It’s Tax Time Again – How Are You Doing With Your Taxes?

I finally sat down this weekend and started to seriously look at our taxes. I know, I know! As a personal finance blogger, I should have had them done months ago! Unfortunately, I am still blaming the whole computer backup disaster for my troubles and tardiness.  What will my excuse be next year?  Probably the same one. Hey, if President Obama can continue to blame the previous president for all of his problems, I can blame a computer backup disaster for the next decade.

I did manage to get my son AJ’s taxes done and filed. I was so proud of my son. I told him I was finally going to get his taxes looked at, maybe even completed and submitted, but first I had to have the W2 from his current job. He had it tucked away in his laptop bag and brought it right to me. He’ll be getting a hefty refund back since we overestimated the amount of hours he would work with Mr. A.  In 2009 he made a couple thousand with his father, and we thought it might be the same in 2010, but that all changed when he got his new IT job working forty hours instead of only 24.

At any rate, I don’t foresee him getting another big refund like this next year, which is good since I don’t think the government should hang onto our money all year long, but that’s just my opinion.  I can see the temptation to allow the IRS to hold onto your money so that you can’t touch it, if you’re not mature enough to keep your mitts off your savings.  If you can’t see it, can’t touch it, you can’t spend it, right?  But you could do the same thing with an automatic deduction to a savings account somewhere online and earn a few dollars in the meantime.

Well, I can see I’m preaching to the choir, so let me get on with what I started out to say.

I am going to file an extension this year, just like I did last year.  This advice comes from June Walker, an accountant from New Mexico.  She says when you own your own business it’s a good idea to file an extension because then you have more time to make certain you’ve found and will be able to take all the deductions for which you are eligible.  I found her book: Self-employed Tax Solutions: Quick, Simple, Money-Saving, Audit-Proof Tax and Recordkeeping Basics for the Independent Professional and site to be quite informative when Mr. A was first starting his business and I still refer to it each year as I’m doing our taxes.

I use H&R Block At Home Deluxe Federal + State + eFile, I prefer to use the software on my computer, rather than the online program.  I installed the program and let it pull in our data from last year’s return and then I began entering the data that I have gathered so far.  It was a little nervewracking at first to see that we might owe $4000 but this was just after I put in Mr. A’s gross income, and right before I entered his business expenses and the estimated payments we made throughout 2010.

After I got all those details entered, it looks like we were maybe about $50 short.  I will be making our first estimated payment (I paid the final estimated payment for 2010 in December to prevent any confusion) this week, and will send an extra $50, and hope that covers what we owe. I am not quite ready to submit though since I still need to enter some more data into QuickBooks Pro.

I told Mr. A that it looks like we won’t owe anything… we have this conversation every year… he replies and says that’s good. Then I realize (once again) the way I worded it makes him think that we won’t OWE ANYTHING, as in nothing at all.  Then I have to correct what I just said that, and explain that we won’t need to pay anything in addition to what we’ve already paid. Then he says I need to have someone look at our taxes because how come he knows this guy that doesn’t have to pay any taxes and his business makes a quarter million and this relative doesn’t have to pay taxes.

I keep trying to tell him it’s not possible as long as I have an employer.  These other people have incorporated businesses and they pay themselves such a small wage that indeed, they do not have to pay income taxes personally.  But what they aren’t revealing is the fact that their COMPANY is liable for and does owe taxes. Just because they don’t have to pay taxes personally does not mean their company doesn’t have to pay taxes.  Especially if they are netting a quarter million. Unless they’re working the books in some funky way that I don’t want to know anything about.

So my question to you today: have you ever had a similar conversation with your spouse/significant other?  Or are you lucky enough to have a personal finance guru as your main squeeze?

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8 comments to It’s Tax Time Again – How Are You Doing With Your Taxes?

  • One of my degrees is in accounting, and my wife one-ups me, as she is a CPA who practiced in public accounting for about a decade.

    You might want to remind your husband that your home is more comfy than the inside of a jail cell. Remember, it was the IRS that put away Al Capone.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, LOL. I think the biggest problem is the fact that these people keep telling (bragging to) my husband telling him *they* don’t have to pay *any* taxes and he doesn’t understand how that can be, and wonders if I’m doing something wrong. I actually don’t think they are working the books – they are paying themselves a very low wage. I’m sure you know if you make under a certain amount of money and have a child or two, you actually get earned income credit. I know of people who have no taxes taken from their check, and get money back (earned income credit). You can even qualify for food stamps and government assistance and special grants if your income in low enough, and actually it doesn’t have to be *that* low! Anyway, at least you and your wife are on the same page in understanding your finances!! Thanks for visiting and commenting, Kosmo.

    [Reply]

    Kosmo Reply:

    @Mrs. Accountability, Hmm. Unless I’m missing something, it’d have to be a C-corp, since the income of partnerships and S-corps flows down the the individual taxpayer. And, as you mention, that opens you up to double taxation. A reasonable salary would be a business expense to the corporation and thus only taxed once (at the idividual level), but anyhing paid out as dividends is going to be taxed first as corporation profits and then at the individual level as dividends. I guess you can have the corporation accumulate retained earnings, but you’d have to keep those funds separate (i.e. not use them to pay personal debts). I guess if you died, your heirs might get the stepped-up value of the asset (company), depending on the inheritance tax at the time.

    Seems like a lot of hoops to jump through to get food stamps – not to mention the bad karma of potentially taking food out of the mouths of people who actually need the assistance.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, maybe I’m the one confused. I know these businesses are incorporated with the “Inc.” as part of the business name. My most likely confused understanding is when a business is incorporated, the business entity files taxes and is liable for taxes. If the owner of the company pays him or herself a salary of $18,000/year, is married with a couple of children, then they wouldn’t owe a heck of a lot in personal income taxes. Are you saying that the person who owns the company also has to pay taxes for the business on top of income taxes for the money paid to the owner (filing quarterly 941, etc.)? If that is the case, then I am completely misunderstanding how this works, and we’re back to how do these people end up not having a pay a dime in taxes. Again, what they are probably not telling my husband is they already paid estimated taxes or had taxes removed from their check all year long and they don’t owe anything on the 15th since they already took care of it. I never said I was an accountant! lol Also, in the case of the food stamps I was on a different line of thought totally, I wasn’t implying that a business owner making 1/4 mil was trying to get food stamps. I’m clearly not making sense. I have been on welfare before and it is not worth the hassle! I had to go in every three months with every piece of documentation in a notebook because they lost my file countless times. No thanks.

  • If you’re mostly familiar with estimates for a sole propietorship, that might be clouding the issue, since in that case the owner and the individual are the same entity (and only the individual is taxed).

    There are two types of corporations – an S corporation and a C corporation. S is limited to smaller companies, and the net income is taxable by the owners based on their percentage of ownership – even if the cash never gets to them.

    A C corporation is the type of most corporations you’re familiar with. Let’s say that Steve Jobs owned 40% of Apple (which isn’t actually the case) and Apple paid him a $1 salary. If Apple made $1 billion, Jobs would only have $1 of income … unless Apple paid dividends or he sold the stock. If neither of those things happened, he would have any taxable income from his 40% ownership of Apple, in spite of the fact that 400M of that 1B is “his share”.

    But at some point, he’d need to sell or get dividend distributions if he wanted to use his share of the profits to buy a pizza. Otherwise, it’s controlled by the corporation.

    [Reply]

    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, yes, I am really only familiar with sole proprietorship. I’m still confused though. Are you saying if Bill Gates had a $1 salary a year, he would still have to file income taxes on 400M? Thanks for helping me understand this! You should be writing a personal finance blog, Kosmo! 🙂

    [Reply]

    Kosmo Reply:

    @Mrs. Accountability, He would just have taxable income of $1, as long as the money stayed within Microsoft.

    But if he got that money out of Microsoft and into his personal bank account, it would be either via dividends or sale of stock – both of which are taxable events (to the individual). There’s no tax (for the individual) as long as the corporation has control of the money … but the individual doesn’t have the ability to use those assets for groceries and such – it’s basically locked up – and you have to pay taxes when you use the key.

    I have a degree in accounting, but really don’t have a burning desire for it 🙂 I write on personal finance topics every once in a while, but usually as guest on other blogs.

    I always found tax theory to be very interesting – although I hated actually filling out forms. It was second only to cost accounting amongst my favorite accounting topics 🙂

    [Reply]

  • I had a great year with taxes. I finally got my home buyer credit after 2 years. I also filed a month early and did an e-file with a direct deposit, so i got the money within 10 days. I was really surprised to see it hit my bank account so fast.

    [Reply]

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