Currency Corner

Taxes: Are You A Lover Or A Hater?

 

By: Lorri Gifford

The little girl in me needed something to help psyche me up for this month’s subject so I composed an ode to the topic. (Singing songs always helped cheer me up when I was young.) Imagine the following being sung to the tune of the popular Andy Williams song “It’s the Most Wonderful Time of the Year”:

 

It’s the most wonderful time of the year.

With the nausea I’m quelling

And the IRS telling me “tax season’s here”

It’s the most wonderful time of the year

It’s the hap-happiest season of all

With those receipts for expenses and W-2 forms

Oh I’m having a ball

It’s the hap-happiest season of all


Taxes… such a dirty little five-letter word. Truth be told, I did learn a lot this month. After consulting three local experts on the subject, I began to see the inter-connectedness between me, income tax and the world I live in. As I write this, I am transitioning from fear and anger into acceptance.

 

The hardest thing to understand in the world is the income tax. Albert Einstein

I would like to take a moment to acknowledge and thank: Elizabeth Keel, CPA, Angela M. Reed, CPA, PC, and Edwin R. Chamberlain, EA. Without the input of these experts, I would not be experiencing this transformation. They helped to clarify a topic that I had been leery of for years. I realize now that the emotions that I experienced came from a lack of understanding. Huh, when I don’t understand something I fear it…

 

For years my 5-year old self has thought, “I’m making this money, it’s mine, why do I have to give it to the stupid government?” That coupled with the fact that the dictionary defines “taxing” as an obligation, demand, duty or burdensome charge only reinforced my feelings of bitterness. As a result I had come to equate the April 15th deadline with my own correlation: Taxes ARE taxing.

 

The bottom line is that taxes help to fund the infrastructure of the government. This government rules the country where I have chosen to reside. And this is the same government that I have the choice to learn about and support through voting.

 

So, in my attempt to avoid becoming involved in the process of understanding the government and not always voting I have become a passive member of society. As a result, I became aggressive in my defense of my money. Oh the beauty of the creation of my own passive-aggressive nature. It is very humbling… I feared something I didn’t fully understand so I got angry and defended my ground and continued to withdraw and stay ignorant.

 

Knowledge is power. Sir Frances Bacon

With this realization in mind, I will now share the knowledge that is helping to transform me in the following Q&A section about taxes. The answers are a culmination of the information given to me by Elizabeth Keel, Angela Reed and Edwin Chamberlain.

 

There is a thought process that there is an easy answer or rule of thumb with taxes. You have to focus on relevant details to each specific situation and CPA’s have to make sure that they give clear advice, usually written, especially significant advice. Elizabeth Keel, CPA

 

INCOME TAX 101:

What are the benefits of having your taxes prepared rather than doing them yourself?

Preparers have a clear understanding of how to fill out the forms and what to deduct for small businesses. The main benefit to this being that an individual doesn’t have to keep up with the complex tax laws, they just have to keep records of their income and expenses and let a tax professional be responsible for knowing the laws. Because a CPA is required to take 40-plus hours per year of continuing education regarding what’s new and applying them to an individual’s tax return, you will be more likely to get all of the benefits from all of the new tax laws. They have a clear understanding of how to fill out the forms and what to deduct.

 

The question to ask yourself is, “Does preparing your income tax take you away from your livelihood for more then a few hours?” You could spend that time doing something you’d like to do rather then the hassle of doing your taxes.

 

The other benefit is having someone to defer to when you have questions about your return or if you are being audited.

 

What steps can be taken to make income tax filing as painless as possible?

Accurate and organized record keeping is the only answer to this question. The more time you take to present clear records before giving them to your preparer, the less time they will need to take to reconcile the amounts and the less time they take with preparing the return. As a result, the bill for preparing the tax will be less.

 

Try to keep documents organized throughout the year. Get a designated folder to keep all of your documents in. Most tax preparers will provide you with an organizer.

 

Talk to your tax professional at the beginning of the year about required record keeping.

 

What is deductible for small business owners?

The easiest answer to this question is: whatever is ordinary and necessary for your line of work.

 

What it boils down to is that anything that truly helps the business make more money may be deducted if you have the right records. For example, a mileage log needs to record the beginning and ending odometer readings and a note of where you started, where you went, where you ended up and why the trip was taken. To document the expense of a meal where you entertained potential or actual clients you need a receipt from the restaurant with a notation of the date, time and what was discussed.

 

How can a person optimize their return and minimize their payout?

You want to keep very good records so that deductions are not lost for lack of evidence.

 

Have a conversation with a tax professional to determine the best strategies for you and your unique situation.

 

The thought of a HUGE refund often excites people. When you receive a HUGE refund this means that the Government has had an interest-free loan of your money for that year. Ideally you want to have as small a refund as possible so you have had access to your money throughout the year and you are investing it or making it work for you. You want to come as close to “break even” as possible.

 

Regarding withholding…Why claim 0, 1 or 2 on a W-4 form?

The basic rule of thumb is that the more exemptions you claim the less taxes are withheld during the year and the lower the number of exemptions you claim, the more taxes are withheld.

 

Employees have the responsibility to inform their employers how much to withhold from their paychecks.

 

The following information lists some basic scenarios for claiming each number:

 

0- an individual is receiving interest income, has social security that is taxed, has dividend income, rental property, capital gains, or multiple w-2’s (3 or 4 jobs)


1- an individual has 1 job, is single with no dependants


2- an individual has dependant(s), is married or single

 

*There are always exceptions to the above scenarios. For the best answer for you consult a tax professional.

 

What are the most common deductions people overlook or aren’t aware of?

Some of the most commonly overlooked deductions include: contributions to retirement and healthcare plans or student loan interest.

 

Contributions to retirement plans have benefits. For Traditional IRA’s you have until April 15th and you do get a deduction on page one of your tax return. If you have a Roth IRA there are no tax deductions but when you withdraw you aren’t taxed. Small Business Owners that extend their filing date can keep contributing to their IRA’s up until their new filing date (or extension).

 

Some self-employed folks believe office and home expenses are a “red flag.” If you run your business out of your home it’s actually a legitimate expenditure and you should take the deduction.

 

Many people who itemize their deductions and travel for medical and charitable purposes forget to keep track of their mileage, which is deductible. Also for volunteers, the cost of any special uniform is deductible.

 

If someone is audited what should they do?

Audits vary. If it’s something simple the individual being audited can usually handle it. If it is more complex and the return has been prepared by a tax professional, the professional can work on behalf of the client. The Tax preparer knows what to give the IRS.

 

When you are audited it is important to keep what you give your preparer or the IRS as easy and simple as possible. Give them just what they’re looking for and nothing more. Discuss any gray areas with your Tax professional if you have one and ask them about their experience with other audits.

 

Frequently an answer to a question I am asked is “It depends” and it really does, there are always exceptions to the rules in regards to taxes. It does depend on a person’s specific situation. Angela M. Reed, CPA, PC

 

This month has been filled with learning so much valuable information. I am filled with gratitude for this experience and opportunity to transition an outdated belief that was no longer serving me. In this area of my life the little girl is starting to mature. Along the way I learned a few other interesting facts that I would love to share with the readers of this column…

 

Did you know?

– If you earned less then $57,000 last year you can go to the irs.gov website and there are links to free electronic tax software. Look under the heading “Hot Topics” and click on the heading: “Free File: It’s fast, easy & secure.”

 

– My credit union offers free tax preparation for those who earn under $50,000 and reduced rates for those that earn over. Some other conditions do apply, but if you are a member at a credit union check to see if they offer this service.

 

– The IRS collects income tax revenue and The OMB allocates it.

 

After reading the last statement you may be wondering what the heck The OMB is. The OMB is The Office of Management and Budget. The Office of Management and Budget is the largest office within the Executive Office of the President of the United States and is a Cabinet-level office. Assisting the President in overseeing the preparation of the federal budget and supervising its administration in Executive Branch agencies is the priority of the OMB.

 

Because I was curious and wanted to see where my tax dollars were being spent I typed “OMB” into my trusty search engine and had a look. Imagine my surprise when I saw what exactly my money was helping to fund: Healthcare, Social Security, National Defense, Income Security (Food & Nutrition Assistance, Housing Assistance, Unemployment Compensation), Education and Job Training, Veteran’s Benefits, Transportation, International Affairs, Natural Resources, Technology Programs, and Response to Natural Disasters to name more then a few.

 

If you are interested in seeing the suggested budget for 2012 it is broken down into an easy to read colorful chart on the OMB website. Visit the website for yourself to see the proposed percentages to be allocated in each area this year. When you visit the website, look for the chart titled The President’s Budget for Fiscal Year 2012.

 

Wow! So my tax dollars do matter. They are being used to support the infrastructure of the country I live in. “We the people” are all interconnected.

 

So, if you are like me and want to transform your emotions from fear and anger with the subject of income tax to acceptance and peace, practice awareness. Become aware that you are choosing to live in the United States and that you can have a say in how your tax dollars are spent by who you choose to support in the Presidential Campaign. When we start to realize that our money is going towards the care of the country we live in it does make a difference, doesn’t it?

 

Hey dad, it looks like your little girl is growing up…

 

What’s natural and right is to go with the energy of how it all has to work together. What’s natural and right is inter-connectedness, not individualism. What is natural and right is respect for the system, not killing the system. What’s natural and right is love. Susan Powter

 

 

Lorri Gifford has been reading Tarot Cards since 1986. While living in California, she worked at The Chopra Center for Well-being as their Spa Director and a Lead Educator. In 2009 her intuition guided her to move to Asheville. Lorri enjoys writing, giving readings, coaching and helping others develop and deepen their intuition. She can be reached at www.readingswithlorri.com or 828.505.4485.

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