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...

Found Money... and a Seat on the Subway!

This is the weirdest way I've ever picked up change: the other day, I got on a crowded subway car. I saw one empty seat but quickly realized it was being shunned because someone had spilled coffee on it. Then I saw another empty seat-- that one was being shunned too, apparently for no other reason than that someone had left 4 pennies on it! In the split second it took me to snag the seat, my brain somehow decided that I should just sit on the money rather than picking it up first! But at the end of my ride, I remembered to grab them out from under me.

I guess you could call that a bum deal...

Respect for Money

One theme that emerged in the comments on my "Money Neurosis of the Week" post was that waiting for change of even one penny indicates that you have respect for your money. From the comments:

... he credits that respectful approach to money as one of the reasons he is wealthy...

... the penny probably doesn't matter much... but the stewardship attitude pays off on a larger scale because it affects every part of your life...

I think this is very true and very important. It's an idea I've gotten at a little in previous posts-- sometimes a penny is not just a penny, it's symbolic of your larger relationship to money.

It's easy to make fun of frugality-- it can seem absurd to worry about saving tiny amounts of money that even when you total up their effect over the course of the year, do not represent a large portion of your total budget. Sometimes people want to ignore trying to save pennies, preferring to instead focus on earning more dollars. But the two should not be mutually exclusive, and in some ways, saving pennies may be more important-- it's all about attitude.

Money is a powerful thing. We can do so much with it when we have it, and a lack of it can be so devastating. Most of us also spend a huge amount of our time working hard to get it! We all spend a good portion of our lives using money, and worrying about money. Even those who are born independently wealthy aren't immune to this.

If money is so important and so woven into our lives, we should respect it. Respecting your money means respecting yourself, your time, and the loved ones who may depend on you, or help you in hard times. It means respecting the freedom money can give you, and the power money can give you to help others. If I pick up a penny off the street, it's not about needing that particular penny-- it's about trying to value all money for what it can achieve. It's about remembering that I am not above having to be concerned about money.

You could take this too far-- this doesn't mean we should worship money, or see money as the only important thing in life. And it doesn't mean money can never be spent on frivolous pleasures. But by saving a few pennies, we can "practice" a mindful, respectful attitude towards taking care of our money, and hopefully it will help us take care of our dollars just as well!

What does respecting your money mean to you?

Good, Clean, Money-Saving Fun

I had dinner the other night at Joya, a Thai restaurant in Carroll Gardens, Brooklyn. I've written before about its sister restaurant in Park Slope, called Song. Both places seem to have found a recipe for success in offering a hip atmosphere and really low prices-- they always seem to be jam-packed with a diverse crowd, people of every age, race, class, and orientation all chowing down on generously sized $7-8 entrees.

After enjoying some veggie dumplings, chicken masaman curry and a shrimp/portobello mushroom special, with a couple of drinks, all coming to about $50 for two people, I decided to stop in the bathroom on the way out. While I was, ahem, seated, I looked down and noticed a shiny quarter on the floor! As longtime readers will know, I love finding money and will stop and pick up a coin of almost any amount. A quarter is especially exciting, as it can be used for laundry.

But this quarter was on the floor in a bathroom. The bathrooms at Joya seem quite clean as New York restaurant bathrooms go, but the quarter was on the bathroom floor in a slightly puddly looking area, which was kind of sort of really near the toilet. This gave me pause. I stood there for a minute and thought, "should I just give up on this quarter? Is that too gross?" It also occurred to me that this might be one of those jokes where the quarter is super-glued to the floor and if I try to get it I'll end up on Candid Camera or YouTube as the crazy girl who's willing to scrape a quarter off a dirty bathroom floor.

But the intrepid penny pinching Madame X came through and I told myself, "@#(*&$ it, I want that quarter!" I turned on the water in the sink. I put some soap on my hands. I bent down to grab the quarter. This attempt at germ-busting then resulted in some comical slippery fumbling with the quarter (which perhaps you've already seen on YouTube, but god I hope not...). But I eventually got the quarter to the sink where I washed it and my hands thoroughly with more soap. I then dried off my prize and took it home in my coat pocket.

Yes, it's possible that this quarter might still have been crawling with nasty bacteria but I didn't hang onto it for long-- the next morning I ended up giving it to a friend to use in a parking meter.

And yes, this is how far I'll go for 25 cents. I think it's a good exercise, actually, in adjusting one's financial attitude. Picking up a coin reminds me that the little things matter, and that I don't take financial issues lightly. It reminds me that money is money, and no honest way of acquiring it should be considered beneath one's dignity. But really, if you see me on YouTube, please don't forward it to all your friends.