What Might We Do With Our Extra Money?

Looking at our money and our budget, there are a few things that have changed over the recent months, and it will require some change in planning on how we approach our money.  One of the things we’ll have to look at it how we allocate extra money.

Where Is This Money Coming From?

Everybody will define this differently, but for us the extra money boils down to a few different areas.

  • Credit card rewards. Most of our spending is done on cash back rewards.  As such, we’ll have a few mb-201312billscoinshundred dollars in rewards after cashing in all of our rewards.
  • Tax refund. Last year we had to pay on our 2014 taxes.  This was largely because of a few things: I switched employers and our witholding didn’t cover us as well as I’d anticipated due to some changes in insurance coverages and such. We also realized some stock gains, and also cashed in some savings bonds that had fully matured.  In 2015, we should get a refund, as our withholding was adjusted, we didn’t do so great in the markets, and didn’t cash in any rewards. Our taxes are still out to our CPA, but a back-of-the-envelope estimate shows that we should get a couple of thousand dollars.
  • My wife’s side hustle. My wife runs a really cool shop on Etsy where she designs custom invites, thank yous, wall arts, and similar products.  Up until recently, pretty much everything went to funding our recent Disney World trip.
  • Pet expenses. Our cat recently passed.  We are going to give ourselves some time before even considering whether to get another pet.  Still, this will help our budget as his food, vet, and medicine bills were not cheap.

So, these are the four areas that we see working in our favor in terms of cash flow.  Some are one-time things and others will be more ongoing.

So, what to do? What to do?

A Couple of Needs, Some Wants, and Looking Toward The Future

Honestly, there are a few things that we will probably do with the money.  Not all of it is flashy, but it’s all (OK, mostly) helping us strive toward goals like saving for retirement, saving for big purchases, and being able to do enjoyable things without taking on debt.

Here are a few ideas about our extra money.  The splurge type stuff first:

  • New wireless router. Typically our credit card rewards money has funded our purchase of new electronics .  We’ve purchased all of our TVs with new flat screens by using credit card rewards.  Along these lines, we’re looking for a new wireless router.  The one we have now is at least 7 years old, doesn’t provide the latest security, and the coverage kind of stinks compared to what’s available today.
  • Vacations. Even though we aren’t piling as much into our travel fund as we did to fund our Disney trip, we’d still like to take a family trip every couple of years.  We liked Florida and have never taken our kids to the beach, and so we’re considering saving a smaller portion of my wife’s business toward a trip to the Tampa / St. John’s Pass area.
  • Other travel. We do most of our traveling with our RV.  Every couple of years, my wife and I like to consider a small anniversary trip in the fall.  These aren’t extravagant or largely expensive, but stashing a few hundred bucks goes a long way.
  • Entertainment. We both used to be pretty frequent concert-goers but kind of stopped once we had the family.  We have done a few concerts and really enjoyed it, so we’ve decided to try to do 1-2 concerts per year.  Putting some money toward a specialized entertainment fund is a good goal that will let us buy tickets and a night out without guilt.
  • Furnace Fund. Last year we found that our furnace is starting to fail. We’ve taken some measures to slow this and are very carefully monitoring the device.  Eventually it will have to be replaced.  Continuing to save for this or other big purchases that might come up is important to us.
  • Retirement.  Bumping retirement contributions is never a bad idea.
  • Kids Activitie. We set aside money for some of the big things that our kids like to do.  Summer camps, swim lessons, dance lessons, etc.
  • Replacement Car / RV. We are proud that our two cars and our RV are from model years 2006, 2007, and 2004 respectively. However, the bottom line is that eventually they may hit the end of their useful life.  We save for this and could likely replace one without having to take on a loan.  With all three at that age, it could be that more than one would need to be looked at in a shorter period of time.  We will definitely be upping the allocation here.  We don’t want something to leave us unprepared.

So, that’s really about it.

Readers, I’m curious what you think of our plans for extra money?  Have you had any favorable (or unfavorable) budget changes over the past months? How have you worked to incorporate them into your spending plans?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why We Pay Taxes

The United States of America is almost 320 million people strong. We live spread out across a diverse slab of land stretching almost 3000 miles across, not counting our noncontiguous states and territories. Our armed forces are stationed on 662 bases in 38 foreign countries and on 19 aircraft carriers traversing the high seas.  Why do we pay taxes? Because this stuff is expensive to maintain.

How expensive? Try almost four trillion dollars in 2015 alone. And that’s just federal spending. It’s a sum of money we can’t even fathom – is there even that much cold hard cash in circulation? At that level the individual dollar, and even the individual million dollars, is a fleck of paint on the Sistine Chapel.

Yet it all has to come from somewhere – mainly the fruits of hard earned income harvested at tax time. Griping about paying the government their “fair” share of our wealth is a human experience as old as the pyramids – which were surely paid for courtesy of the Egyptian taxpayer.

Any one of us can scroll through the paper trail of government spending and point out an example of hundreds of thousands or even millions of tax dollars squandered on some seemingly fruitless endeavour. We can all think of a few choice government programs and services we’d like to see slashed or obliterated altogether. However getting Americans to agree on which expenditures are the waste and which spending should stay is no easy task.

With all the billions upon billions of dollars being collected and spent every year we quickly take issue with the Internal Revenue Service when they chase after a few thousand dollars we may or may not have incorrectly reported. Can’t you guys pick on somebody else? But that’s a slippery slope. The reason so many people come running to a tax attorney or CPA is because nobody is immune from the hard scrutiny of government tax collectors. No stone is left unturned when the IRS comes around.

Most people don’t have a problem with paying taxes in and of themselves. It’s the prevailing belief we’re being taxed too much that drives most people batty when it’s time to send a check or two to Uncle Sam. Sure, we can agree that the interstate highways and FBI are necessary things to have around, but if we stopped providing welfare to couch potatoes or cut back on our military then I’d only have to pay half as much, right?

Makes sense, but who are we kidding? These sorts of sweeping slashes and changes to mb-2015-06-irsgovernment spending would probably create new problems. Many of the couch potatoes forced to work would get a job, but many others would turn to the easiest way to make money: crime. The military would cut back, but then a decade later our more powerful enemies would surely find a new way to poke and provoke our interests overseas. The only agent capable of fixing these kinds of problems would be the government. How would they go about doing it? Who knows, but one thing’s for certain: they’d raise taxes before getting started.

We pay taxes because we have to. It’s the necessary evil of civilization. There will always be waste. Taxes will always go up more than they go down. We will always feel like we’re not getting our money’s worth from the system. But in the end it’s the price we pay. All things considered it’s a small price to pay for the benefits of living under the largest government in human history.

Readers, while certainly nobody enjoys paying taxes, do you think our current system and rates are where they should be?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Avoiding Audits After Tax Season

To paraphrase Jim Croce:

You don’t tug on superman’s cape
You don’t spit into the wind
You don’t pull the mask off that old lone ranger
And you don’t mess around with the IRS

At least, that’s how Al Capone would have sang it. The Department of Education, on the other hand… Go nuts. They’ve never educated a single person. And they have never put anyone in prison. The IRS has routinely done both. They have the power to give you an education in finance and consequences that you never wanted, and they can take you from your office directly to the penn without passing go, or collecting $200. These reasons should encourage you to avoid IRS attention in the form of an audit after tax season. Here’s how:

Give Yourself a Tax Education Before the IRS Gives You One

Before you even get to the EZ form, there are a thousand and one little things you need to know. I assure you; the things you don’t know about taxes far outweigh the things you do. Trouble lies in the vast area of things you don’t know. While an error of a few dollars is unlikely to trigger an audit, the IRS has no sense of humor–at least not one of which they are aware. They have nearly unlimited resources. And they have very little in terms of a sense of proportion. A little knowledge goes a long ways towards keeping their gaze away from you.

For example, a lot of people believe they can claim however many allowances or deductions on their W-4s as they like. This isn’t necessarily so, according to Natalie Cooper, who is in the field and familiar with the concept. She writes that “the deductions and credits that you qualify for each year may change based on your own situation and changes in tax code, so you should avoid simply copying the number of allowances that you were using from the previous year.” She goes on to point out that, if you are married, the number you can claim will change based on the number your spouse claims on his or her W-4.

Learn how your various forms and details are supposed to work and be calculated before you start plugging numbers into your 1040. The last thing you need is to be audited because you and your spouse accidentally claimed each other as dependents when turning in your annual W-4!

Let a Professional Do the Heavy Lifting

Since we’ve already established that you don’t know your way around the tax code, why not enlist someone who does? They will know right away if you are at risk of an audit. Anyone who is in the high-risk category should have a professional do their taxes for them. No need to inflict yourself with this slide show from Forbes.

Here are some of the risk factors therein:

  • Make a lot of money
  • Fail to mention off-shore accounts
  • Be a tax protester
  • Claim huge charitable contributions
  • Omit income reported by someone else
  • Take too many home-based business loans

This list goes on. But you get the idea. Any deviation from the standard will get you noticed. As the Japanese proverb goes: The nail that stands out gets hammered. There are a lot of risk factor lists out there. They all will have income near the top. Other factors aside, if you make a lot of money, you stand a good chance of being audited. Don’t fool around. Have a professional do your taxes for you.

Don’t Panic

In acknowledgement of the fact that there is no airtight method of avoiding an audit, I should say a few words about what to do in the event you find yourself in that situation:

  • Be prepared
  • Get help
  • Think compromise
  • Record it
  • Appeal it

Part of your preparation will be to immediately follow up and find out exactly what is at issue. The audit letter may not be very clear or forthcoming. Know exactly what you are dealing with. Hire a professional who specializes in audits. Understand that you are not dealing in absolutes. Even with the IRS, there is room for compromise and negotiation. If you don’t like the outcome, you can always appeal it.

While receiving an audit letter is not the end of the world, it is the start of a very bad day. Take all reasonable steps to avoid it altogether by educating yourself and letting a professional do the heavy lifting. Oh, and try not to make too much money.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Good Old Uncle Sam Will Be Getting Our Money This Year

The e-mail arrived this past week from our CPA (and family friend), and it started “Welcome to the world of No Tax Refunds.”  I knew it was coming as I had done a back-of-the-envelope calculation before turning our stuff over, but hearing the confirmation still was not something I really wanted to hear.

Our Normal Two-Part Refund

We typically get a refund from Uncle Sam.  For simple years, we have the proper amount taken out of my paycheck that would normally lead to a balanced return, but things like itemized deductions (mortgage interest, etc.), credits for having children, and other various components usually push us to get a refund.mb-money201308

On top of it, we always have a ‘refund’ fund running in our savings account.  Whenever we make any side income, we put a percentage aside.  In addition, if we sell stocks, or do other things that we know will be counted as income, we’ll put a percentage aside.

Typically, the two of these together makes for a nice chunk of change, though usually it just goes toward savings goals, having funded our new roof, built our ‘one day new’ car fund, car repairs, vacation funds, and things like that.

This Year, We Technically Still Get A Refund

Looking at the two part method above, this year we have our savings, and it more than exceeds what we will have to pay, as we’ve faithfully set aside money at every turn.  So, in the end we will still have money ‘left over’.  In all respects, it’s probably better that we did it this way as we basically took a loan from Uncle Sam and earned (paltry as it is) some interest, as opposed to the usual method which gives them an interest free loan until we’d get our refund back.

Still, the net size is smaller, so it’s still a bit less exciting!

One Other Gotcha

Since we had to pay this year, we’re now on the hook to make sure that we don’t underpay again for a second year.  As such, our guy advised that I bump up our contributions from each paycheck to make sure we hit the required amount so that we would avoid the possibility of an underpayment penalty when next year rolls around.

Why We Had To Pay This Year

A few things happened this year that were outside of our normal tax related activity.

  • Savings Bonds – I had some savings bonds that had been purchased years ago that had fully matured.  They were cashed out and re-invested, but the interest earned over the years was taxable income.
  • HSA Deductions – The plan that had previously allowed me to contribute to a health savings account was no longer offered.  The HSA contributions in the past were able to reduce our stated income, but we didn’t have that benefit last year.
  • Stock Market Gains – We have a small trading account that did well for a majority of the year, allowing for some capital gains.
  • Wash Sale Losses – Although we came out positive for the year, we had some losses as well that reduced our income, but because of silly (I could use a stronger word, but will refrain) rules, we couldn’t claim the losses.  Eventually we will once we close out the positions, but effectively, the IRS defers allowing you to claim losses regardless if you actually suffered the loss.  This is effectively what made us end up with a lesser net amount when adding together what we owe and what I had saved, as I did not ‘pay ourselves’ the tax on the losses, though in essence, not being able to claim the losses raised what the IRS sees as income.

What 2015 Holds

We should have a much easier 2015.  I don’t foresee us having to cash in bonds this year.  We’re back to contributing to an HSA plan, though that should really be negligable as my employer coordinates the deductions, thus capturing the effect on our tax rate.  And, as far as our investments, assuming I clear out the ‘wash sale’ stock, we’ll be able to capture all or least a portion of the effect of our deferred loss.  Combine that with the fact that we’re contributing even more via payroll deduction, and we could end up with a hefty return a year from now.

Readers, how did your 2015 tax return shape up?  If you got a refund, what are your plans?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.