Deductive reasoning (this title is kinda clever)

First off, thanks for helping me host an awesome conversation yesterday about charitable gifts and taxes. Y’all were polite and cool-headed, even if you didn’t necessarily agree with the person that commented above or below you. Well played everyone, well played indeed.

Anywhoozle, yesterday a reader suggested that anyone who lists charitable gifts on their taxes is not donating out of the goodness of their heart, but for the selfish benefit of receiving a tax deduction. I can understand why the commenter thinks this.

Truth is, the deduction benefits probably do encourage charitable giving. I mean when was the last time you gave $1,000 to a business or organization that didn’t qualify for a deduction? If you’re like me the answer is almost never. Sure I give $20 here and there to a homeless person, or I might give $100 to a friend for a missions trip, but I honestly don’t think I’ve ever just walked down to my local coffee shop and been like “Hey you guys do awesome work and I want to support the business, here’s $500.”

So yes, I guess most of us probably do only give substantial financial gifts to charities that allow us to deduct that gift from our tax obligation, but ultimately I have to disagree with the sentiment.

I might be wrong, but I’d bet most people donate because they want to help someone or something out, not because they’ll get a deduction. It just doesn’t make financial sense. If I’m in the 25% tax bracket and I give $10,000 to charity over the course of the year, my maximum benefit for making that contribution would be $2,500. Why the heck would I give someone $10,000, so I can save $2,500? It clearly would be to my benefit to never make the contribution, write Uncle Sam a check for an extra $2,500, and keep the remaining $7,500.

And that is exactly the point I want to make today.

Why do people get so jacked up on tax deductions like they are best thing ever? I mean people were telling me to keep my student loans because I could deduct some of the interest on the loan. They literally were trying to convince me to keep paying $2,000 a year in interest to Sallie Mae, so I didn’t have to send the government $500. I bet some of you with mortgages have probably had similar garbage preached to you, “Don’t pay off the mortgage, you’ll lose the deduction.”

Don’t get me wrong. I love me some deductions. If you are eligible, take ’em. Just don’t do something stupid and give Person A $5,000 so you can avoid giving Person B $1,000… Unless of course you have so much freakin’ money you like wasting it, then by all means waste to your heart’s content.

Have you been told to keep a debt around longer than you wanted because of the tax deduction? Do you regularly give significant financial gifts to non-qualified businesses or organizations? Have you ever given a gift, purely for the tax benefit?

Vote Robamaney 2012 or get gonnhorea!

So information about Mit Romney’s tax return came out a couple of days ago and not surprisingly, the dude is freakin’ loaded. He made over $20,000,000 a year in 2010 and 2011. Most news stories I read seemed to only care about one thing, his effective tax rate of 15%.

Although I don’t like to identify myself with any political party (I think they’re both muy estupido), I don’t think you’ll be surprised to hear I am conservative by nature. I never drank before I turned 21, I didn’t move in with Girl Ninja until I married her, and I definitely didn’t jump on board with the Occupy Wallstreet movement.

Even though I’m relatively old-school, I understand and appreciate that you might not be. You wont see me on the street corners preaching “repent or go to hell” and it’s not very often I talk about anything even remotely political on this blog.

If I said, “I love Mit Romney”, half of you would have a hay-day in the comments section, tearing him and me apart. Likewise, if I professed allegiance to the Obama Campaign, I would expect similar reactions from the other half of you. The problem with politics today is no one is willing to have a conversation, and no one is willing to say, “You might be right.” Instead we call each other stupid, ridiculous, ignorant, and any other insult we can think of to make ourselves feel better.

Oh man, I’m on my fifth paragraph and I haven’t even gotten to what I want to talk about (sorry today’s post is going to be quite a bit longer than average). Okay here goes…..

I noticed on Mit Romney’s tax return he gave $3MM, of the $21MM he made in 2010, to his church and other charities. That means Romney gave 14% of his wealth away. I’d be willing to bet if you looked at Romney’s tax returns for the last ten years, they would all tell a similar story; He made a ton of money, and probably gave between 10%-20% of it away.

Obama’s tax returns tell a different story. In 2009 and 2010, the Obamas donated about 14% of their income to charity. Not too shabby. But if you look at his tax returns prior to becoming El Presidente (2000 to 2008) he never gave more than 6.5% to charity, and two of those years he gave less than 1% of his earnings away. Makes you wonder if he is giving more now because he knows he will get hell if he doesn’t. The Biden’s have never even pretended to be charitable givers, only donating around 1% of their income each year.

I side with the democrats in that I DO believe the wealthy have an obligation to help the less fortunate, and that they should redistribute some of their wealth to those in need, but I find it hard to take Obama (or Biden) serious when their personal actions don’t necessarily reflect the message they preach.

If they really, truly believed the wealthy have this moral obligation, why don’t they act on their own beliefs? Why wasn’t Obama donating 14% of his income to charity between 2000 and 2008? Why hasn’t Biden ever given more than 1% of his income away? Why must the government force them to do this when they are completely capable of doing it on their own?

Does anyone else at least find this a little odd? I guess the big take away from this whole situation is that the only REAL way for America to prosper is for people to THINK like Obama, but ACT like Romney. Why are politicians (both democrats and republicans) incapable or practicing what they preach?


p.s. Just to be clear, I think Romney is kind of a tool and this post is not in any way, shape, or form an endorsement for his candidacy for president. Although I do admire the dude’s commitment to giving. 

p.p.s. I realize by talking about politics today, I’m opening up a can of worms. My only request is that we do our best to keep the comments related to this topic and avoid saying things like “Obama is a Muslim that wants to murder babies” or “Romney is a Mormon whackjob who only cares about his bank account”. Comments like that provide no value and only make you (and the party you represent) look bad.

p.p.p.s. If you want to know why I said I’d bet Romney has given at least 10% to charity for the last decade, see this comment I posted below.

p.p.p.p.s. I just wanted to p.p.p.p.s. this because I don’t think I have ever PS’ed something this much 🙂

Lay off my taxes you filthy Accountant

Got this email from a PDITF reader a few days back…

Do you recommend getting an accountant for pretty much everyone making a decent wage? Currently my wife makes $50,000 a year and I make $70,000. We live in the Washington, DC area. We do no active trading, only W2 pay from our employers, a small amount of unemployment benefits from my wife, 401k and 401k roth contributions, nothing out of the ordinary.

We are new to our city, so I’m not sure if I should just do our taxes online or actually find someone more qualified.

Thoughts? Seems like a wise investment, but I’m really not sure where to start.

That is a good freakin’ question sir. One that I’m not sure I am qualified to answer. All I can do is tell you how the Ninja household operates…

I finished college back in 2007. I got a big-boy job, and for the first time in my life, was faced with the grim reality that I now had to file my own taxes (apparently my mom wasn’t willing to do it anymore :(). Since I only made $38,000/year and hadn’t done much in the way of managing my money, everything was pretty straightforward. I filed through a website called Tax Act in about 30 minutes. It didn’t cost me a dime and I was stoked to get a $400 refund back from the IRS.

Obviously, things have changed quite a bit since then. I got married (dual income!). Moved 1,200 miles for a job (unfamiliar deductions). Our income is much higher than it use to be. We tithe. Could take mileage deductions for some stuff. blah. BLAH. BLAH.

Even though our situation has become a little more complex over the years, we still file our taxes online. Every year I think “This will be the year I finally pay someone to do my taxes for me!” but I never freakin’ do it. It’s probably because I’m frugal. No scratch that, it’s definitely because I’m frugal.

I don’t know if this next statement is completely accurate (any tax people want to verify accuracy?) but my understanding is that itemizing deductions is only worthwhile if those deductions total a greater amount than your standard deduction would. As a married couple our standard deduction is $11,600. Our itemized deductions would be very close to that amount so I don’t see a reason to itemize. I could either show Uncle Sam all the things I’ve done to earn a $12,000 deduction, or I could just take the $12,000 deduction they already offer.

I would totally pay an accountant to do our taxes if we owned a house (thus getting to deduct mortgage interest) because then we would have $30,000 in itemized deductions. But since we have no kids, don’t own a home, aren’t making $500,000/year, and don’t really have any investments outside of standard retirement accounts, things are still pretty simple. I don’t think hiring an accountant is really a bad idea, but until our life gets more interesting we will probably steer clear.

How bout you all? Do you pay someone to do your taxes or do you do them yourself? Was my understanding of itemizing and standard deductions even correct? Should I pay someone to do our taxes this year?

The opposition

PDITF is a single author blog. Ninety-five percent of the articles are written by me, the other 5% are guest posts. Today, I thought I’d mix it up even more and allow a few unsuspecting people to hijack today’s post. My article about student loans being forgiven has quickly become one of my most popular. It currently has 87 comments, and counting. I thought I’d share with you a few of them.

Let’s get right to it….

If you forgive one type of debt, you kind of have to forgive all debt. Who’s to say that one debt is greater or more important thus needing forgiving then another. It’s just all so stupid. If in the end you can’t pay for something, don’t sign the paper work in the beginning stating you can.

Pretty reasonable first line right? The banks were bailed out so students should be too. WRONG. The banks shouldn’t have been bailed out, and students shouldn’t be bailed out. Goes back to the age-old adage “Two wrongs don’t make a right.” You do realize if your student loan is forgiven the balance doesn’t disappear in to space. No, instead YOUR student loan balance now becomes MY headache (via taxes). I don’t want to pay for your student loans any more than I wanted to pay for my neighbor’s house.

And then there is my personal favorite, this one came in late last night while I was watching an episode of Pretty Little Liars (warning: the commenter’s thoughts are difficult to follow)

So… back to the Iphone that was made by worker bees in China…. Did you keep it/are you using it? The answer to that question pretty much illustrates the rest of any of your like mentality. You’re either hypocritical or you’re not. Your response to the whole OWS movement seems based from a pretty “world is roses” and overall very ignorant stance. Somewhat parallel but not as dumb as the dirt poor Republicans who keep voting against themselves. You seem to not realise the point that you cannot truly “function” in society without some/most items made in deplorable conditions (even bums use discarded Starbucks cups and wear Nikes). Protesters include nurses, students, all types of professionals. Just because these are again – a function of modern day society – virtually inescapable in Modern Day America – doesn’t mean that you can’t disagree with how they are made. In fact, it should outrage you more. The corporate greed that has gone into their making at the expense of the natural habitat and the 99% if you will for the benefit of the fattest is what people are making a statement against. If you are outraged about the working conditions in China for a product you buy in America, yet seem to think the protesters are silly and infantile you are just another dirt poor Republican voting against yourself (just on a different scale). You seemed more intelligent than that.

First, please for the love of bacon, learn how to use a freakin’ comma. I had to re-read this garbage a handful of times before I could even understand what it was you were trying to say.

Second, yes I did keep the iPhone (which is probably worthy of a blog post in and of itself). Mainly because of these comments. It seems that just about everything, from the TV I watch to the clothes I wear are byproducts of questionable work conditions. Unfortunately, (almost) everything in America was made somewhere else. Anyone know of a cell phone manufacturer that doesn’t outsource? It was a lose-lose situation. Check out this article for more information.

Lastly….what? Are you drunk, high, stupid, or a combination of all three? What does this sentence even mean “Your response to the whole OWS movement seems based from a pretty ‘world is roses’ and overall very ignorant stance.”? If you are going to insult me and call me things like “a dirt poor Republican” please at least have an agenda or reason for doing so. I’m all for people posting their opposing point of views (Stacking Cash and Larry can testify to this), but at least have some meat and potatoes along with your comment. To the anonymous commenter that wrote the above, click here.

I’m totally glad my post got people thinking and brought both sides of the table to discussion. Although, I do particularly enjoy reading comments from people who agree with me (haha, it’s true). Like this one…

Besides, the inherent “unfairness” of forgiving student loan debt, it just doesn’t make sense as a stimulus. I’m an economist, and here’s how that idea stacks up to me:

A Keynesian stimulus is concerned with short-term spending increases – the usual cutoff is about 24 months. So the question that must be asked of anything that is claimed as a stimulus is: “how much marginal (i.e. extra) money will be in the national pockets if it’s implemented?”

Let’s say that Joe Occupier has $60,000 in student loan debt and has payments of $500 a month. If the government forgives his loan, it costs them $60,000. Assuming Joe spends *all* of the money he saves (which is a crazy ambitious assumption), he’ll put an extra ($500*24)=$12,000 in to to economy. So the federal government is paying $60k for $12k in stimulus.

You’ll never find an economist to back this plan up.

Am I terrible blogger for calling out some of the very people who read my blog? Perhaps. But if you really believe I’m a “dirt poor Republican” I’d rather you just not read my blog at all. At least then it’s a win-win for both of us 🙂

This ain’t gonna be pretty.

Girl Ninja recently got her first paycheck of the new school year. I’ve been foaming at the mouth, waiting for this day to arise for many reasons: 1) Getting two paychecks is way more fun than getting one…duh. 2) We didn’t really know how much her check would end up being. 3) I didn’t know how much federal tax would be taken out of her paycheck. For today’s blog post, we will only be focusing on point three.

Back in May, I ran a calculation on our estimated 2011 federal tax obligation. The result wasn’t pretty. I estimated we would end up having to write a $1,200 check to the IRS come tax season (this is in addition to what we would have had withheld throughout the year).

Well, now that Girl Ninja received her new paycheck, I was able to make a far better prediction as to what our ACTUAL tax obligation will be this coming year, and to be perfectly honestit made me want to vomit.

Here’s a screen grab of what we are faced with…

Makes me want to cry

So even though we have already paid more taxes this year, than we did all last year, we still are going to be $4,511 behind. What really makes me angry though is that I don’t know what else Girl Ninja and I could have done to avoided this. Even though we are married and file jointly, we both claim “Single” and “0” exemptions to pay in at a much higher tax rate than the W-4 recommends (it wants us each to claim “married/2”). As far as I’m concerned the W-4 is worthless.

What really boggles my mind is that even though GN claims Single/0 on her W-4, she only had $76 taken out for federal taxes, when her gross pay was $1,228. That’s only 6% of her gross pay going to the fed! Does anyone know why?

We have a few options to reconcile this uber-depressing situation. We could either…

  • Make additional federal tax payments of approximately $1,000/month for the remainder of the year.
  • Keep withholding at current rates, and in December dedicate 100% of my gross income to bring us current.
  • Change absolutely nothing and wait until April 14th to send in that $4,511 check.

Part of me wants to wait until the April 14th so I can earn a little interest on that money and stick it to “The Man” a little. But then another part of me wants to bring that sucker current ASAP ’cause I feel like it is a “debt” looming over my head….and in case you didn’t know; I punch debt in the face when I see it!

Have any of you used the IRS withholding estimator? Are you on track with your federal withholding? Why is Girl Ninja only getting 6% of her paycheck taken out? And lastly, which route would you take to satisfy our tax obligation?

It’s a good thing I checked

It’s been a long time coming, but after eight months of drama, frustration, and a heck of a lot of patience, Girl Ninja finally got to sign a teaching contract for the 2010-2011 school year. Is it pretty stupid that she didn’t get her contract until the second to last month of the school year? YES, but at the end of the day a contract is a contract, it doesn’t matter if it comes on the first day of school or the last. We recently received a lump sum back-payment from the school district which brought her YTD salary in line with regular teacher rates. The check was a huge blessing and a very important reminder, a reminder that although taxes are important, they suck… bad.

The $10,000 gross pay she received had $2,800 in taxes taken out of it. Now I’m not a tax guy, but I knew there was no way we were in the 28% tax bracket (according to my estimated taxes). Why the heck would the school district take so much out? I still don’t know the answer to that question, but I’m sure glad they did.

At first, I was convinced we’d be seeing about $1,000 of that $2,800 back in form of a tax refund. That would make sense seeing that our marginal tax rate is roughly 18%. After a lot of number crunching, I discovered Girl Ninja and I were unknowingly setting ourselves up for a a rough tax season next April.

I was on track to pay about $7,500 in federal taxes this year. Girl Ninja, prior to the lump sum payment, would have paid about $2,500, for a total joint payment of around $10,000. I then went to the IRS’s website and ran some numbers to see what our estimated tax obligation would be this year. The result was surprising…$14,431.

Holy Guacamole, we would have unknowingly owed about $4,000! But since Girl Ninja’s retroactive pay added $2,800 to our tax payments, we’d now only end up being $1,200 behind. In an attempt to owe (and be owed) nothing next tax season, I submitted a new W-4 to my employer so an extra $150/month was taken out of my paycheck.

Had Girl Ninja not received that lump sum payment, I never would have thought to check our 2011 estimated tax obligation, which means I would not have realized we were underpaying our taxes until it was too late! Have you ever been blindsided by your taxes? Ever owed way more than you thought (or got back way more than you expected)? Have you checked your 2011 estimated tax obligations to make sure your payments are on track?