(Many apologies to the great Peter King, my favorite football writer, for the title of this article.)
Just this morning, I finished up my income taxes for 2007 (along with my estimated taxes for the first quarter of 2008), wrote a small mountain of tear-stained checks, and dropped them in the mailbox. This was my first year filing taxes with significant income earned from independent work and it was a real eye-opener.
Here are some of my collected thoughts on the income tax process.
1. TurboTax is a miracle worker. In 2007, Money360 really took off. In 2007, we bought our first house. In 2007, I sold mutual funds for the first time (to help buy the house). As a result, this year was loaded with new experiences when it comes to income taxes. Add into that the fact that my wife and I worked together on our taxes this weekend, working in shifts with the other one of us focusing on child care.
The end result is that TurboTax bailed us out. We’ve been using the bare bones version for years, so it pulled in the stuff we needed for last year, and then it walked us step by step through all of the new stuff. In the end, after several hours of typing away at the keyboard and shuffling through a mountain of papers, we ended up with a neatly filled-out tax return with all of the numbers in the right places. Even better, it got me on the right track with estimating for the future, meaning we actually had a little bit left over after a year’s worth of tax savings even after being hit with a penalty for a low estimate last year. That leftover amount’s going straight towards a student loan, as is our “economic stimulus package.”
2. Children are a splendid tax break. We have two children. Just by existing and by going to day care, they netted us $2,950 in tax credit. That’s right – almost $3,000 of our tax bill went poof because of our two children.
That obviously does not make up for their expense, but it does pay for about a third of their child care over the last year, which softened the burden. To put it simply, if you have a child, the tax system does help you out with those extra costs of parenting – and that’s nice.
3. If you’re making any sort of serious side income, pay the estimated taxes. Not only is paying it all the way along a great way to make sure you aren’t nailed with a giant tax bill at year’s end, but it also ensures you aren’t hit with a nice big fat penalty either. We were hit with a penalty for estimating way too low last year about how Money360 would grow – one year ago, I honestly had no idea how “big” Money360 would become.
The second you start getting enough income that you’re getting pretty excited about it, look into form 1040 ES and the equivalent form for your state. Don’t let it slip or else tax day will be very painful.
4. We printed out almost fifty sheets worth of paper just to mail in. That’s just plain silly, especially when most of this could be filed electronically. Even better would be a drastic simplification of the tax code – a true flat tax of some kind. The simple fact that we had to burn a good chunk of a weekend and print out fifty pages of rather confusing documentation just to meet requirements tells me there’s something wrong in the system.
So, yes, I just admitted to being in favor of a flat tax. After burning most of a weekend of lost productivity, printing out fifty sheets of paper, mailing in a bunch of documents, and paying what feels like a pretty arbitrary number in the end, I definitely can see the reasoning behind just writing down your income, taking a handful of very basic deductions, and then paying a certain percentage tax on what’s left. That sounds awful good to me.
5. Signing those checks was painful. I just watched a sizable amount of cash leave my pocket earlier today. It was painful to watch all of those check being written – all of that hard-earned money simply leave my pocket, never to return.
6. But even after all of that, I don’t really mind. When I was writing those checks, I grumbled a lot, but now that they’re in the mail and I’ve had some time to reflect on what that money really means, I don’t mind. It means public education for every child. It means streets and sidewalks and fire departments. It means local parks for my child to play in and national parks for me to look at in awed beauty. It means support for the arts, support for science, and support for people who really do need it, even if the systems aren’t perfect.
Regardless of your feelings about the things that are wrong in this country, our government does a lot that is right and it gives everyone an opportunity to work on fixing what’s wrong through voting and directly participating in the system. Much of the good that I identified does come from local government, but a lot of their funding and protection comes from up the food chain. If writing that check means my son can run down the sidewalk to the park and that some poor child is able to attend school, that’s a check I’m quite happy to write, in the end.