Tax Time
Well, I just got my Tax Refund for 2006 back, just a bit over $2,000 this year.
I generally hate getting a refund that big, it means I planned wrong. But if you’re going to plan wrong, I guess it’s better this way than to owe Uncle a big bunch of money. Looking back on things there were a bunch of items that caused me to overestimate my withholding. Here are a few of them.
- I took 12 weeks off work last summer, about 5 of them without pay. That reduced my earned income which kept me under the threshold of losing part of my $1,000 tax credit for both my kids.
- I’m still burning off $3,000 each year in earned income from some fairly big investment losses back in 2000 and 2001. I did some careful selling at the bottom of the market. This allowed me to build up $15,000 or so in capital losses. Remember webvan? Well that cost me a few thousand dollars. I’m trying to use that negative to my advantage by not selling my current positions out so that I can use this $3,000 ever year to reduce my earned income.
- I didn’t end up selling anything again this year, and my mutual funds didn’t distribute much in capital gains either. So my unearned income came in lower that expected. It can be very difficult to judge how much will show up in December and how much selling you’ll do over the year.
- A fair spike in property taxes last year due to a reassesment. Paying the bill is painful, but the write-off it’s a nice bonus at tax time.
I used TurboTax for the first time this year, that worked out pretty well. It was very easy to get everything done. My Father used to do taxes professionally, and has done for me for the past 6 or 7 years. The new computer programs make in really easy. It also helps that things were not much different this year from last year, so I could go through last years 1040 line by line and make sure everything matched up this year, just with new numbers.
Once other tidbit, since I was due such a big refund I filed as soon as possible, back in Late February, so that my refund would arrive as soon as possible. I want my money back so that I can put it to work in the market. No, we’re not spending this money, I’m going to put it to work in the Market.
The other step to take is to readjust my withholding for this year so the same thing does not happen again. Because several of these items were one time issues, and I got a nice raise this year, I’m expecting that my current withholding is probably not that far out. My current plan is to check things in June and decide then if I need to change my withholding. Who knows, maybe I’ll be able to reduce my withholding, it will be like a mini-raise.