I'm Not Lovin' the IRS right now.......

The BBQ Pit
41

Right. It was potential loopholes like that soemone could use if they inflated withholdings.

Some people still aren’t getting it. In the U.S. at least, individuals, not employers, have control over their withholdings. Those are estimated tax payments and you can put down whatever you want even specifying a dollar amount that you want to tack on. The size of your refund has little to do with how generous or not Uncle Sam is. It is simply the result of the mismatch between your estimate and the final figure.

The effects of 401K’s, kids, and mortgages can easily be estimated especially if the situation was similar in prior years.

42

The Turgidson Amendment of 1924 allows you to double that deduction if you are over 80 and a veteran of World War 2. You should file an amended return to get the other $4.32 you are due.

43

Had to pay instead of getting a refund, huh?

I had to pay the same small amount I’ve paid for the last 3 or 4 years. No changes here.

44

Everyone understands that, that’s the way it’s done in lots of places. The point is that if income is withheld and then refunded, if you are required to then claim the refund, you would be claiming that amount in two different taxation years and thus would be taxed on it twice. Taxes are not based on your after-tax income. You cannot avoid tax by increasing your withholdings. You would simply be losing interest on that money.

And if it’s not?

45

Sadly enough, a huge number of people don’t understand that. This thread, others over the last couple of weeks and yet others this time last year are clear evidence of that. Clearly not everyone needs to understand most of the arcane tax rules but the basics are very simple and a shockingly large percentage of the population doesn’t even understand how payroll witholding works. They think that they just have to put down “Married 3” or something and it will magically work out because they are married and have one kid.

46

Really? Are you positive?

I’ve never ever gotten one, in over 20 years of paying taxes.

My state refund is usually in the neighborhood of $10-125. Could that be why?

47

I think that’s only if you declared your state income tax as a federal deduction the previous year. Part of the reason I stopped itemizing deductions: that one bit me in the ass back in 2002 or so. (I deducted state taxes on my federal return, got a nice state refund instead and ended up paying more federal tax the next year.)

48

Taxes are partially based on your after-tax rather than pre-tax income. Without making things hugely complicated, imagine that I declare that Massachusetts should withhold 25% of my income for state income taxes yet they are really only a fraction of that. I don’t have to pay federal income tax on that money because it isn’t income yet I will get most of it back at the end of the year.

State and federal taxes are largely seperate systems with their own withholdings etc. so this would be an obvious loophole if state refunds were not taxed.

49

I understand the definition of refund. As for the “bad planning”/“sloppy math”, kiss my ass. You don’t know squat about my finances or life & making judgments on things you don’t know makes you look like a pompus ass.

As others have stated, this is untrue. It was taxed before I “handed it over to the IRS”.

And the effects of refinancing my condo 2 years ago (which caused the original refund), getting laid-off last year, and working freelance (which requires me to pay both ends of ss tax & my own federal, state & local taxes)? That was all forseeable due to my psychic abilities & is all due to poor math skills. :rolleyes:

50

Of course not. We got all of our taxes paid back this year. That’s right, 10,000’s of thousands in overpaid taxes were refunded but it was because my house was partially destroyed this year by a massive tree strike. Can’t fault myself for not knowing that would happen.

I wasn’t criticizing every single person that gets a refund. It is the general mindset that is the problem. Habitually overpaying bills doesn’t mean that someone is being generous they give you some of your own money back. The form to stop the extra money from being taken in the first place is extremely quick and every workplace is supposed to have them on hand.

51

Yeah, no “bad planning/sloppy math” here, either. At least not on my part. My employer had loaded the wrong tax chart or something and miscalculated my withholding for part of the year. They discovered it, told me, but the difference seemed pretty small so I didn’t sweat it.

Oh, that’s it! Sloth on my part for not filling out another W-4 to try to get that $12.50/week back! Thing is, I didn’t see (I don’t think so, it’s been a while) a blank on the W-4 for “$12.50/week less”. I freely admit I’m not a tax professional and may not know the intricacies of the W-4. I could claim a dependant and pay in less. Would that be more than $12.50/week? I don’t know, seemed like the best thing was to just wait until the end of the year and see how it washed out.

So I got $600 back ($608, really).

52

And we have a winnner.

If you itemize this year, you are allowed to deduct any money you spent on taxes. If you had state taxes withheld from your pay, those are allowable deductions. But… if you had too much withheld this year, then you will get a state refund. Therefore, next year you will be required to claim your refund.

It isn’t getting taxed twice. The IRS assumes that the state withheld taxes more or less correctly. You pick up the difference the next year.

What I don’t know is how one does the opposite. Say you don’t have enough state taxes withheld this year, and owe them some money. In theory, that should be picked up the next year as a deduction (just as a refund is taxable income), but I don’t recall seeing the line for it. I’ve always had a state refund so I’ve never looked.

If there is no provision for this, it would make sense to at least always have a state refund so as to maximize the federal deduction. Otherwise, what Shagnasty said - end up breaking even or slightly owing, and bank the extra each week. It’s your money until the IRS says it ain’t.

53

I got a 1099 form from Connecticut for last year’s refund of $18.

54

That’s exactly my interpretation of the federal IRS Form 1040 instructions I linked earlier. If you itemize deductions, and one of those dedcutions is state (or local) income tax, any refund you get on those state (or local) income taxes, must be reported in the following year (which would be the year the state/local refund was received) as income to the federal government on Line 10 of your federal 1040.

55

Orbifold is correct. If you itemized your taxes for the preceding year, you deducted the state income tax paid, therefore that was not taxed as income. If you receive a refund of any part of those monies paid you have income which has not been taxed. You will have to pay taxes on state tax refunds only if you itemized deductions for the year in which you received the refund.

I would disagree with the decision to not itemize because of it, because if itemizing saves you money on your federal taxes, the state tax refund income should not cost you more money the next year than you saved.

56

As I said, that was only part of the reason. The other part is that I find I’m usually better off going with the standard deduction instead. Not a homeowner, no 401(k)…I just don’t have much to itemize.

57

What states are some of you living in where you pay federal tax on a state refund?!?

Seriously, based on Wisconsin and North Dakota here’s how it works in my experience for the past quarter century of working. You make $50,000 a year. The Feds get a pre-payment based on an estimate of what you’ll owe at the end of the year. The state taxes the same $50,000 based on what they think you’ll owe. (For example, ND state tax is 7% of federal liability.) So for the year you’re paying both federal and state withholding. Both get their cut off the top. You take home less money for “offering” this interest-free loan. And I have never had a job where I could opt out of withholding. For what I pay in taxes, I’d prefer to put that money into my 401(k) and stock purchase and just pay the bill the next year. I’d have more money, and the government would have the same amount of money. If I don’t owe the money until April 2006, why are they collecting in January 2005? (I know it’s to “ease” the shock of payment, but I’m willing to plan ahead. Gimme the option.)
And I beg all of you to not take this as elitist or condescending. But I have to kind of chuckle when I hear people bragging about how much they’re “getting back”. In January 2005 they had money taken from their check to sit in an interest-bearing fund and have to wait until April 2006 to get it back. Sans interest. Now this takes discipline, a character trait lacking in many granted, but it would make more sense. Take that money, throw it into even a 3- 6- or 12-month CD and you’re coming out ahead. While sending the same amount of money to Washington.

A lot of people in my office are talking about the huge refund they’re getting this year. They claimed nothing on their W-2s to have the maximum tax withheld. I claimed every exemption I could and increased the 401(k) contribution and stock purchase to divert the money there. (The paycheck was the same amount in both cases.) This year my wife and I owe just under $300 to DC and about $70 to Bismarck. The value of our portfolio has more than made that up. By paying in this year, we’ve come out further ahead than in the years we’ve gotten refunds. And when my co-workers rip through the refund in a week, I’ll still have the principle, plus a year’s worth of interest, making interest. Some may not think that way, but I still have my money making money. Works for me.
And when the hell are we all going to band together and demand elections be held the week after the deadline?!? You want reform? This will do it, folks.

58

Some states like Massachusetts have a state tax system that isn’t tied to the federal tax system much at all. State taxes are almost as complicated with different types of deductions than the IRS offers and the results can be very different. With the roughly the same types of withholdings, we have always gotten a small refund from our federal taxes and had to pay a roughly equal amount to Massachusetts because of the very different tax codes.

The destruction of half our house meant that we got all federal taxes paid refunded and didn’t do a thing to Massachusetts taxes and this was a lot of money at stake. OTOH, Massachusetts has a zillion weird credits and deductions the feds do not offer and I have taken advantage of some of those.

It is really like filing returns in two different countries except Turbotax does much of the grunt work of data entry.

59

That’s another, and probably the biggest, problem I have with income tax in the US. No matter the state as it always applies to federal taxes.

I don’t have cites, but this should be pretty well known. Every year there are seemingly hundreds of new deductions, exemptions, credits, etc. that are added to the tax code. Very few are ever repealed, and I can’t honestly think of a single one. The one’s added are to appeal to one segment of the population or another so the sponsoring politician gets a boost to his bragging rights come the next election cycle. Meanwhile it just increases our workload to properly file a return to justify how much we had withheld involuntarily.

And God help you if you miss a form. Not only can you in many cases give the government a free, interest-bearing loan with no benefit to you, but they can penalize you further with fines and interest if you don’t file the proper form to let them know they’ve been pocketing your money for a year with no benefit to you.

April 15th is the day we justify to the goverment why we should get some money back. The other 364 (we, really 365 or 366) days, we’re at their mercy.

Here’s a serious question. And if anyone can help me craft a good argument, I’ll post it to Editorial pages across the country, in my name, as well as to every member of Congress. Let’s make it a collaborative effort.
Why is it that we pay money to an interest-bearing account for a year, only to get a refund of only the priciple? And why is it that if we owe, the interest on the debt kicks in April 16? And, of course, the late fees? The interest earned on withholding should more than make up for making an April 15 filing deadline and October 15 due date work out.

US taxes are more reasonable than other country’s, as cited in this thread, but it’s still ridiculous. I don’t mind paying taxes, just make it make some sort of sense. And stop glossing over it by telling me (I’m talking about the tax-code-bloating Cogresses of the past 80 years) that they’re doing me a favor by adding to it to help me out. All they’re doing is taking up more of my time to file and leaving me to wonder if I should pay the $200 to file the return with a tax pro. A fucking tax pro. If there was ever an industry that should never have an excuse to exist, it’s a tax pro. Common people pay taxes. We shouldn’t need a professional to handle it.

I’m not pissed about paying in this year. But I am honestly pissed now based on all the hoops we have to jump through just to pay a portion of what we work to earn, then have to file the forms, then have to worry about paying extra if the forms aren’t filled out right. Then have to pay the interest on what is owed plus the penalties.

If a person makes less than $500,000 a year, there should be no reason to need a tax pro to file the taxes. And the half-mil is arbitrary. If it were up to me, tax pros would get real jobs.

Ah, let me go all the way and save a Pit OP. I don’t give a shit if Bill Gates is taxed the same percentage on income as I am. This is income. If he makes $200 million and is taxed the same percentage as me, I’m happy with it. Quit the fucking tax breaks and just tax fairly. Quit giving breaks for this and that. Quit making people jump through hoops to justify keeping what they earn. I lose the mortgage interest deduction? Gates loses some other deduction that more than makes it up. For us and for thousands of others.

Sounds a bit Socialist? I disagree. It’s perfectly reasonable, though I may not be able to express it adequately. If I make $40k a year at 15%, I pay $6000. If Gates makes $200 million, he pays $30 million. Add to that the other 200 or so million people paying taxes, and you have a nice little pot of gold. All paying 15%. (Arbitrary, I don’t think it needs to be that high.)

Yes, I know the Bushwhackers will be along shortly. The point I’m making is codify a simple tax code so Washington can’t increase taxes and spending by offering yet another line to the tax code telling people they are actually saving money. It’s been going on long before 2000 and it gets worse every year no matter who is in charge.

The tax code allows it. The tax code is what needs to be changed.

Whew! That went further than I intended when I replied. Almost everything above is my opinion and not to be associated with the quoted part.

60

Which is, succinctly, why it will never be changed. :mad: