Tag Archives: taxes

Taxes Due, Headed to a CPA

Every year so far I’ve managed my taxes via TurboTax. I’m not sure if my taxes were done right, but they were simple enough where I was pretty confident in my ability to answer questions on a software used by tens of thousands of people.

This year, however, I’ve decided last minute to have a CPA do my taxes. There are a few items I’m nervous about and want to make sure to get right. That said, I’m also extremely nervous about selecting a CPA — because they could easily be wrong too. Most CPAs that are good are booked solid until after the 15th right now, which leaves me a little concerned over the CPA I found that seemed to have a few (or maybe more) available appointments. However, in my neck of the woods where everyone is rich, I’ve found the minimums to do one’s taxes are $1500 or $850 (two real quotes I got), so the one person who quoted me $220 an hour with assistants costing $90 an hour, minimum 2 hours, seemed reasonable. Still a lot more expensive than TurboTax — which I’ll probably fill out anyway just to keep my records electronic (I wonder if I can save it without submitting) — and I doubt it will “save” me any money in the actual tax return, but at least I’ll feel like it’s done right.

I’m concerned about 5 particular items:

  • 83b filing. You have to file that along with your taxes the year you make the election, and there’s no way on TurboTax to attach documents. I could fill out the paper form myself, but that would be putting a lot of confidence in my math abilities that i don’t have. I am also starting to be paranoid about the IRS never receiving my original “within 30 days” election (even though I sent it within 30 days) and want to make sure I get this right, just in case anything should happen later which would result in my being majorly screwed. I sent it certified mail with a return receipt but given I never mail anything anymore, I apparently did that incorrectly and never got the receipt, so I’m extremely concerned.
  • Stock losses. I took a sizable amount of losses this year on a few big losses that were not going anywhere, so I could reinvest the funds left in them into more profitable companies such as Apple, as well as diversify internationally. I “lost” (not paper loss) more than $3000 this year (probably more like $6000), and I want to make sure this is filled out correctly and that any additional losses over the $3k are noted to be carried over to next year.
  • IRA conversion. Last year I opened a traditional IRA with post-tax money because I thought I would end up making too much to qualify for a Roth IRA. I think that may be true. Regardless, if you make more than something like $6k you cannot use pre-tax money for an IRA. Which is stupid because if you don’t have a 401k then you have no way to set aside pre-tax money (unless you’re a real sole proprietor, in which case you can set up a solo 401k.) In any case, I want to make sure the IRS understands that this was post-tax money, so when I later do a Roth Conversion (ideally on a year I stay home to be a mother and have very low income taxes) I’ll be able to only pay tax on the interest on the account with a $5k basis.
  • $20k of freelance income I forgot about — is there anything I can do to reduce the amount of taxes I have to pay on this? Probably not, but worth asking.
  • General investment taxes — my taxable account dividends, P2P lending accounts, etc. It would just be nice to hear someone who does this for a living discuss if I’m doing anything wrong here.

Otherwise, my tax returns are simple enough to do via TurboTax. Other than the carried over stock losses, I assume next year they will be even more simple as I’m back in a full time job (hopefully for the remainder of this year) and not earning freelance income because I’m so busy with this FT job.

Have you ever used a CPA for your taxes? Do you feel it was worth it? How much did you end up paying?

Startup Stock Options: Taxes and Risk

One of the supposed benefits of working at a startup is the equity you’re offered as part of your compensation package. Given that more often than not this equity is in place of a 401k and a portion of your salary, in theory it may offer great reward in the long run.

However, what I didn’t realize about stock options (ISOs and NSOs) years ago is that in order to actually receive the stock, you still have to pay for it. Options just mean that you are able to buy the stock at a strike price, which is “low” but may very well still be higher than what the stock ends up being worth. Continue reading

Tax Freedom Day: You are Now Free to Earn Income

Congrats! You have now paid the government your taxes for the year, and are now able to earn income.

What??? Didn’t you spend the last three months earning income this year?

Well, yes and no. Today is National Tax Freedom Day. On average, it takes us 102 days to pay for the taxes we owe the government, and it’s coming three years later this year than last.

For some states, actual tax freedom day comes much later. In Connecticut, their Tax Freedom Day falls on May 2 – nearly halfway into the year! California, where I live, won’t reach Tax Freedom Day until April 16 this year. Those in Mississippi get to celebrate Tax Freedom Day the earliest – March 26, followed by Tennessee, South Carolina, Louisiana and South Dakota.

Want to know when Tax Freedom Day is where you live? Check out the official map below…

Worried About My Tax Return

Just as a special report on the news warned that the IRS is going to be closely watching – and possibly auditing – anyone who files their returns online I was… filing my return on line. While I don’t think I’m going to end up in jail, I am very nervous about potential costs if my understanding of the rules isn’t quite accurate.

2008 was my first (and possibly last) year as a self-employed individual. The most confusing part of the return has to do with the mileage expenses. I worked a bunch of different jobs last year, and over the year the main one grew into one that required, in my contract, for me to be at the office 4 days per week. So – I assume it’s ok to take that as a mileage deduction. I also deducted – guesstimated – my mileage to and from a few other clients who are further away from my office.

Then I read the fine print – you aren’t allowed to take a deduction on transit to your office if it’s away from home. But – my office was my home, I just didn’t take a home office deduction because I lived in a studio and worked from my bed. But I could do all of my work from my bed (as a freelance writer) and did not need to travel to accomplish this work 4 days per week. I went into the office for meetings, and just because my contract said I had to be there. I’m not sure anyone has a record of how often I was actually in the office, but I do have proof that for at least 1/2 of 2008 I was required to commute 4 days per week.

But then that’s what confuses me about the fine print – it says if your office is away from your home, you cannot deduct mileage to drive to this office. So am I not allowed to deduct these expenses? Or does this mean only if you pay for your office away from home and deduct that separately? Ugh.

I really hope I don’t get audited but I have a bad feeling about this year. I reported all of my income and interest, it’s just the deductions that could possibly screw me over.

In related “potentially screw me over” news — I transferred the funds to cover my $14k tax payment from ING to Bank of America on Friday, but it hasn’t arrive in my BoA account yet. Here’s to hoping it will show up by April 15, when TurboTax will be removing the funds from my account. (ING said it takes 2 business days so it should be there tomorrow, fingers crossed.)

Happier news – it looks like I managed to save about $15k last year beyond taxes. Which may end up going to a lawyer and tax accountant to deal with an audit, if they want to fight me on my mileage deduction. I’m scurred.

2008 Taxes, Part 1: Did my 50% of income strategy work?

In 2008, I tried a financial strategy meant to keep me both “in-the-know” and “out-of-the-know” at the same time. This simple strategy was to save 50% of my income for taxes in a high-interest savings account. As a self-employed person this was legal, as long as I paid 90% of my previous years’ tax along the way. Being as in 2007 I made less than $30k and my income shot up to $58k in 2008, this made a whole lot of sense.

The outcome of my 2008 plan seemed to have worked decently. I just tallied up my tax figures for the year, not counting any deductions I or Turbo Tax may take, and my total tax owed for 2008 is $22876. This includes my 25% tax bracket federally, $15.3% self employment tax, and $9.3% tax bracket in California (why is California one of the highest tax states to live in yet we’re also the deepest in debt???)

I saved $26,000 for taxes after paying $4315 in estimated taxes over the year (I still owe my Jan 15 estimated tax for federal, need to send that out, but I hear it’s not late as long as you get your return in by Feb 2.)

So, number crunching that means sans deductions, I still owe $18,562, leaving me with $7438.17. I’m sure with deductions it will be a little less then that and then with my various interest income from different accounts it will be a little more. I’m guessing I’ll end up with at least $7200 to save.

So the good news is I start 2009 off with $7,200, or thereabout, to spread about in my various accounts as a “cushion” for the year. Sweet. Still deciding on whether to get a tax accountant for my 2008 returns, though I figure even if I don’t take any deductions I’ll get

In 2009, my tax situation is an entirely different story. My income may go up a bit, but I’m now a full-time employee, so I can’t shelter as much money from taxes over the year… nor do I really want the headache. In my next post, I’ll describe how I’m planning to take a more active approach to budgeting in 2009.

Investors: As If The Markets Haven’t Screwed You Enough…

So your stocks are down, what, 35%, and all you want to do is cling to the precious dollars you have left? Not so fast. Any money your stock funds made earlier in the year (when times were closer to peachy) is going to have to be taxed. Yea, I know you know that, but CNN wants to remind us that we can’t avoid paying taxes on stocks that have already lost the money they gained, and then some.

Unless your stocks are in a tax deferred account, like a 401(k) or IRA, you’ll probably have to pay taxes on them. “Fund managers had to sell appreciated shares to raise cash for redemptions, which triggered capital-gains distributions,” Tom Roseen, senior research analyst at Lipper told CNN. “So you have insult on top of injury.”

CNN suggests checking if your funds have declared their taxable distributions yet. If they haven’t, sell them and capture the loss. You can deduct up to $3,000 in capital losses from ordinary income. Losses beyond that amount can be carried forward indefinitely to offset future gains. The article provides other tips for investing wisely in the years ahead so taxes aren’t such a pain in the ass.

Should I Hire an Accountant To Do My Tax Returns?

Read the Her Every Cent Counts Taxes Series

Since tax season is right around the corner, I’m trying to figure out if I should hire an accountant to prepare my tax returns, which one to hire, and how much it should cost me. I’ve pretty much decided I need to hire someone to handle my taxes for me this year, as I’m going to be taxed heavily as an independent contractor and need help finding all the deductions I can take.

Then again, it looks like hiring a tax accountant will cost me $350 – $450. Ouch. That’s a lot of money. I’m sure the work they do is worth that, but it feels like I should be able to do all the work myself. An online tax software would cost me $100, so even if I missed out on $300 in deductions I’d still end up breaking even. And how much money in deductions am I really going to get? I can’t take a housing deduction, I’ve never lived in a space big enough to qualify for that. My “business” expenses are minimal – maybe I could deduct hosting costs for my promotional website, and mileage for the route to and from the office. Other than that, I don’t know what I can deduct.

The complicated parts of my return are going to be from my various investment incomes. God, that’s going to be a nightmare. I’m not sure how to handle Prosper (luckily I only have 10 investments out… but it sounds like the earnings on each one will have to be taxed), and then there’s Sharebuilder and those pesky dividends that count as income even though they’re long gone now, and my Vanguard dividends (most are in my Roth but I also have a small regular brokerage account through them, which is supposed to be my grad school or house money), and then there’s my CD from bank of america and various other places I’ve earned income throughout the year. Yea, that’s where it gets complicated.

But I worry that because it does get complicated a tax accountant will have to take longer than his minimum 2 hours to complete my returns. They’ll end up costing more like $500 or something, which is a pretty big chunk of my income considering so much of it’s going to taxes (15% self employment tax on top of everything else, yuck.)

I’ve reached out to 3 local CPAs, and found that their rates range from about $300 for a return (the cheapest) to $400/$500. I wonder if the more expensive ones will save me more money, or if it ultimately doesn’t matter because any extra money they’d save would be eaten up in their fees.

Here are my 3 options thus far:

  • CPA #1 My fees for income tax preparation fees are at $175 per hour. Most returns I prepare are in the $400 to $600 range. The tax preparation fee is all inclusive as it includes meetings and follow up questions and other assistance you may need. Also, I don’t charge any additional fees for questions during the year. Of course, if you need assistance that involves significant time, it will involve additional fees, and I will let you know this in advance.

  • CPA #2 I charge $160 per hour plus out-of-pocket costs and there is a two hour minimum for tax preparation. 2-hours covers a basic return for an itemizer typical family. I can get you an appointment. (I followed up and inquired what out-of-pocket costs would be…) Tax software license access fee, copies & supplies, postage & misc. runs around $65 per individual tax return.

  • CPA #3 I’d be happy to help you with your 2008 taxes. It would cost around 300 for a schedule C. That includes preparation & the initial meeting. We should meet before the year end to maximize deductions.

If any of you are 1099 out there, or have been in the past, do you use an accountant to do your taxes? How much income merits hiring a tax accountant to deal with your returns?

10 Tax Rules Changes for 2009

2009 is right around the corner. Even though you’ll be spending the first few months of ’09 figuring out your 2008 taxes, make sure you know what’s going on for taxes in 2009.
[via:: diazconsulting]

1. Roth IRAs: Income caps for high-income earners rise in 2009. If your Adjusted Gross Income is in the six digits, this effects you. The pay in limit for Roths increases for singles from $105,000 to $120,000, and for couples from $166,000 to $176,000.

2. Estate tax leaps to $3.5 million, up from $2 million in 2008.

3. Annual gift tax exclusion will rise to $13k per donee, up from $1,000.

4. The standard mileage rate for business driving is 55¢ a mile for 2009…a drop of 3½¢ per mile from the rate in effect for the final six months of 2008. For medical travel and moving its 24¢ per mile. When driving for charity its 14¢ a mile.

5. Standard deductions rise in 2009. Married couples can claim $11,400. If one spouse is 65 or older, $12,500. If both are, $13,600. Single taxpayers get $5,700. Those 65 and older can take $7,100. Household heads get $8,350 plus $1,400 once they reach age 65. Taxpayers who are legally blind are allowed to add $1,100 to these amounts. Also, married tax filers who do not itemize can augment their standard deduction by up to $1,000 of property taxes paid. Singles filers can add in up to $500 of taxes paid.

6. If you are 70½ or older you can skip minimum required payouts from retirement plans and IRAs for 2009 without a penalty.

7. In 2009 the maximum 401(k) contribution increases to $16,500, up by $1,000.Individuals born before 1960 can contribute an extra $5,500, for a total of $22,000.

8. Contribution payin limit for defined contribution plans such as SEP IRA accounts and Keogh plans increases to $49,000.

9. Personal exemptions are $3,650 for each filer and their dependents.

10. Annual caps on deductible contribution payins to health savings accounts rise in 2009. The maximums increase to $5,950 for account holders with family coverage and as much as $3,000 for single coverage.

What isn’t changing…

Contribution limits for IRAs and Roth IRAs. They’re still $5,000 a year, plus $1,000 more for anyone born before 1959.

How much will my taxes really be this year?

It’s my first year as a 1099 worker. I’m still unclear on what my tax rate is, and how much I will owe in taxes this year. I just hope that I’ve saved enough.

It looks like my overall earnings this year will be $60k.

That puts me in the 25% federal tax bracket.
So I owe the feds $15,000.

Then state taxes are 9.3%
I owe the state $5580.

Self employment tax is 15.3%
I owe an additional $9180

Totaling $29,760 in taxes for 2008.

Then I have minimal “income” from dividends, interest and such, which I will owe tax on.

I assume that means I will owe $30,000 in taxes, or 50% of my income.

That seems rather high, am I doing my math wrong?

Frugal October

My goal this year is to save 50 percent of my income for “taxes” (as a self-employed person I have to pay my own taxes; I do not get any money taken out of my paycheck throughout the year.) While I am unclear what my actual tax rate will be, I doubt it will be the full 50%, thus I will have additional saved funds to put towards larger purchases or saving accounts.

I’m a little behind on my target, which is scary because if my tax rate ends up being 50% after my 15% self employment tax, then I would be screwed. Well, I think I have enough time to catch up, but that means my trip back east is going to have to be frugal, and I’m not going to be able to take any days off of work (I’ll be working remotely from the east coast.)

I try to put $3000 into my Roth IRA right after I pay my taxes, if I have the money available, which leaves $2000 to put in throughout the year before I hit my limit.

However, I’m wondering now if I should be funding a Roth IRA at all. Besides the poor performance of the stock market, the Roth IRA may no longer be the “smart” choice for me. I make about $60k, give or take, before taxes. I think my tax rate right now is high enough where doing a Roth is kind of dumb. Sure, I get to take my money out tax-free when I retire, but if my taxes right now are higher than what I will pay when I retire, then this is a dumb move. Not sure how to figure this out, though. Do any of you know?