One of the best tax deductions is a donation to charity.

There is a saying that heating with wood warms you twice:  once when you chop the wood, and once when you burn it.  Similarly, a donation to charity makes you feel good for supporting a worthwhile cause, and it puts a little lettuce back in your wallet.

Unfortunately, charitable donations are only deductible if you itemize.  If you don’t itemize, I’d still encourage you to contribute, because organizations need your help today more than ever.  I believe that the primary consideration in whether to spend money should be whether it makes your life more meaningful — not just what minimizes your taxes.

Nevertheless, if you can take the tax deduction, then let’s discuss how to maximize it. Continue Reading »

E-filing seems like such a good idea.

It saves me a trip to the post-office to buy postage for my ridiculously heavy return(s).  It saves a tree (or at least a fraction thereof).  It eliminates errors due to printing and rescanning.  It eliminates the potential headache of my paperwork getting lost or soggy or shredded.  It saves the government so much manual labor that they’re closing processing centers that used to hire hundreds of seasonal workers.  The government is saving a bundle.

So why do they charge for e-filing?! Continue Reading »

About a month ago, I posted on the tax deductability of the excise tax paid on cars in Massachusetts.  Over 50 folks have read this post.  Maybe everyone already knew about this deduction, but let’s say that it was new to half of them.  The average car is worth, perhaps, $10k, and at an excise tax of $25/$1k, that would be a $250 deduction.  Assume a 25% marginal tax rate, and that post might have saved the readers over $1500.

Hey, that’s some good!

Let me know if this was a new deduction for you.

When I first used TurboTax, I thought it was about the best thing since sliced bread. But that was about ten years ago, and boy, has the product gone downhill. The interviews used to be easy to follow and they took you down all the right paths to complete your return in one swell foop. This year, it’s different.

#1 The long and winding road. The interview didn’t follow the correct path. On my W-2, there’s an entry that indicates pre-tax money that I set aside for dependent care. It helps pay for my son’s daycare while I work. Turbo didn’t tell me that I needed to fill out Form 2441 until I went to check my return (just before filing).  A small window opened.  I was asked to enter an obscure code and amount.  There was no help offered.  I went to the IRS website to download the form and instructions.  When I returned to Turbo and entered the requested data, the amount of my return suddenly jumped (ok, that’s good news), since the amount set aside for daycare was now actually not taxed.

#2 I get to enter all my data twice. I live in Massachusetts and am legally married to my same-sex partner.   The Commonwealth recognizes us as married, but Uncle Sam does not (at least not yet).  Therefore, for the Federal tax, one of us files Single and the other files Head of Household, claiming our son as dependent.  For the State tax, we fill out a bogus Federal return as married (I’m not making this up — these are the TurboTax instructions), and then use it to compute the Massachusetts tax.  Wouldn’t it have been simple for TurboTax to let you merge the tax info from Person A and Person B and create a married form?  But, nooooo.  I have to start with one of our forms and manually add to it all the data from the other person.

#3  Creates deforestation.  My taxes are really not that complicated (despite the issues raised in #2), yet TurboTax creates 99 pages for my return.  Ninety-nine!   Seventy-five for the Federal government, and the rest for the Commonwealth.  And, of course, there’s another 99 for my partner’s return, and another 99 for the aforementioned bogus Federal “married” return.  If I actually printed it out, that’s a good inch or so of paper.   Thankfully, they included a pdf version a few years ago, so I keep an electronic copy of the full return, and I just print out the eight or so pages that I actually might want to read later.

TurboTax, are you listening?

If you have tax questions, please send them to me.  I’d be happy to answer them in a future post.

There are other tax information resources in Massachusetts.

The Boston.com website (run by the Boston Globe) has a forum section where you can ask your tax question to a CPA.  Kudos to the Massachusetts Society of CPAs for volunteering their time to answer questions.

Of course, you can always ask the IRS.  I’ve had less than glowing results with using this service.  It takes forever to get through on the phone, and when you do, the IRS doesn’t stand behind their answers.  When calling them you should write down the day and time and the name of the person you spoke with.  This information should help, should questions arise later.

You can also visit an IRS office and ask your question in person.  There are several in Massachusetts.  Each office has different hours and offers different services, so check online (and maybe call first) before spending your gas to get there.

If your employer offers a match to your 401(k) contributions, then your first priority should be to contribute enough to the 401(k) to maximize the match.  Fewer companies are matching these days, and it may be a benefit on the way out, but as long as it’s there, take advantage of it.  It’s free money; don’t leave any on the table. Continue Reading »

Yesterday, the Massachusetts Department of Revenue announced that it will offer amnesty to over 159,000 individuals who owe back taxes to the Commonwealth.  The selected individuals will receive a notice that they are eligible to participate.  They still need to pay the tax, but the DOR will waive the penalties.

A small but welcome break in these troubled times.

Massachusetts DOR Announcement, 2/23/2009.

Over the last few years, more companies are giving restricted stock instead of stock options as incentives for key employees.  Accounting practices began requiring stock options be recognized as an expense, hitting the bottom line of corporate balance sheets.  As a result of the shift, more employees now need to deal with the tax implications of restricted stock. Continue Reading »

In Massachusetts, excise tax paid on cars is deductible.  The registration fees paid to the state are not, but the excise tax paid to your town/city is.  The excise tax is $25 per $1000 of the car’s value, based upon the original MSRP and a factor that decreases with time:

• In the model year 90%
• In the second year 60%
• In the third year 40%
• In the fourth year 25%
• In the fifth and succeeding years 10%

Since the tax is based on the value of the car (and not the weight or other criteria), the Feds allow you to claim it it as personal property tax deduction on your Schedule A.

Now is a great time to refinance your existing mortgage, if you can.  Rates have fallen significantly in the last few months, so if your credit is still good, you’re still employed, not planning on moving soon, and you’re not underwater (have positive home equity), you can save a few bucks. Continue Reading »