Taxes question

[RevSmoke]

As a pastor, I am self-employed and so I pay all my own taxes, nothing is withheld. I also pay both halves of Social Security. So, I know just how much my total tax bill costs. It is kind of ovewhelming to sit back and see what you pay.

Anyway, there have been a couple people lately (on this board, another, and in my live conversations) who have talked about the large income tax returns they will soon be receiving.

My question is, why?

Here's my thinking. I'd like to hear if I am wrong, of if I do understand things correctly. You see, I'd rather pay in on April 15, than receive a return of a $1,000 or more dollars. If I do it correctly, I am a couple hundred $$ one way or the others.

Anyway, my thinking is this. It is my money - whether I have it on payday or get it back later. If I get a rebate, it isn't really a rebate - it is simply returning to me what is already mine.

What is more, if I come up short and the IRS discovers that I missed a payment or some such, I am charged incredible interest on the money that I owe.

Yet, when the government uses my $$ all year, and at the end of the year gives me my money back, how come they don't pay me any interest?

If I want a rebat, wouldn't it be wiser to get the fewest deductions possible, then take a percentage of every paycheck and put it in some sort of intereste bearing account - then, when I'd normally get a tax return, I'll have even more money there, as the intereste will also be mine?

Am I screwed up, or does everybody like the feel of IRS using KY Jelly? Or is there something else I am missing?

Peace of the Lord be with you.

[Steve]

You pretty much summed up my feelings.

[acarr]

Just make sure you get your estimates correct or you could lose all that income you make with your investments with penalties and interest from Uncle Sam.

[aich75013]

I think the reason a lot of people do that is because of the lack of self control. Basically, they would spend that money and then when the taxes are due, wouldn't be able to pay.

[RevSmoke]

Originally Posted by acarr

Just make sure you get your estimates correct or you could lose all that income you make with your investments with penalties and interest from Uncle Sam.

Originally Posted by aich75013

I think the reason a lot of people do that is because of the lack of self control. Basically, they would spend that money and then when the taxes are due, wouldn't be able to pay.

Yes. your estimates better be accurate, but a couple years of overpayment allows you to get it figured out.

Maybe some people need to learn a little discipline.

Peace of the Lord be with you.

[G G]

I pretty much agree with you Rev. I would rather have through the year than get a big refund. I do 10-99 work aside from my full time job and usually have to pay in anyway.

[DAFU]

Why would it be any better to overpay for a couple of years than to get a refund back at the end of the year. Do you get interest credits for overpayments?

[RevSmoke]

Originally Posted by DAFU

Why would it be any better to overpay for a couple of years than to get a refund back at the end of the year. Do you get interest credits for overpayments?

If you pay your own taxes and don't want to have to come up with a large some on April 15, the first couple years you are doing it, you overpay - till you get it figured out. You get a refund or you apply your overpayment to the next year's taxes. The government does not pay you any interest.

If you have a good accountant help you figure out your estimated payments as you are going along, you don't need to overpay.

Last year (2008) we had an unexpected expense that turned out to be deductible - so we overpaid like $750 in federal taxes as it messed up our estimated payment. That was an incredible amount, at least to my tastes. I was applied to our first payment toward 2009 taxes. I hade one year that I underpaid badly (at least to my attitude), it was like $400 combined between federal and state. I have an account I put money in, just for that - in case. BUT, it is gaining interest for me. And if I don't need it, shazam - I take it out and use it - or put it in the boys' college funds.

Peace of the Lord be with you.

[JE3146]

In our current state of affairs its hard to save money. Claiming 0 on a W-2 is an easy method to save money for a lump sum at the beginning of the new year. Not only that, but since we get credits and deductions on tuition payments and loan interest, it inflates our refund even higher that what might of been a $1000 or less refund.

[RevSmoke]

Originally Posted by JE3146

In our current state of affairs its hard to save money. Claiming 0 on a W-2 is an easy method to save money for a lump sum at the beginning of the new year. Not only that, but since we get credits and deductions on tuition payments and loan interest, it inflates our refund even higher that what might of been a $1000 or less refund.

So you income tax return is you savings plan? You don't get any interest!

Why don't you open an account and just put $20, $25, $30, or you name your amount in it each pay period. Throw out the deposit slips. Don't keep a ledger. Don't even look at it. When you want it at the beginning of the year, there it will be. PLUS INTEREST!!!

Peace of the Lord be with you.

[Razorhog]

The OP summed up my feelings. I need to take a little more out of my check though...I end up owing quite a bit each year. I'd rather break even!

[DAFU]

I can certainly see the need for intense scrutiny of your taxes as someone who is self-employed. The tax system is complicated and unforgiving and I can emphasize with anyone who is, or has had difficulties with the IRS.
For myself it's pretty easy to figure my deductions and come close to the correct number at the end of the year. I prefer to be on the positive side for various reasons and find the penalty to be negligible.
I also think some use the refund as discretionary income that may be difficulty justifying paycheck to paycheck. That might mean some may have some extra cigars on order at this time of year. But hey..................at least they're not being charged on a CC that might not be paid right away.

[Ashcan Bill]

A lot of it also depends on how stable your income is. If you have wide swings, it's a little harder to gauge.

Last year we paid a substantial amount. I had a large capital gain in '08 that was unexpected, and had to cough up some money.

Then my wife and I both took early retirement offers, and our income for '09 dropped considerably. As a result, we have a good refund coming this year.

So for two years, I blew what I had estimated our liability to be.

Hopefully this year I can hit it closer so I don't have either a big payment or a big refund due. But the wife is making noise about going back to work, so who knows?

[JE3146]

Originally Posted by RevSmoke

So you income tax return is you savings plan? You don't get any interest!

Why don't you open an account and just put $20, $25, $30, or you name your amount in it each pay period. Throw out the deposit slips. Don't keep a ledger. Don't even look at it. When you want it at the beginning of the year, there it will be. PLUS INTEREST!!!

Peace of the Lord be with you.

Pros of your method.... I get a whopping 2$ interest over the course of the year in my savings accounts. Excuse me while I buy a cheeseburger.

Cons of your method. I have access to the money throughout the entire year.

And your method is assuming I have a steady paycheck, which I don't. I worked 6 months last year. Went to school the other 6 months. The 6 months I was working, I was saving for a wedding, to which we had to file jointly this tax return, which was another unknown of how things were going to pan out with our return. Needless to say, it was easier to claim 0.

[RevSmoke]

Originally Posted by JE3146

Pros of your method.... I get a whopping 2$ interest over the course of the year in my savings accounts. Excuse me while I buy a cheeseburger.

Cons of your method. I have access to the money throughout the entire year.

And your method is assuming I have a steady paycheck, which I don't. I worked 6 months last year. Went to school the other 6 months. The 6 months I was working, I was saving for a wedding, to which we had to file jointly this tax return, which was another unknown of how things were going to pan out with our return. Needless to say, it was easier to claim 0.

Don't think I'm referring to you. In college I did the same thing, as I live paycheck to paycheck. I'm speaking of the guys (and/or gals and/or couples) who brag about the $5-$10K refund check.

$5k at simple intrest in a savings account is a bit more than a cheeseburger. Put into a money market is even more. A CD (that allows you to add throughout the year) even more. And, put it in a mutual fund is even more.

Peace of the Lord be with you.

[JE3146]

Originally Posted by RevSmoke

Don't think I'm referring to you. In college I did the same thing, as I live paycheck to paycheck. I'm speaking of the guys (and/or gals and/or couples) who brag about the $5-$10K refund check.

$5k at simple intrest in a savings account is a bit more than a cheeseburger. Put into a money market is even more. A CD (that allows you to add throughout the year) even more. And, put it in a mutual fund is even more.

Peace of the Lord be with you.

We're talking more like 2k$ with our refund before education credits. Find me a CD with greater than 2% APY for a 6 month low yield and I'll applaud.

Fact remains Savings Account interest rates suck(even moreso for College Savings Accounts like what we both hold) and putting money in a CD after a year's worth of savings won't mature for another 6 months to however long. So the money comes far later and the interest again isn't going to be anything worth celebrating over.

I can fully appreciate not trusting 'the man' and keeping your money close to you, but doing it purely for the 'interest' is a null factor in my mind.

With the ease of online banking, money transfers and seeing that nice lump sum sitting in an account untouched, the ease of ability to spontaneously purchase something will create the possibility and probability of more negative impact on the average person's 'withholdings account' than the positives will ever gain.

[Whee]

Originally Posted by RevSmoke

As a pastor, I am self-employed and so I pay all my own taxes, nothing is withheld. I also pay both halves of Social Security. So, I know just how much my total tax bill costs. It is kind of ovewhelming to sit back and see what you pay.

Anyway, there have been a couple people lately (on this board, another, and in my live conversations) who have talked about the large income tax returns they will soon be receiving.

My question is, why?

Here's my thinking. I'd like to hear if I am wrong, of if I do understand things correctly. You see, I'd rather pay in on April 15, than receive a return of a $1,000 or more dollars. If I do it correctly, I am a couple hundred $$ one way or the others.

Anyway, my thinking is this. It is my money - whether I have it on payday or get it back later. If I get a rebate, it isn't really a rebate - it is simply returning to me what is already mine.

What is more, if I come up short and the IRS discovers that I missed a payment or some such, I am charged incredible interest on the money that I owe.

Yet, when the government uses my $$ all year, and at the end of the year gives me my money back, how come they don't pay me any interest?

If I want a rebat, wouldn't it be wiser to get the fewest deductions possible, then take a percentage of every paycheck and put it in some sort of intereste bearing account - then, when I'd normally get a tax return, I'll have even more money there, as the intereste will also be mine?

Am I screwed up, or does everybody like the feel of IRS using KY Jelly? Or is there something else I am missing?

Peace of the Lord be with you.

I worked 16 years in this industry, and you'd be surprised Rev.

You are not screwed up.

[Hot Stuff x]

Rev,

I'm with you on this. My goal is to always be near even, or to owe a bit come tax time. Why give the govt. an interest free loan?

Originally Posted by RevSmoke

So you income tax return is you savings plan? You don't get any interest!



Why don't you open an account and just put $20, $25, $30, or you name your amount in it each pay period. Throw out the deposit slips. Don't keep a ledger. Don't even look at it. When you want it at the beginning of the year, there it will be. PLUS INTEREST!!!

Peace of the Lord be with you.

Amen

Originally Posted by Hot Stuff x

Rev,

I'm with you on this. My goal is to always be near even, or to owe a bit come tax time. Why give the govt. an interest free loan?

And again I say Amen!

[Volt]

I'm with you Todd, I don't get it either. Regardless as to self employed or working for a company - it's still giving your money away for free. I know a guy who gets between 5,000 and 6,000 a year as a tax return???? I begged him to give it to me during the year and I would give him his $5.000 in Jan. My goal +/- $250. There are a few items like capitol gains from my little mutual funds that are hard to control. The last 8 years have been just about the same in that $500 swing.