taxes Archives | Empathic Finance

Should you do your own taxes?

I remember being a kid and watch my dad do the family’s taxes. I remember our dining room table covered and overflowing with various papers and documents. It seemed like he was there for weeks.

In the U.S., assuming that the government can get its act together enough to stay open for any period of time, it’s tax season. From now until mid-April, this is a particular type of griping season, where people complain about taxes, lament their incomes, and generally whine in that way that people do in order to feel a sense of connectedness with others.

(See also: “It’s almost Friday.” “Man, traffic is so terrible here.” “I’m too busy to take any time off work.“)

Anyway, taxes. They are a burden to prepare of course. It takes time, energy, and the organization required to get a bunch of documents together and filled out properly.

All of which begs the question: is it worth it to do your own taxes, or have them done for you?

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What’s wrong with an interest-free loan to the government?

Awareness, Radical Finances

Every year, amid the discussion of taxes and rebates and the like, there is usually a talking point that goes like this:

“Getting a rebate of any amount is a bad idea, because all you’re doing is giving the government an interest-free loan.”

I’d like to unpack that, and see how that argument holds up.

Is it possible to pay in advance exactly the amount of tax you owe?

Awareness, Radical Finances

Welcome back to tax season! It’s an interesting time that can seem extremely fraught to some, and a little exciting to others. For some: so much work to do. For others: big rebates!

I’m fortunate to be young enough that I never needed to know the situation my parents knew: that of a dining room table covered with papers, spending multiple evenings filling in forms manually, calling help lines to get more information, worrying about getting everything right.

I’ve pretty much always used an online service for filling out the forms. I know I’ve heard that professional tax people can somehow magically find ways to get more of my money back, but I have yet to really try. The one time I went to a tax person, I was, shall we say, rather underwhelmed by the experience, and I guess I haven’t moved to try it again.

But with the year end reconciliation starting up, a question worth asking is whether it’s possible to get it exactly right, to pay exactly what you owe such that you get neither a refund or owe anything.

Why everything is like a regressive tax

Awareness, Connection

With all the talk on how to fund our government and the various projects we need to undertake, it’s made me think about that phrase “regressive tax”. As in, “there was no support for that initiative, because it was seen as a regressive tax on the poor.”

For example, in the inexorable push to widen highways, many jurisdictions have realized that, well, they’re broke, and have no money for upkeep, even if they’re given the money to build something new.

This has led to the idea of tolling roads, especially in some places that have never had them before. Close to home, tolls may be coming to Portland soon.

Tolling roads is nicely self-contained: if you use a road, you pay for the road. If you don’t, you don’t.

The money you spend goes to fund road improvements (which we now know aren’t otherwise paid for), and also it has the side benefit of reducing traffic (since people like teenage me will avoid tolls where they can).

A common argument against tolling roads is that it’s a “regressive tax” on the poor. The idea there is that the cost will be more burdensome to those with lesser incomes.

I’ve been rolling this around in my head for a while. And I’ve arrived at a question:

Isn’t, well, everything, a regressive tax?

And if everything is a regressive tax, than isn’t that not a good argument to use in opposition?

What to do with the extra tax money in your new paycheck

Decisions, Radical Finances

I really tried to avoid talking about the tax plan, and couldn’t help myself. But that was more of a “feelings” piece, and less practical.

This article is coming from the other, more practical side.

In the U.S., our new tax plan has now gone into effect. We’re effectively “testing in production”, to borrow a phrase from the IT world. The rules were written so quickly, and without sufficient expert input, that while people are reasonably sure that most people will get some kind of tax cut, none of us really know whether they will be in one of those households, and whether the difference will be significant or paltry.

But it gets more interesting now. The IRS just released updated withholding tables. This is the thing that determines how much gets taken out of your check.

Now this might not seem like a big or interesting deal. Alas, everything is political, so we need to take a critical look at what’s about to happen, and what you may want to do to protect yourself.

Okay, okay, I’ll talk about the tax bill

Awareness

I’ve been avoiding it. I haven’t wanted to talk about it. I wanted to bury my head under a pillow and forget about the whole thing.

But, alas, it’s just too relevant to our work here.

So I’m going to talk briefly about the new tax bill that was just passed by Congress.

There are numerous full breakdowns about the bill (and plenty of people breaking down too), and I won’t claim this to be a full assessment. (Here’s one and here’s another oneif you’re curious.)

That said, I think some words are in order for something that affects every single one of us. This is, after all, our new reality.

Is there someone at the IRS who’s a math lover?

Awareness, Connection

WARNING: This post contains math.

I love math. You know this. I think math is one of our world’s ways of expressing beauty. To me, there are few things more pleasing to the eye than a elegant mathematical statement. (People tend to agree on this.)

And so, if for no other reason than we all need more beauty, I want to show you how our effective tax rates are a practical approximation of a beautiful and fundamental mathematical curve.

No, seriously.

Don’t fear moving to a new tax bracket

Radical Finances

Do you know your tax bracket?

I’d say a good number of people do.

But do you know what happens when you jump up to a new tax bracket?

I’d say a good number of people do not.

Tax season is over (unless you ~~pressed the IRS snooze alarm~~ filed an extension), but as your income can change all the time, it’s never a bad time to understand what exactly how tax brackets work.

And if you think it’s a boring topic, I would urge you to reconsider. Anything that has the ability to lop off a significant portion off each and every paycheck you get is probably worth your while to understand, right? Right.

Why the home mortgage interest deduction isn’t as disappointing as I thought

Radical Finances

Often when I play board games, I enjoy the process of losing as much as winning.

That’s why I love it when people comment on my posts pushing back against my arguments. I don’t consider myself an infallible expert in anything. I’m learning as I go.

And so when I’m wrong, I own up to it, and learn from my errors. And I can enjoy the process, because the benefit is in the learning.

So I’ll own up and say that my argumentation about the home mortgage interest deduction being disappointing was a little inadequate. It’s still disappointing, just not as much as I thought.

Let’s see why.

Just making sure: Mortgage interest isn’t a reason to hold on to a mortgage

Radical Finances

WARNING: This post contains math.

“When you have a mortgage, you get a tax deduction for all the mortgage interest you pay. So you shouldn’t pay down your mortgage early, because you’ll lose the tax deduction.”

This is one of the most common reasons people say to not pay down your mortgage.

But this is a good chance to see if you understand the difference between a tax credit and a tax deduction. Or, more pointedly, if you understand the difference between a larger number and a smaller number.