checks for isn’t quite as high.

Except of course it isn’t a wash. Medicare is higher than COBRA, and it doesn’t cover dental care. Delta Dental will go away after the ARRAS discount ends, because its cost to private individuals is higher than the cost of routine care. To have enough on hand to cover the inevitable major dental work that comes with age, I’ll have to self-escrow something every  month to put into an account to pay for future dental disasters. How much, I can’t imagine. A crown costs about a thousand bucks around here, so I suppose that would be about $83 a month.

Because Medicare fails to cover dental care, I’m allowed to keep the COBRA coverage for Delta, which I will do until September, when the ARRAS discount expires. Meanwhile, in another week I’m getting a new crown on the tooth I broke when I bit down on an olive pit—it’s been patched with a large filling, since the ding didn’t hit the pulp and nerve, but the Doc agrees that it’s going to have to be fixed while I still have some coverage.

Mercifully, he says I shouldn’t need a root canal. Ugh!

Delta’s coverage is pretty piddly. I’ll still have to pay half the cost of the crown, around $400 or $500. That will have to come out of my year’s emergency savings, which I’ve kept in the bank for 2010 where it’ll be handy if I find I can’t live on my income during this especially penurious year. Thank God I have it! Otherwise I’d just have to wait until the tooth starts to rot and then have it pulled.

In the tax gouge department, I think it’s likely that I’ll get the money back next April, since I’ll earn so little this year that a) the cost of Medicare combined with the long-term care premiums, nine months of Delta Dental premiums, the crown, and God only knows whatever medical bills happen next will exceed 7.5 percent of adjusted gross income; and b) net earned income probably will be so low that I won’t owe tax on Social Security at all. But meanwhile, I have to live until next April.

Hmmmm…. Did you know contact lenses and the cost of over-the-counter contact lens solutions are considered eligible medical expenses? That’s interesting; I thought those were vanity items. They’ll also accept the cost of Lasik eye surgery and getting your teeth straightened. If you kept track of all the stuff you’re allowed to count as medical expenses and you didn’t earn much, you just might hit that 7.5 percent threshhold. On a $35,000 income, that would only be $2,625. If you’re not getting health insurance through your employer, then you can count your healthcare premiums…and in that case, $2600 isn’t very much. Even if you made something closer to a living wage, say 50 grand, health insurance premiums could easily combine with fairly routine care to push your costs up to the $3,750 that is 7.5 percent of that salary.

I wonder if health insurance premiums will still be deductible under the new regime? Since Medicare qualifies, it’s reasonable to think they’ll make the new required premiums deductible, too.

Doesn’t matter for me: Arizona intends to opt out of the federal healthcare plan, anyway. Our intrepid leaders opted out of Medicaid, so I expect they’ll get their idiotic way with this, too.

Taxpayer confusion

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Damn, but I wish Congress and the IRS wouldn’t let corporate lobbyists make hash out of the tax code so the rich folks can get out of paying. If you have several different kinds of income, it is just flicking impossible to understand tax forms and what you’re supposed to do to pay fairly. What excuse is there for this mess?

This spring, for the first time since I started paying my own taxes (as opposed to the ex-husband doing it), I owe money: $770 to the IRS! This happened because, when ASU started jacking us around with furloughs, I added two allowances to my W-4 so as to minimize damage from the $480/month cut in pay. After six months, the furloughs went away but I didn’t change the withholding.

Meanwhile, I taught two classes in the fall, hustled a lot of freelance business, began to make money on FaM, and also withdrew $800 a month from an IRA to cover my share of the mortgage on the downtown house, yielding a pretty plump gross income. As a result, not enough was withheld to cover federal taxes. On the other hand, the state of Arizona owes me $1004.

It remains to be seen whether the state will issue refunds. Tax Lawyer says her understanding is that they will, but others have heard that we’ll be getting refunds in the form of useless IOUs. Meanwhile, TL charged me $476 to do my personal return and $442 for the corporate return.

Holy mackerel! She’s never charged more than about $350 before. I realize lawyers have to eat, too, but still… The state refund will not cover the federal income tax bill plus TL’s bills.

I can’t even begin to do my personal returns. With income from investments, freelance sources, jobs, Social Security, and limited partnerships offset by itemizing and mortgage interest deductions, the job is just too complicated, because the law is just too complex for me to follow. But I’m pretty sure I can manage the corporate return using Turbotax’s business edition. It’s $150, an amount that has to be ponied up every flickin’ year, but that’s a far cry from $442.

This year my income will drop to about $33,000. TL tells me I should be able to figure out what percentage I’ll owe at the IRS website. Problem is, although Social Security is taxed, it’s not considered earned income. If you add it in to the “earned income” line, the tool calculates an incorrect figure. But it’s not dividend income. It’s taxed in a bizarre way that’s linked to how much you make elsewhere. The complexity of that transaction renders the tool at the IRS site useless.

I think that if I teach only five classes this year (rather than the previously planned six), I may not owe any taxes on Social Security. The clinker is, though, that the RASL payments (sick-leave payout), even though they’re not considered 2010 income (they were earned while I was working at ASU), may push me above the threshhold. I just don’t know, and I don’t know how to prove to the IRS and Social Security that RASL is not 2010 earned or dividend income.

Meanwhile, I still have two allowances on my community college W-4, something I installed at TL’s advice last fall. So…is the District withholding enough? Who knows? It’s impossible to make an accurate guess.

There’s a tool at Money Chimp that sort of explains tax brackets (as best as one can: your tax is xx% but it’s really not; it’s really probably yy%… Yeah! makes sense).

So, if my teaching income is $12,000 and Social Security is $15,084 and the enforced drawdown from the 403(b) is $6,000, and I can keep the “salary” from The Copyeditor’s Desk down to $500 or $1,000 and I don’t withdraw dividends from CE Desk this year, then my total 2010 gross should come to something between $33,584 and $34,084. That will put me in the 15 percent bracket, with an actual tax of 13.73 percent. If I have to draw $1,000 from CE Desk (an S-corporation), then I’ll be in the 25 percent bracket, BUT my actual tax as percentage of income will still be only 13.8 percent.

Huh?

But then, if only half my Social Security is taxed (that’s one possible scenario), do I enter $26,042 into the calculator? If I’m lucky and none of it is taxed, then should I enter $18,500? And what about the RASL? How do I know? How do I find out?

See what I mean? It just doesn’t make any sense at all. And you can NOT arrive at a credible answer without hiring a tax professional (to the tune of $400+) to figure it out.

At any rate, I need the cash flow from my paychecks and am loath to get rid of the allowances. The fact is, with two allowances the community college district is withholding 15 percent. The feds are withholding 20 percent from Social Security. And Fidelity is withholding 23 percent from the $500 distribution the state is forcing me to take.

If the Money Chimp tool is correct, then I shouldn’t have to change my withholding, even though the college is not extracting enough to cover both federal and state taxes. If the calculator is wrong, I do have some money to pay taxes. Really, I’d prefer not to overpay, partly because of the need to buy groceries, but partly because, if the state is going to start issuing IOUs, I certainly don’t want those SOBs getting any more of my money in advance than I can avoid.

Social Security doesn’t issue anything that looks like a pay statement, so you can’t tell whether they’re sending money to the state. At 20 percent, they probably are, since I asked to have 15 percent withheld. The state gloms a percentage of your federal tax.

I’m thinking I should drop or maybe even eliminate the drawdown from Fidelity. Now that the General Accounting Office has approved my RASL payout, I may not need to keep taking that drawdown. However, RASL is paid out over three years. I don’t know whether the RASL Czar checks each year to be sure you’re still drawing down a so-called “pension” or whether once she’s approved it she just cuts a new check for each year. What would make sense would be to roll the ASU drawdown into my big IRA, which just now is cranking money. If I had, say, $250 paid out to me and then rolled the rest, I’d still have a little pocket change, my taxable income would drop by $3,000, and that would put me solidly in the 15 percent bracket.

The question is…can I get by on $3,000 less?

Kill-the-Beaster Logic

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Children are crammed like sardines into Arizona’s public school classrooms. State and county parks are closing down. The Department of Public Safety is looking at laying off hundreds of police officers. Firefighters and paramedics are being laid off across the state. The university system is imploding. The Department of Transportation, which maintains roads and administers driver’s licenses, plans to lay off half its employees, close all highway rest areas, and shut almost all its Motor Vehicle Division offices.

So…what do our intrepid legislators do?

Of course: cut taxes!

Yes. Today when I was dragged out (again!) to GDU, I was made to fill out a new Arizona tax withholding form, even though I’d filled out my third copy of said form and turned it in just yesterday.

Said I: “I just filled that out yesterday!” (This was after having filled out and hand-delivered an eight-page surprise form, an activity entailing a 44-mile round trip and the waste of three hours of my time.)

Said the HR rep: “Oh, but this is a new form. They’ve changed it. Even though you signed a tax withholding form yesterday, we’d better do it again, just in case they decide your signature’s not valid unless it’s on a 2010 form.”

Uh huh.  So I look at the form.

The change is a 1.6 percent cut in tax withholding.

Yes. They’ve cut state taxes almost 2 percent at a time when the state is suffering from a historic $1.5 billion deficit.

The average Arizona citizen will see no huge windfall from this tax cut. It works like this: You pay x percent in federal taxes. Your state tax is—or was—21.9% of that x percent. So, say your federal tax rate is 20%. You earn $100. You pay the feds $20 in taxes. You pay the state a grandiose $4.38.

No more, though: my rate dropped from 21.9% to 20.3%. Hallelujah, brothers and sisters: I save 32 cents per hundred on my state taxes.

What a windfall. On the $29,160 I’ll be earning next year, my state taxes will come to all of $1,183.89 — less than that, really, after I deduct COBRA, Medicare, long-term care insurance, mortgage interest, and everything else my tax lawyer can dream up. That represents a saving of $93.31 on a year’s tax bill, just under 29 cents a day.

Somehow I think I could have afforded 32 cents/hundred to help keep a school functioning, a road safe, a police officer in uniform, a fireman on the job, maybe even a picnic ground open. What are citizens for, anyway?

Stupidity piled on stupidity!

School Days for the Typical Arizona Legislator
School days for the typical Arizona legislator

Image: Dunce cap. Public Domain. Wikipedia Commons.

w00t! Tax refund

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The tax lawyer just sent my completed tax returns. What with last spring’s teaching gig, the small but steady income The Copyeditor’s Desk has been generating, and the drawdowns I’ve been making from my IRA to pay my share of the Investment House mortgage (which of course are treated as regular income), my gross this year was pretty startling. And when GDU switched to biweekly pay, I cut the amount being withheld from my paychecks to mitigate the $220 cut in net monthly pay that change inflicted. I really was worried that I would owe a ton of money in April.

But nay! We’re asking for refunds of $4,734 from state and federal gummints!

Meanwhile, in 2008 I set aside $2,563 to cover that year’s taxes on freelance income. By golly: that’s a windfall (as I see it) of $7,297.

Of course, I’ll have to pay the lawyer, whose fees are not in the H&R Block range. On the other hand, H&R Block wouldn’t be extracting almost five grand from the state and the feds for me, either. My lawyer charges significantly less than my accountant used to charge, back when I was incorporated. Argh! That woman used to present me with a tax prep bill that was more than my taxes! And believe me, she never came up with a refund.

Happy days are here again,
The skies above are clear again…
🙂

Taxes! PeopleSoft! Garrrrhhhhh!

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Is there a way to express my hatred for my honored government’s tax system?

Just ran a Quicken report for my tax lawyer. Haven’t printed it out…I don’t even want to know how many pages it will generate. There’s probably not enough paper in the house to print the damn thing. I’ll have to hire an elephant and a mahout to deliver it across town.

Because of PeopleSoft’s proven unreliability—and because I’m pretty sure they got last year’s W-2 wrong—for the first time I’ve broken out all the details of my paycheck as a split entry under each salary deposit. I wanted a record that I could compare with the figures that appear on this year’s W-2. The result is a mosaic of new entries, some under income and some under expenses, an awe-inspiring mess. Many of these entries are directly deductible from my salary. Because my gross (instead of net, as in the past) salary appears under “income” and because Quicken categorizes refunds, reimbursements, the IRA withdrawals that immediately were reinvested (and so are a wash, tax-wise), and all sorts of other little bits of b.s. as “income,” this report makes it look like I earned almost $100,000 this year. Which, oohhhh believe me, I most decidedly did NOT.

To arrive at the real, piddling income, you have to jump through hoop after hoop after hoop after hoop. Nightmarish.

Why do we have to do this? Is there really some reason that every American, no matter how diddly his or her income, has to go through all the nonsense inflicted on our tax code to accommodate the very wealthy?

Maybe the Republicans had it right: just excuse rich people from paying taxes. If the wealthy few who could afford to hire lobbyists to instill these absurd complications in our tax law didn’t have to pay taxes, then the tax laws could be simplified and the rest of us would have a great deal easier time of it.

Let’s just give the obscenely wealthy a state—how about North Dakota? They can live there with no government and no taxes, they being, after all, wealthy enough to build their own private roads, airports, schools, and the like. Then the rest of us can go on about our business. Once you have a net worth of, say, $50 million, off you go to your mansion in North Dakota. And good-bye to all that.