Ooh, I Feel So Stimulated!

I just took a look at my savings account and was momentarily puzzled by the appearance of a $19.70 deposit labeled "US TREASURY 220 TAX REFUND PPD." I got my tax refunds long ago, and was wondering if this was the correction of some sort of error. But then I got this warm tingly feeling as I realized that this is my economic stimulus payment!

I've heard people in the office talking about when and how they might get their payments. These are mostly younger assistants who don't make much money and are really excited to be getting $600. I hope they use it well.

As for me, I'm not sure that $19.70 is really going to make much of a difference in my life. I wonder how many millions of people are getting this kind of piddly little payment. If a million people get $20 each, that is $20 million dollars. I'd like to think $20 million could have more impact in other ways, but maybe it doesn't matter.

Have you gotten an economic stimulus payment? What will you be doing with it?

NY Property Tax Refund

Well, here's the best thing that happened to me this weekend: I got a check in the mail for $4298.75 from the NYC Department of Finance. This is the refund I was hoping to get, of the property taxes I paid before the abatement went through.
I have to say, I've found this whole process really bizarre. Here's basically how it went:

Fall 2005: I close on my condo, during the last stages of which there is confusion over how much property tax I'll be paying. That turns out to be because they think my condo is the whole building because the individual tax lots haven't been set up. This gets straightened out and at the closing, it is made clear that the escrow amount with my mortgage should be less. It's also explained that the property tax abatement hasn't been finalized yet, but that it should happen within the next few months and everything will be adjusted then.

Fall 2005-Jan 2008: The property tax abatement hasn't gone into effect yet, so I'm paying much higher property taxes than I'd expected. On top of this, my mortgage company predicts further increases and raises the amount I have to pay into escrow, and sends me a notice saying I have to pay an extra lump sum on top of that to make up for shortfalls and avoid being charged interest on the shortfall.

Jan. 2008: I get a notice from New York City of my property value, showing an adjustment that brings my taxable value down by about 97%. Whoopee, I think, this must be the abatement, finally! But what now? Do I get the overpayment back? How do I get it?
Meanwhile, I wanted to make sure my escrow issue was straightened out. I called my mortgage bank and a very nice lady understood immediately what I was asking, and said all I had to do was fax in a letter requesting an adjustment and attaching a printout of the web page showing my new lower tax bill. She said they might even be able to put the adjustment through before my next mortgage statement arrived-- pretty painless!

Feb. 2008: I was talking to one of my neighbors, who said she had already gotten her refund. "You just go online," she said. "There's a form where you request a refund." I did some checking around via ACRIS, the online city information center, and found the application page for refunds. I tried to look at my quarterly statement of account to see if there was actually a credit balance, but the website always timed out. I looked at my recent payments and didn't see any adjustments made for credits. I could also see my next property tax bill reflecting the lower amount due, but it didn't mention any credits from previous overpayments either.
This seemed weird-- how was I supposed to ask for a refund if there was no acknowledgment that the city even owed me money? I just imagined things going into some black hole where I'd be told my account balance was zero so there was nothing to refund. I tried calling one of the phone numbers they give you, but of course I was just put on hold and referred back to the website.
I even checked my neighbors' property tax records to see if it showed them getting a refund-- no sign of it. But I went back to the refund form and filled it in anyway-- it doesn't even ask you for the amount you're requesting. You just give them your address and block and lot numbers, and that's it. I hit "send" and figured I'd forget it for a few weeks and then have to follow up and trace the whole thing through some bureaucratic nightmare.

March 2008: The aforementioned refund check arrives! It was in an envelope with a slip of paper saying, basically, "here's the property tax refund you requested." There was no statement accounting for the amount, and no other explanation. The amount I received was slightly less than the full amount of property taxes I paid last year. But it's not quite enough to account for taxes I will already have paid for this year. I think. I can't figure out how they arrived at that exact number, so maybe in a few months I will go online and apply for another refund, just for the heck of it, to make sure I'm not owed any more! But all in all, I was just so happy to get that money-- it was so much easier than I thought it would be! I had a friend over when I opened the envelope and the whole evening, I kept saying "wow, I can't believe they just sent me this money so quickly and easily! Wow. Wow!"
Now I just have to see how my next mortgage statement looks and what my new escrow amount is. This should really help my monthly cash flow, and March should be a great month for my net worth, regardless of stock market woes!

When Will I Get My Tax Refund?

This is what my posts tend to look like when they are in early draft form:

http://www.irs.gov/individuals/article/0,,id=96596,00.html
there used to be a chart that gave you an estimated date for yoru refund to be direcdt deposited based on when you e-filed your return, not any more.
enter ssn, status (single etc) and exact whole dollar refund amount

I do this a lot, and have about a hundred draft posts on Blogger, dating back to the first few days after I started this site-- I am always seeing things I want to write about or jotting down ideas to flesh out into real posts later. The only problem is that it's hard to find the time to go back and finish them and sometimes the info gets stale. Or I discover that someone else has posted on the same topic in the meantime, as SingleMa just did! So please head on over to her site for a complete, attractively formatted, correctly spelled, unabbreviated explanation of how to find out when you'll get your tax refund! (My federal one was deposited today!)

What if You Contribute Too Much to a Roth IRA?

I've had a couple of comments from people saying I should be careful not to contribute too much to a Roth IRA. For 2007, I contributed the full $4,000, but that maximum only applies to people whose income was below $99,000. My total income in 2007 was just above $100,000-- so did I screw up?
Fortunately, the answer is NO! The income limit for Roth IRA contributions refers not to your gross income, but to your "Modified Adjusted Gross Income," abbreviated hereafter as MAGI. Maybe I should have called this post "The Gift of the MAGI..."

As I learned from the "Ask Encore" column in this past weekend's Wall Street Journal, you can figure out your MAGI by going to www.irs.gov and using a worksheet in Publication 590. They say it's on page 61, but I didn't see any page numbers-- I just found it by searching the table of contents for Roth IRA contribution limits.
The worksheet asks you to enter your adjusted gross income from line 38 on form 1040. Then you have to add back in a bunch of other lines, none of which applied to me. Below is the 2007 worksheet:

1.	Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36			1.
2.	Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA or a minimum required distribution from an IRA (if figuring MAGI for conversion purposes)			2.
3.	Subtract line 2 from line 1			3.
4.	Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31			4.
5.	Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 32			5.
6.	Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19			6.
7.	Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33			7.
8.	Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18			8.
9.	Enter any foreign housing deduction from Form 2555, line 50			9.
10.	Enter any excludable qualified savings bond interest from Form 8815, line 14			10.
11.	Enter any excluded employer-provided adoption benefits from Form 8839, line 30			11.
12.	Add the amounts on lines 3 through 11			12.
13.	Enter: $166,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $114,000 for all others			13.
	Is the amount on line 12 more than the amount on line 13? If yes, see the note below. If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes.

My MAGI was only $86,606, which is basically wages, interest, business income, and capital gains. The reason it's lower than my gross income is those lovely pre-tax deductions: my 401k, maxed out at at $15,500, plus little things like my monthly Metrocards, and health insurance.

For 2008, the MAGI limit for contributing the maximum $5,000 to a Roth IRA is $101,000 for individuals. (Yeah, it's different for you over-50 people and married-filing-jointly types, see the IRS link for details while the young swinging singles read on!) I plan to continue to max out my 401k contributions so hopefully it will still be a couple of years before I have to start limiting my Roth IRA amounts. But I will be using that worksheet each year from now on, just in case.

Fortunately, having a too-high income doesn't necessarily disqualify you from participating in a Roth IRA-- the contribution limit is lessened and eventually phased out as your income gets higher, it's not all or nothing. The IRS provides a worksheet with which you can calculate your correct maximum amount.

Here's an example of the 2007 worksheet for someone whose MAGI is over the limit, showing how to calculate the reduced contribution amount:

1.	Enter your modified AGI for Roth IRA purposes	1.	100,000
2.	Enter: $156,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2007, or $99,000 for all others	2.	99,000
3.	Subtract line 2 from line 1	3.	1,000
4.	Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others	4.	15,000
5.	Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000	5.	.067
6.	Enter the lesser of: $4,000 ($5,000 if you are age 50 or older, or $7,000 for certain employer bankruptcies), or Your taxable compensation	6.	4,000
7.	Multiply line 5 by line 6	7.	268
8.	Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200	8.	3,740
9.	Enter contributions for the year to other IRAs	9.	0
10.	Subtract line 9 from line 6	10.	4,000
11.	Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit	11.	3,740

So what happens if you accidentally contribute more than you are allowed for your income level? You have to pay the IRS a 6% excise tax on the excess contribution amount. If you leave the money in the Roth IRA account anyway, it will reduce the amount, if any, which you are eligible to contribute the next year. If you aren't eligible to contribute anything the next year, then you'll keep getting dinged that 6% penalty each year the over-contribution remains in your account. Ouch!

Remember, all this tax stuff is serious business, and I am not a professional-- make sure you check the IRS website to do your own research for your own situation, and stay up to date on any changes in the laws!

Tax Refund

Whoo-hoo, it's great having a mortgage! I'm going to get a refund of $4, 465 from the feds and $1,539 from NY state. Yes, I know I've been giving Uncle Sam a free loan all year yadda yadda but I'm still very happy to be getting this money. Being able to deduct that mortgage interest has made a big difference in my tax situation! Last year I only got a total of $2,844 back.
I was surprised that my refund was this big, as I'd already adjusted my withholding in March 2007. I wonder if I should have adjusted it even more! It's nice to be hanging onto more of my hard-earned cash throughout the year, but the thing is to make sure I don't end up spending it! As Jim at Blueprint for Financial Prosperity pointed out in one of his Devil's Advocate posts, the amount of money you'd earn in interest by minimizing your withholding isn't necessarily all that much-- more money is never a bad thing, even if it's only a couple hundred bucks, but does it outweigh the psychological advantage of forced savings? I may take another look at my budget for the year with all this in mind...

Condo Tax Abatement

Here's the best news I've had in a while: it looks like the 421a tax abatement on my condo finally went through. It's a little early to tell what the actual effect of this will end up being, but the taxable value of my condo just decreased by 97%, so the savings should be significant! The abatement is effective for 12 years, I believe.
I also applied for my New York Middle Class Property Tax Rebate recently. I'm not sure if I'll turn out to be eligible for it due to the abatement. The rebate is usually a flat $400 for most homeowners, but since my annual taxes may end up being less than that, I'd be surprised if they give me anything in the future. But for 2007, I paid way more than $400 in taxes since the abatement hadn't kicked in. Will the abatement be retroactive? I have no idea. This whole issue is one that seems hard to find answers to-- just try calling that phone number they give you for questions about the STAR rebate, I'm sure you'll never get a live person!
Anyway, I'm just going to muddle along for a while and see how it shakes out. Hopefully when my lower tax bills start coming through I can get my mortgage bank to escrow less money, and my cash flow will be a couple hundred dollars better each month!

Big Money Friday

The Times is on a roll this week, or maybe I'm just noticing it more than usual. Today had a front page story about the Blackstone Group partners' clever tax dodge:

“These guys have figured out how to turn paying taxes into an annuity,” Ms. Sheppard said. “What people don’t realize is that the private equity managers, the investment bankers, all the financial intermediaries, are in control of their own taxation and so the debate in Washington about what tax rate to pay misses the big picture.”

The debate in Congress is about whether most of the compensation that fund managers earn should be taxed at the 35 percent rate that applies to other highly paid Americans, or at the 15 percent rate for capital gains.

It's a little complicated, but here's how it works:

Blackstone’s tax maneuver hinges on its use of good will, an accounting term for the value of the intangible assets, like a well-known brand name, that are built up by a company over time. That value is part of the reason a company is worth more than the sum of its physical parts, like buildings and equipment.

Individuals who create good will cannot deduct it. But when good will is sold the new owners can because its value is assumed to erode. The Blackstone partners sold the good will from their left pocket to their right.

In simplest terms, the Blackstone partners paid a 15 percent capital gains rate on the shares they sold last month in the initial stock offering to outside investors (those shares represented a stake in the Blackstone management company, not its funds).

Blackstone then arranged to get deductions for itself for the $3.7 billion worth of good will at a 35 percent rate. This is a twist on the “buy low, sell high” stock market adage; in this case it would be “tax low, deduct high.”

The deductions must be spread out over 15 years. And the original Blackstone partners are getting just 85 percent of the tax savings, leaving the other 15 percent to outside investors. The deductions on the $3.7 billion to the partners are $1.1 billion over 15 years.

If these tax savings were paid as a lump sum this year, the partners would get about $751 million, which is $198 million more than the taxes the partners will pay on the $3.7 billion of good will.

And then there's the story about people who own pied-a-terres, reversing the typical notion of living and working in the city during the week and then getting away on the weekends. I particularly liked this bit about a guy whose second home is a condo in Miami Beach:

A characteristic of all urban second homes, high or low, is that they give owners an excuse to cut loose or at least have a little fun when it comes to designing and furnishing them.

Mr. Sexton, for example, saw it as a chance to indulge a fantasy of his earlier years — in this case, an obsession with the 1980s television show “Miami Vice.”

“When I was younger, I would be glued to that show every Friday night,” he said. “I always wanted to live like that. When we came here, I told the designer I wanted a “Miami Vice”-meets-New York look. It’s pretty amazing. We’ve got purple walls that go into yellow walls and turquoise walls that go into silver walls.”

Well. I guess we can all dream.

A Visit to My Accountant

I had my taxes done today. The good news is that I'll get a refund of $2,753 from the federal government, and $91 from the state. I've owed NY State the last couple of years, and my federal refund has been less, so I'm happy about this.
This was an interesting year for taxes. I bought the condo, first of all. Also, I sold several stocks and mutual funds, so we had to figure out my cost basis and my long-term capital gains and losses. Here's a hint for you: one thing I've done for the last couple years is to keep a spreadsheet on my PDA listing every security I've bought, with the date, share price, number of shares, and any comission paid. If I sell them a few years later, it is much easier to refer to the list than having to go back through all my other records to pull together the needed info for my taxes.
Speaking of pulling together info, here's what I do:
W2 and 1099 forms-- that is easy. Whatever gets mailed or given to me on paper, I stash in a certain corner of my desk. Then I just run down my account lists in Quicken to make sure there aren't any additional ones I need to download from websites to cover all my various interest and dividends/capital gains from bank accounts and investments. I clip all these together with my tax return from last year.
Condo-- my lawyer gave me a lovely bound-up collection of all my closing documents, with colored tabs and everything. I marked the HUD settlement statement with a post-it as that is where the tax-related stuff is summarized. I also got a 1099 [oops! 1098, actually] from my mortgage lender, detailing the interest and points paid. Because my condo was newly established this past year, I actually haven't paid any property taxes yet-- the money is still in escrow for when all the abatements and things are settled. But next year I should have some kind of statement of property taxes paid as well. And I'll have a full year of mortgage interest to deduct.
Miscellaneous itemized deductions: I go through my Quicken category summary looking for things that fall into the following areas. Since I work in publishing, there are a lot of things that are not reimbursed by my company that do relate to promoting books I publish and generally networking in the industry in ways that develop my career and ultimately sell a book or two. Over the years, my accountant has taught me to look for things that might not occur to me, and really keep track of them. I save my receipts!

• Charitable donations: cash/check/credit card donations. (I also get receipts whenever I bring bags of stuff to the Salvation Army.) Tip for 2007: miscellaneous cash donations without receipts will no longer be allowed, so make sure you get a receipt if you buy any girl scout cookies...
  
• Parking/tolls/taxis for local business expenses, like if I visit a bookstore
• Meals/Entertainment-- with people in publishing industry, or who review books, buy books, etc. This can include meals in restaurants and groceries bought to entertain at home.
• Business equipment like printer cartridges, etc and supplies such as stationery and pens that I use for work-related stuff.
• Admissions for research: Movies can relate to books. Museum exhibits can relate to books. Plays can relate to books. All very much a part of an overall media awareness which is very important if you work in publishing. Cable TV would be a write-off too, if I had it.
• Business gifts-- a few bottles of wine given to colleagues
• Business phone-- until I got a Blackberry, I used my personal cellphone quite a lot for work but was not reimbursed for the monthly cost, so a portion of that is deductible
• Continuing education-- I've had dealings with a lot of foreign publishers, so French lessons are valid here, though my company does not reimburse them
• Internet access-- used quite a bit for work and overall media awareness
• Job search-- if I bought any stationery to print out my resume, etc, or traveled to look for a job, that is deductible
• Professional journals and books-- gotta keep up with what the competition is doing and keep track of book reviews etc.
• Software-- I bought a couple programs for my Palm that I use for work stuff
• Subscriptions-- magazines, newspapers: again very much related to book publishing
• And if I'd bought any major equipment such as a computer or a new PDA, that would be noted and deducted and/or put down as some kind of depreciation thing that I don't totally understand-- but hey, that is why I use an accountant.

For me, itemizing all these deductions gets me a much better refund that taking the standard deduction, but PLEASE DON'T TAKE THIS AS ADVICE ON WHAT YOU CAN DEDUCT!! Consult a tax professional to see what applies to your own situation.

Now here is the killer that will probably appall some readers: how much do I pay for all this advice and the ease of having my forms prepared and submitted for me? It's been creeping up over the years and this year the total was $480, including audit insurance, which may be a waste of money, but sort of adds to my comfort level. The first time I went, the extra refund my accountant got me more than covered her fee. But now that I've learned all these neat tricks, I wonder if I should just do it on my own and save that money. Next year will still be complicated because of the condo taxes, so I think I'll keep going. And who knows, maybe someday this site will actually get to the point where I need to set myself up as Madame X, Inc.! Or not... but setting up a business would definitely be something on which I'd want tax advice.
So we'll see. In the meantime, I justify the expense by knowing that my accountant is much better informed than I am about what I can deduct, and that a careless error isn't likely to get me audited. (Not that I'm careless about these things, but still...)
And why is my accountant so expensive? Can't you go to H&R Block for way less? Yes, you can get someone to do your tax forms for way less, but it won't be a CPA-- it will probably be someone with very minimal training, whose goal is to do as many returns as possible, as fast as possible. The person I go to has many years of experience, and in the years I've been seeing her, I've watched her business expand and thrive. She is the head of the company, and incredibly busy at this time of year, but she always takes the time to go over my information thoroughly, and I trust her advice. I could probably see one of her junior staff people for less, but I guess I prefer to maintain the relationship we've built up rather than trying to save a couple hundred bucks.

So what is next? I wait a few weeks for my refunds to be direct deposited. And I've been told I can add 4 exemptions to reduce my withholding, which I've been meaning to do for a while. And then I just have to keep saving my receipts and hope I do even better next year!