Taxes Column


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U.S. Tax Breaks: Top 20% Get More than Half the Benefit

TaxesOne of the biggest debates about taxes is what is “fair” in terms of who should be paying how much of their income, and what how tax breaks are distributed.

Where you stand in the debate over who pays “more” in taxes — the rich, the middle class, or the poor — largely depends on what you define as “more.” Is it sheer numbers? Is it effective tax tax rate?

Whether or not you think that more needs to be done to ensure that the tax code is more progressive (or whether you think it’s “unfairly” progressive by over-taxing the rich) is an interesting debate. And the recent report from Congressional Budget Office about the distribution of tax breaks is only likely to add more fuel to the fire.

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The Tax You Might Not Be Paying: Use Tax

TaxesOur tax code is large and often confusing. There are so many provisions that many of us don’t come close to knowing them all. Instead, many of use hire accountants to help us do out taxes.

It’s easy to skip over a tax we don’t know about, as well as miss deductions and credits to which we may be entitled. One of the things you might be missing (intentionally or not) is what is known as the “use tax.”

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How Do Tax Brackets Work?

Form 1040When I was younger and I just started working, I didn’t know how tax brackets worked because I would do my return in TurboTax and pay whatever I owed. I didn’t care much about tax brackets because, honestly, it didn’t really matter to me. So one day I look at the Federal tax brackets and was perplexed as to how they were set up (this was back in 2003 but in order not to confuse you, I’ll use 2013 tax bracket numbers in my story). I was making a great salary for a 23 year old, around $60,000, a year and I saw that I was firmly in the 25% tax bracket. When I went to do my taxes, I saw that my effective tax rate, as reported by Turbotax, was actually under 4%!

Why were my taxes so low? First, I started working in June so my wages were less than $40,000 (I had a small signing bonus and I also worked my last semester of college), and after the standard deduction and 401(k) contributions, my taxable income was around $25,000. That next year, I was given a raise of 4% and I saw that I’d still be in the 25% bracket but my effective tax rate was under 14%.

How could my tax rate be so much lower than my tax bracket?

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Your Take: TurboTax Lobbying Against Simple Tax Filing?

1040 Tax FormsOn pretty much the eve of tax day, imagine a world in which the IRS mails you a prepared return and all you needed to do was review and sign it? It’s estimated that tens of millions of taxpayers would be able to use it, save around $2 billion and 225 million hours of preparation time. Now imagine if that reality were squashed by classic Washington lobbying – specifically by Intuit, maker of TurboTax. That’s what ProPublica and NPR are saying. Intuit has spent $11.5 million on federal lobbying in the last five years and while it’s unclear what they were lobbying, chances are they weren’t in favor of this prepared return.

If you look at tax preparation software, you’ll know that the simplest returns are often done for free. Companies offer this because it locks you into their system. Eventually your return will be more complicated and you’ll need to pay for software. Until then, they’ll gladly give you free until you pay. So you get five years of free returns, no big deal, when you start paying you’ll be paying for 40 years of returns. It’s a smart business decision.

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How Much Did You Pay to Prepare Your Taxes?

average tax refundJulie Vlahon of Techbargains sent me a survey they did about a month ago asking their visitors how much they spent preparing their tax returns. For the folks who already filed, they asked how much they paid. For those who hadn’t, they simply asked them how much they expected to pay. According to their results, procrastinators (those who would file in April) expected to pay $160.56 versus $106.20 for those who filed them earlier.

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Are We Being Taxed to Death?

TaxesDuring the election season this year, there was a big deal made about how almost 50% of Americans don’t pay taxes. Endless soundbites about “the 47%” made the rounds, and there was quite a to-do about how more people should be paying taxes.

However, what some people forgot in the debate is that the number cited refers to federal income tax. While not everyone is paying federal income tax, nearly every American pays some taxes throughout the year. That’s because federal income tax isn’t the be all and end all of tax liability.

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What To Do If Your W-2 or 1099 Is Stolen

1040We all know that tax fraud and identity theft are big time issues these days. So it must make thieves smile when they know that W-2s, 1099s, and all sorts of juicy identity laden information is being circulated through the massive insecure United States Postal Service system. While I’ve never had this happen to me, in my ten-plus years of getting paper forms, I’m sure it’s happened to people before and it’s almost only a matter of time before it happens to me.

So, we’re going to discuss two pre-emptive measures and then reactive ones, in case your information is stolen.

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Do You Need an Accountant to Do Your Taxes?

My AccountantWhen it comes to tax preparation, it can be tempting to just do it yourself with the help of some sort of tax software. However, as your taxes become increasingly complex, it might make sense to hire an accountant to help you sort through your taxes.

Back in the days when I had a sole proprietorship and no investments to speak of, I did my own taxes. Entirely by hand (this was before fillable forms from the IRS). Now, though, my business is a LLC, and we occasionally sell investments for gains or losses. Things are a little more complicated now, what with K-1 forms and Schedule D forms. And we recently transferred our Roth IRA from one custodian to another, and that means a paper trail needs to be established so that we aren’t hit with penalties.

Having an accountant has been a great time-saver for me, and I’m glad that I have one to do my taxes. If you have complicated taxes, it might help to hire an accountant, rather than rely on yourself, or even tax software, to get the job done.

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