Miscellaneous Tax Notes on a Lucky Day

Why is today lucky? I found a $20 bill on the street this morning while on my way to the gym.

A commenter on this recent post asked about my tax refund, noting that she made less money than I did yet did not get a refund. Of course, as another commenter pointed out, whether or not you get a refund depends not only on how much money you make and how much you can deduct, but how much you had withheld. If you don't have enough withheld from your paycheck, you'll owe money when tax time rolls around.

Another commenter took me to task for having too much withheld, noting that I'm giving the government a free loan. Yeah, that's kind of true but I really don't think it's a big deal. First of all, the interest I'm losing is not significant-- if my $2307 Federal refund had been sitting in a savings account all year, I'd be lucky to earn $35 in interest on it. Also, I think there's a psychological benefit to getting that money in a lump sum-- it's easier to just sock it away and not spend it, somehow. (Though some people might feel differently, seeing it as a windfall that can be spent on something fun.)
Also, I'd rather not take the risk of underwithholding-- if you owe a lot of Federal taxes at the end of the year, the IRS can assess a penalty which would work out to more than the interest you'd earn on that money while it sat in the bank.

As for my actual taxes paid, I always like to look back at what I paid in taxes via withholding minus my refund received, to see what my net taxes were for the previous year, as a percentage of my income by various measures:

I paid $16,308 in federal taxes via withholding in 2010. Minus $2,307 refunded, my net Federal taxes paid were $14,001.
My total salary plus bonus was $116,661, so my Federal taxes were 12.00% of that. But that's just my work salary, it doesn't include other things I pay tax on, like interest, dividends and income from blogging.
My adjusted gross income includes all those things, but it doesn't include things paid for out of pre-tax dollars, such as my 401k contributions of $16,500, FSA, medical and dental insurance costs and subway metrocard costs deducted from my pay. My AGI ended up being $101,095, so my Federal taxes were 13.85% of that.
But my Federal taxes aren't calculated as a percentage of my AGI-- all my various tax deductions are subtracted from that to get my taxable income. So after taking out my mortgage interest, charitable deductions and various other unreimbursed expenses that relate to my day job and the freelance income from blogging, my taxable income was only $71,532. My Federal taxes were 19.57% of that.
Interesting to note that Warren Buffett has said that in 2006, his taxes came to 17.7% of his taxable income (I'm not sure if he was counting just Federal taxes or also state taxes). Yes, of course his total taxes paid work out to about 58 times more than what I paid since his taxable income was over $46 million... the sad thing is that there are plenty of people who make less money than me who probably pay an even higher percentage of their gross income than I do.

It's also worth noting that my taxable income is less than 60% of my total gross income, and only about 71% of my adjusted gross income. When the media talks about whether or not taxes should be raised on "people who make over $250,000," that usually refers to a household adjusted gross income of $250,000-- their gross salary is probably more, and their taxable income is probably a lot less.

How about you? Have you ever done the math this way on your taxes? I'd be interested to hear from others about your gross income vs. taxable income and what you pay in taxes...

Kidzania: Work as Play

This is the most fascinating thing I've read this week, an article about a chain of theme-parks for kids where they can play at... real life! State of Play

Right now, in eight malls spread across three continents, thousands of children are dressed as pilots and flying digital planes from mock cockpits, anchoring news broadcasts in fully functional TV studios, or wearing helmets and extinguishing faux flames with real water cannons. This is KidZania, a multinational chain of family entertainment centers, where kids try out professions that have been downsized, simplified, and made fun. At these soccer field-size franchises in malls from Tokyo to Lisbon, children play at being adults. Children can play surgeon, detective, journalist, courier, radio host, and dozens more jobs. They can buy and sell goods at the KidZania supermarket, take KidZania currency that they earn to an operational bank staffed with adult tellers, and be security guards escorting KidZania currency around the park. They can assemble burgers and pizzas, which they can then eat, or give makeovers to other paying children. At the planned KidZania Santiago, Chile, minors will be able to play at being miners. One-size-fits-all costumes supersize the cute factor. The result of all this is mass-produced adorability.

I'm sure when I was a kid I would have thought this was really cool-- it's like a miniaturized world where you can do "real stuff." But there are pros and cons. It's good that it teaches kids about earning money at a job and using that money to buy things. But it's a little creepy that the corporate sponsorship makes it seem like kids are being indoctrinated into a branded world. Also, as critics have pointed out, it's not very creative. By putting kids in an environment where everything has been realistically reproduced, you leave nothing left for them to imagine. Kids can happily use a cardboard box to play restaurant or bank or doctor's office, without McDonald's or HSBC or Crest having to sponsor it. Also, visiting KidZania is pretty expensive-- in Tokyo, it costs $150 for a family of 4, which seems a little steep given all the advertising you're subjected to. What do you think? Would you take your kids to KidZania?