Finished Filing Taxes

[Dravin]

Most people are just ignorant and can you blame them, the tax code is ridiculously complex and convoluted.

I like the visual in "Executive Orders" when the new Sec Tres piles volumes on a a sturdy oak desk and it snaps in half. Don't know if it's accurate or not, but I enjoy it all the same.

[StrawberryFields]

Wouldn't it make more sense to get the taxes you have to pay taken out as you get your paychecks instead of saving the money to pay the taxes not paid during the year? Unless your savings account is a lot better than mine If I did that I'd earn probably about $0.50 through the year lol.

Sure, we get a lot taxes taken out every check. When you are in the highest tax bracket you pay more taxes than many would dream of paying. I like to hang onto some of the money until all of the checks and balances come together. We used to get really excited to get a refund from over paying our taxes until we sat back and thought about that one.

[nbblood]

We have actually written checks (LARGE ones) to pay the government and mailed them April 14th. Wise or Unwise? BTW, we always make sure there is no penalties or interest included.

Wise.....if you have the discipline to make sure they get paid on time without interest or penalties. Essentially your money is working for you.

For me, I'd spend the money and be in trouble in April. So for me, probably unwise. Different preferences.

[nbblood]

Okay, I mis-used the word hefty. Something better than nothing then.

It is the principle of the thing.

It is crazy how people use the government to manage everything - especially their hard-earned money - because it is "convenient?". Even if it means they make no gain on that said money at all.

The same reason why people went crazy when Social Security proposal to privatize was made. Americans actually rely on the government to manage their retirement fund. It's quite mind-boggling.

Ok, let's think through what you actually propose.

If you reduce your withholdings to save as much of your tax money as possible to have it work for you instead of the government and invest that money in CDs as you propose.

Oh, and Anatess....I don't mean to say you're wrong.....you're not......it very much is wise to get your money working for you......but in this case I think most people aren't going to benefit enough for the trouble it is. But again, to each their own.

First, you would only gain your investment $$ incrementally over a month. So you'd have to have some sort of programmed investment plan that deposited the money into the CD....monthly would be wise to maximize your earnings. This, really is a piece of cake. Pretty much anybody could set this up. But keep in mind your only earning interest on the amount deposited month by month. So....after one month you would (in theory) be making interest on 1/12 of your potential return.

Now, to make a CD get anything at all really you pretty much have to invest for at least 6 months. BUT to make a whole whopping percent.....that's 1.00....you pretty much need to invest it for a year by today's rates. So.....for argument's sake let's use a year.

So, over the course of the year, you deposit your withholdings into CDs as investments. Until in December you make your final deposit and finally now, you're making interest on the entire amount of your potential refund.

Now tax time rolls around.....April 15.....when the person who allowed the government to hold their money interest-free is getting your refund......you now have available 1/3 of your invested funds.....in two more weeks at the end of April.....assuming you don't want to take a penalty by withdrawing early. So the rest of your money sits there for 8 more months making 1% interest while losing 2.50-3.00 to inflation.

Meanwhile, the "government interest-free loan" user gets his entire refund and can use it to his/her advantage immediately.

So how much did that CD really make you?? and for what amount of effort??

Don't get me wrong. For the person that has the discipline and financial planning skills, you certainly should.....again, in theory.......do as you suggest, reduce withholdings, invest and make your money work for you.

But......for the average taxpayer, the juice simply ain't worth the squeeze in most cases. You simply don't make much in short-term investments. It's not enough to spend the effort trying to manage it. Particularly when......and this is a kicker.......doing so could potentially put you in a tax liability at the tax season, which could potentially lead to interests and penalties to pay your liability. In other words......don't be wrong.

The costs of paying penalties and interest SEVERELY outweigh the benefits of gaining a little interest on your potential withholdings. That plan sounds good in theory, but in practice.......for most people.......it's really not worth worrying about.

Edit: Of course I've made VAST generalizations and assumptions in this model. It's just for discussion purposes. There are literally millions of potential possiblities for adjusting tax situations and gaining interest on withholdings. This is just an example for discussion.

Edited January 26, 2010 by nbblood
disclaimer.....lol

[bytor2112]

I think Anatess's point was that a refund is simply over payment of taxes. CD's aren't good for anyone but banks.....trust me, I manage more money than most small banks have in deposits. That being said, rather than sending an overpayment of taxes to the government, the additional money could be invested to achieve a long term financial goal.....like retirement.

[pam]

Again it's just a matter of preference.

[nbblood]

I think Anatess's point was that a refund is simply over payment of taxes. CD's aren't good for anyone but banks.....trust me, I manage more money than most small banks have in deposits. That being said, rather than sending an overpayment of taxes to the government, the additional money could be invested to achieve a long term financial goal.....like retirement.

Ah, yes. If your money is targeted for long-term investments I definitely agree. It still takes discipline and an informed strategy to avoid paying penalties and interest though.

Again it's just a matter of preference.

Yep. This is the point I'm making. Each individual should make their own assessment and informed decision on their tax strategy.

[pam]

Yep. This is the point I'm making. Each individual should make their own assessment and informed decision on their tax strategy.

I know. You and I are on the same page. I was just reeiterating. I sometimes feel like those of us who choose that route are thought of as foolish.

[nbblood]

Ever seen those commercials where people are referring you to Such and Such Law Firm because they reduced their tax debt from $200K to $15K and they're the most wonderful law firm in the world? Well those are the people that didn't withhold enough tax from their earnings, got themselves into a serious tax liability that was more than they anticipated, spent all their money along the way, then need to get bailed out by some law firm because they were simply irresponsible.

Those people irritate the daylights out of me. Now, because of their irresponsibility and the fact that they settled their debt for a fraction of what they owed, we honest tax payers have the opportunity to shoulder the burden of the taxes they were too irresponsible to pay. Unfortunately the IRS pretty much has to settle if they're going to get any money. And the loser tax payers have learned that they can get away with living lavish lifestyles and then settling their debt for a fraction of their liability. I mean what did they do with all their money? Apparently they didn't invest it in CDs or anything else or it would be available to pay their debt. I'll bet some of them didn't even sell their $2M homes to settle.

Hmmmm.....maybe this should go in the Pet Peeves thread.

[bytor2112]

Ever seen those commercials where people are referring you to Such and Such Law Firm because they reduced their tax debt from $200K to $15K and they're the most wonderful law firm in the world? Well those are the people that didn't withhold enough tax from their earnings, got themselves into a serious tax liability that was more than they anticipated, spent all their money along the way, then need to get bailed out by some law firm because they were simply irresponsible.

Those people irritate the daylights out of me. Now, because of their irresponsibility and the fact that they settled their debt for a fraction of what they owed, we honest tax payers have the opportunity to shoulder the burden of the taxes they were too irresponsible to pay. Unfortunately the IRS pretty much has to settle if they're going to get any money. And the loser tax payers have learned that they can get away with living lavish lifestyles and then settling their debt for a fraction of their liability. I mean what did they do with all their money? Apparently they didn't invest it in CDs or anything else or it would be available to pay their debt. I'll bet some of them didn't even sell their $2M homes to settle.

Hmmmm.....maybe this should go in the Pet Peeves thread.

Your painting those people with a pretty broad brush. Perhaps if the tax situation wasn't such a slam in the face, people would not have problems with the IRS. I personally know people who have made "offer and compromises" with the IRS, and I can tell you that it isn't a simple or automatic process. There are people who made choices, feed my family, pay my employees or pay the government and the government was put on hold.

Rather than being so sanctimonious and casting stones at people for failure to hand over their hard earned money, you might notice that our government wastes money as though it grew on trees and regularly picks winners and losers. Cash for clunkers, home buyers program, TARP, Stimulus bills, foreign aid, welfare, medicaid, etc.

Do you have the same loathing for people on medicaid or welfare? After all they are living off of your tax dollars. Probably not. Why? Many are receiving benefits for just being lazy slugs......many are not. You might cut some people some slack that have dealings with the IRS. Some people have spent and will spend the majority of their lives living on the dole, some people fell on hard times and missed a tax year or two.

[nbblood]

Your painting those people with a pretty broad brush. Perhaps if the tax situation wasn't such a slam in the face, people would not have problems with the IRS. I personally know people who have made "offer and compromises" with the IRS, and I can tell you that it isn't a simple or automatic process. There are people who made choices, feed my family, pay my employees or pay the government and the government was put on hold.

Rather than being so sanctimonious and casting stones at people for failure to hand over their hard earned money, you might notice that our government wastes money as though it grew on trees and regularly picks winners and losers. Cash for clunkers, home buyers program, TARP, Stimulus bills, foreign aid, welfare, medicaid, etc.

Do you have the same loathing for people on medicaid or welfare? After all they are living off of your tax dollars. Probably not. Why? Many are receiving benefits for just being lazy slugs......many are not. You might cut some people some slack that have dealings with the IRS. Some people have spent and will spend the majority of their lives living on the dole, some people fell on hard times and missed a tax year or two.

You, of course, are correct. I have made vast generalizations and I very much realize that each individual situation is different. However, and perhaps I should've been more specific, there are those that have racked up debt to the IRS in the hundreds of thousands of dollars and then settled for significantly less. Those, specifically, are the ones that really bother me. It's certainly not a matter of "feeding their family" when it comes to debts that large. They have acquired and spent in the millions while not paying taxes responsibly.

Does it bother me? Yeah, sure. Do I lose sleep at night over it? No. Do I loathe these people? I wouldn't go so far to say that. It irritates me, but I don't "loathe" these people. I also realize that people make mistakes.

I'll admit that I also question things such as the welfare program. I've seen the reports of major news networks of people driving their $60K Lexus to collect their welfare check then drive to their million dollar home. Of course, these are the exceptions, and I realize that. I believe the programs, as intended, are good. I have a problem with those that misuse the systems that are meant to benefit those that really need them. Again, I don't hold a hatred. But at the same time, I feel it's my responsibility as a citizen to demand that these systems aren't abused. It is NOT solely for my benefit. Those that truly need assistance are short-changed by the ones that abuse systems. And, of course, honest tax payers shoulder the burden.

Perhaps that more specifically describes my problems with some of these systems. Certainly an interesting discussion and it's impossible to get into great detail in a short post.

[Guest]

Of course this is preference. Maybe it has some cultural background to it as well. But, the principle is universal. You can pretty much point to most of the political discussions in the Current Events thread and see that IF this principle was something Americans valued, you wouldn't have as much moaning and Tea Parties and all that stuff going on. You can even point to the "everything in Wal-mart is made in China" discussions and see how this principle is affecting that too.

Americans do not put as much value to the 0.50 cents in a savings account because they would rather spend than save. And, if there's no more money to spend, there's always welfare. They would rather pay $50 per month on credit card interest than earn 0.50 cents on a savings account. It's the "I want it, I want it now, I'll have it now" culture. Capitalism and the free market cannot work in an environment where people are controlled by their creditors. Freedom of choice that is essential in a free market and a democracy is limited when somebody can threaten you with a lien on your house!

The government wants to raise taxes - what does that mean to the people? Nothing - because they don't see the money. It magically disappears before they even get their paycheck. So, they never FEEL how much money that really is. They want a brand-spanking new washer and dryer with colors to match the new paint on the laundry room wall, even when their old one is still working, then put it on a credit card. They don't FEEL how much money that is because, heck, it is only $43 a month on your Lowe's card. They don't start to feel it until they lose their house. And even then, they can just vote their house back.

It is too much trouble to learn the basics of managing your own money - it's not worth the 50 cents the savings account makes at the bank. So that, when somebody entices the American people with promises of a no-money-down, we'll even give you free appliances, 3-year ARM mortgage for 7% interest, we don't care if you have upside-down debt-to-income ratio, Americans open up their mouths and say, Aahh! Give me more! And then, they whine and moan when the ARM comes due because nobody taught them any better. Well, there's always government bail-out...

Guys, what I'm saying here is - it's not the 50 cents. It is the principle of the thing. The lifestyle - the attitude - the culture of it. Overpaying your taxes because you don't trust yourself to manage your own hard-earned money is a symptom of the cultural problem. I'm just high-falutin standing on my self-made podium here and I'm sure the Americans here are shaking their heads saying what a crazy fool that girl is. Well, that might be. But it is fact that the Chinese owns the American money and no, that's not because the American government sold their secrets to China!

The way I was raised - in the Marcos era (Philippine dictator) - I was taught self-reliance. That goes for everything - health, finance, education, etc. etc. I was raised knowing that you don't let a government control your life. You make it so that the people have the power to control the government.

I work hard for every penny I earn. I find it idiotic that I wouldn't learn how to protect what I earned. My financial strategy is my own. But, I would rather earn 50 cents than zero. There are a lot better financial strategies than the CD but for beginners, a CD is a good start.

Read up on "laddering CDs". I've maxed out to the 5-year deal now. In my credit union, you can open a 3-month CD for $500 for 1.05% interest. If you are under 25 years of age, you can open one for only $100. That's 5 bucks for your $500. Hah, you might say, ONLY 5 bucks? Okay then, go find a job that you don't have to do anything and somebody gives you 5 bucks. Most people who pay taxes, pay more taxes than just 500 bucks. I pay over $2,000 a month! A 1-year CD earns you a fixed 1.8% (last I checked). So, for the $20,000+ I pay in taxes, that is potentially $360.

Small potatoes? Sure. I mean, you can blow $300 with one mall trip. But that's $300 more than I had before. And that's $300 that I just earned for maintaining the power to control the government with the people. In the whole scheme of things, looking at the big picture, it's worth it to me.

But, like Pam said - that's just me.

[nbblood]

A 1-year CD earns you a fixed 1.8% (last I checked).

Only the VERY best rates will get you this these days.....and normally comes with a $5K minimum. I think around 1.3% is more what you can expect on the average these days.

But....your points are very well taken. I particularly agree with your assessment of our cultural spending habits. Very well said.