My tax tips:
Don’t try to manage money in ways that are out of your league. If you don’t have a basic understanding of how capital gains and short-sale taxes work, quit day trading. If you don’t know the difference between a Roth and Traditional IRA, make it a weekend task to understand why one might be better for you and your taxes. You can run up your tax bill very quickly without meaning to.

Another tip, lump your charitable contributions and itemize. Consider making a pre-payment in ’08 to your church for all of your tithes in ’09 to increase your charitable contributions this year, then take your standard deduction next year.

Secondly, for those who have voiced opinions against using tax money to fund the military, check out the national campaign for a peace tax fund (http://www.peacetaxfund.org/)

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-Call and speak to the shockingly friendly people at the IRS when you have questions (1-800-829-1040 for individuals, 1040 har har). The people I spoke to were incredibly competent and helpful, and I got all my questions answered.

-For those of us with student loans, don’t forget to deduct interest payments.

As to protesting taxes:

I don’t like my money funding a war. Our government is far from perfect, but until I am ready to actively campaign for a change for the better (instead of just bitching ineffectually), I’m just going to accept my government, the good with the bad, and pay.

Towards the end of her illness, we were deducting 6 figures due to mom’s medical expenses, and never got the first inquiry from the taxman.

(Not that I agree with the current situation; just reminding everyone of the ultimate destination of the taxes we pay.)

-an almost-CPA.

Capitalism for the poor
Socialism for the rich

I think we’re talking about two different issues. Or you’ve failed to see what this post is actually about.

I have no problem with people protesting taxes for whatever reason. Some, like Don Schrader, carry their protests to an extreme. I admire this. Schrader is opposed to money spent on the military. Others support the military but are opposed to social programs. I think everyone can agree that lower taxes would be nice.

But that’s not what this entry is about. This entry is about advice for dealing with current taxes. The gentlemen I spoke with had two pieces of advice: prepare yourself so that your tax obligation doesn’t come as a surprise (which is what happens when you think you’re getting a $2,000 refund but only get $500), and don’t try to cheat.

I’m all in favor of people protesting taxes. That’s a good thing. But tax protests are about the future. This entry is about the present.

(Just for the record, I share your anger over how the government spends its money. Corporate welfare, especially, makes me tense. I’m all for free entreprise, but what we have in the U.S. isn’t so much capitalism as it is a sort of corpocracy.)

The rest of you sound like your apologizing for a system that taxes the middle class at near 50% (when you include all state/local income, property, and sales taxes). This blood money is then spent on Iraq, on corporate welfare, on warrant-less wiretapping, and for subsidies to everyone on globe who bothers to stick out their hand and claim a piece of your life. Still, the national debt and deficits continue to grow to historic proportions. This is not a government focused on building parks and libraries.

How long and how much can the country continue to take from its productive citizens until we slowly become poor? Average households are struggling. I believe the US mortgage collapse is just an overture to a much longer work in progress.

Unfortunately, I have few practical actions to offer as a solution. But to begin with, we should not give this issue such blithe assent – even in our private conversations.

J.D., Are you really that rich to ridicule a man’s anger for losing $1,500 of his refund to extra tax? Where the heck do you live? Candyland?

When I was a kid and my mother (a single parent who never received child support) became disabled, your federal tax dollars kept food in my belly, clothes on my back, and a roof over my head. Thank you.

When a bright but poor student like me had strong enough grades and SAT scores to be admitted to one of the nation’s best colleges, your federal tax dollars (in the form of Pell grants and National Direct Student Loans) helped make it possible for me to take advantage of that opportunity. Thank you.

I finished college with great grades and great GRE scores and was admitted to graduate school in the sciences. Your federal tax dollars paid for the training grants and research grants that funded my doctoral training. Thank you.

The federal tax dollars that have continued to support my still-disabled mother allowed me to live up to my full educational potential instead of going to work to support her directly. Thank you.

Although I too have serious misgivings about how some of our federal tax dollars are spent, I uncomplainingly pay my taxes each year because I know from personal experience that America would be a much, much different place without the social safety net funded by, yes, our federal tax dollars.

“Human capital” is a hard to quantify, but I think I’m able to bring something way different “to the table” as a citizen now that I would have otherwise.

I’m certainly much more financially secure than I would have otherwise been as a result of the educational opportunities afforded to me by those federal tax dollars. I think the US treasury is still a few years away from “breaking even” on me, but it’ll come out ahead in the end.

Great article! I am a person of my word and my offer still stands that I posted on your 2/20/08 post.

My Tax Tip (my accountant showed me):
If you have a stock that you have had significant losses on during the year YET you still want to keep it. Sell the stock, take the capital loss deduction then by a “index fund” within the same industry. Hold for 31 days, sell, then by back your original stock. It doesn’t triger the IRS “wash rule” b/c an index fund is looked at as seperate than an individual stock.
I hope that made sense, check with your own accountant and see if he agrees.
Travis

My tip is to move to a state with a lower sales, property, and/or income tax, depending on your goals/lifestyle. You’d be surprised at the differences between states. For example, I’ve been researching a move to Delaware from New Jersey and I noticed that the state income tax in the former is a bit lower than the latter. That would be a great bonus on top of the zero sales tax in Delaware. Of course, there are many other factors you have to consider when making a move, including cost of living, job availability, culture, climate, etc, but if everything else is more or less the same, consider the tax situation too.

The problem with voting and politics ( in regards to the tax and spend issue) is that voters and politicians run and vote on what they can do with other people’s money. It’s all about bribery and special interests on every level. People buy and sell votes and power. Electoral politics is not an arena for consistently frugal people. Unless you are personally “frugal” but don’t mind wasting other people’s money. Politicians are power hungry and voters overwhelmingly do not want their rights or freedoms protected- they want empty promises of “what can you GIVE me”.

The producers in society just decide to pay the fees and go about their business.

I know quite a few people who think that it would be great if we didn’t have any taxes. While I’d agree that sometimes tax money goes to things that we disagree with or to poorly run government offices, a lot of taxes pay for things that are really useful to us.

Many of the frugality ideas on this blog involve taking advantage of things that our taxes pay for – public libraries; city, state, and national parks; gardening and nutrition materials from the department of agriculture; schools for your children and/or the children who will one day provide the services and goods that you depend on; bridges and roads that we drive on; etc. These services aren’t perfect but only the richest of us would be able to buy access to them on our own.

You want to handle your taxes sensibly and not pay more than your share but they aren’t the worst thing that ever happened.

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When I do tax, is this somehting I could write off for?

What they fail to realize is that the government is doing so because you are making more than you were before. You will never be worse off for making more, you’ll just be taking less of your income back in marginal terms.

These individuals I speak of are all fellow lawyers. This shows how little even lawyers who primarily work in other legal areas really understand the tax system.
-Raymond

There are times that I understand when a person complains for getting an extra large tax bill. The one at the top of the list is the Alternative Minimum Tax. One year my parents got hit without having any warning and as a result nearly all of their deductions were taken away. The resulting tax bill was around $20k and completely took them by surprise.

I have also had a few friends my age who have gotten screwed over by the system when their parents claim them as a dependent while providing ZERO real financial support. My friends are unable to claim the tax credits for tuition and fees which really should qualify. Another friend (23) worked 40+ hours a week and took 9 credit hours of grad school, but was excluded from deductions and credits such as the Saver’s Credit because he was considered a “full time student.”

The system is so complex that far too many people fall through the cracks and truly do wind up paying an amount that common sense would judge to be wrong.

Actually, most of this dialogue is pretty real. Some of it is directly from notes I jotted while we were talking. However, the bits and parts that I had to fictionalize (there were two accountants, not one, for example) probably pushed it over into “stilted”.

Also the bit about middle class whining. Trust me, the rich resent taxes as much as the next guy.

Just so you know, I generally love your blog, and I’m a long-time reader. This column just struck some sort of nerve, as Kiyosaki really irritates me.

I pay what I owe, but I maximize every deduction and credit and work to insure that I break even at tax time.

I also vote, having done so since 1984, but it never seems to do any good. The politicians always, ALWAYS disappoint me when they get into office.