The Taxman Cometh

Ok, ok… yes, it’s another financial tips entry – fine.   Deal with it.  But I think many of my friends might be getting a smaller refund than what they’re entitiled to because they’re filing the wrong form.

I’ve been noticing that a lot of people have been coming to me for help with their taxes lately.  I think I practically did them for someone over IM the other day.  It’s funny because I am no CPA by any means.  I just pay attention to these kind of details.  For example, I was the first one in my office to notice that, for whatever reason, at the beginning of January, payroll decided to ignore the number of state allowances everyone set in their W-4 and reduced it to 1 for everyone (I put in for 9).  I argued back and forth with payroll to correct this.  They thought I was being paranoid and said, “no one else has complained about it.”  I advised everyone in my office to check their paystubs and, sure enough, it was the same way for everyone who originally requested more than 1 allowance.  Now payroll is getting flooded with angry phone calls from people who’ve been getting too much tax taken out of their paycheck for the last 3 months.  Vindication.  But, sometimes my close attention to these details works against me…  like when they accidentally give me too much

But anyway, on to the point of this entry… 

There are many of you who are filing the 1040EZ, because, well, it’s easy.  But you may be losing out on hundreds of dollars in your refund because you’re not aware that you have deductions that total more than the standard $5100, especially if you’re giving to the church.

For example, because we live in such a wonderful state that taxes the crap out of you (and anyone else living in a democrat run state might also be hit by this), your high state and local taxes may alone be enough for you to make it worth your while to itemize your deductions.  According to this calculator if you’re single, live in Maryland, and make over $70k (after subtracting your 401k contributions), you would be better off itemizing.  This is with no mortgage payments, no gifts to charity, NOTHING else.

Now here’s the interesting part.  If you’re putting 10% your gross salary in the collection plate at church, the salary amount goes WAY down to around $32k (after 401k) when it would benefit you to itemize.  This is because you’re paying about $2100 in state and local taxes and $3200 in charitable giving.  This totals at least $5300 in itemized deductions… which amounts to about an extra $50 in your federal refund… not much, I know, but that’s right on the threshold.

So I made a rough chart for those of you who don’t want to do the calculations yourself (this is just if you’re single and living in the state of Maryland):

You should itemize…

If you make (after 401k):                  And give at least:

$32k                                                    $3200

$40k                                                    $2400

$50k                                                    $1600

$60k                                                    $800

$70k and above NOTHING

You can interpolate for amounts between…

For every dollar you give over these amounts, you could be getting back between 1/4 to 1/3 of it back.  So if you gave $1000 above what’s in the “at least” column, you could be forgoing between $250-$333 on your refund just because you’re filing the wrong form.  This includes any clothing you donated or miles you drove in your car to go to that soup kitchen you worked at.

If you are paying interest on student loans, count the interest on your payments as if it were giving.  If you’re paying a mortgage, it doesn’t matter, you should be itemizing, period.

If you’re not giving at all, and you’re a member of a local church… well, that’s something else entirely.  I’m just your taxman, not your conscience.