Help me explain taxes to DH

[yoopermom]

DH understands *why* it's "wrong" to get tons of $$ back on your taxes (it's your $$, gvmt has been earning your interest, etc), but he still gets really frustrated when his DFs brag about how much they're getting back, and we don't.

Here's what I've tried to tell him (and please correct me if I'm wrong): we both work but were both unemployed for some months last year (didn't have taxes withheld), we only have one child (who's no longer in daycare, we just missed out on earned income credit), our house is paid for (no mortgage interest deductible), our property taxes are very low (under 1K, hence no homestead), my student loans are still in stasis, and we have never had "enough" to itemize.

Basically, we live simply, don't make much, but don't owe much, either. What else can I tell him?

TIA!
Terri

 

[QVCshopper]

Well, all of your reasons are good. If you have a 401k at work, and invest in it, you'll reduce your AGI--I do that to stay in the 15% tax bracket, which means I pay less taxes than I would otherwise.

But, essentially, it's great not to get much back b/c you have the money all year. It's hard to do. Tell your DH not to worry about other people--they LOVE to brag!

Oh, and there's a saver's credit that you might qualify for, if you plan for it. Unfortunately, I don't qualify due to income, but it's a great option for those that do. (Sorry, I used to write for a mutual fund company... they brain washed me. LOL!)

 

[jmartinez1895]

It's good taht your home is paid for. A lot of people think that a mortgage is a great way to get a tax deduction, but here is something that you can tell your hubby. The adverage person pays about 10,000 a year in interest on a mortgage then you pay about 3,00 in taxes. HMMMM.. let see pay 3,000 to IRS or 10,000 to the bank. So while at tax time it may seem like your not equal to your friend, I bet they are paying the bank...lol

 

[apnep]

Wow. I would much rather have my house paid off than get a big fat check from the government! Tell your husband to take THAT to the bank because I'm sure his friends can't claim that!

Ang

 

[Carl Fredricksen]

Tell him he can start doing the taxes. One trip down that road and he won't care how much you get back.

Seriously, my wife and I had a similar discussion a few years ago, and we just decided we didn't care what others had, as long as we had enough for the 4 people in our house. You can never be number one in the money race, unless you are Bill Gates (oh wait, even he got passed over this year! )

 

[mrsklamc]

Find some articles about states that are broke and aren't giving people their refunds.

Plus, there's just no way ro
compare. I assume he doesn't know
what his friends' withholdings are, etc.

 

[Ericandjenng]

Remind him that his friends are more likely to get flagged for an audit.

 

[Sandi]

You don't want to be waiting for a refund of taxes from the Michigan Department of Treasury. You are in a much better position than your DH's friends. The State keeps saying that they won't delay refunds, but as I sit here looking over the state capital building in Lansing, I just shake my head.

 

[Maddle]

Bottom Line - you want your refund to be as low as possible. Your friends that are "bragging" about the size of their refund are poor money managers. That's all there is to it. While we're on the subject, you want the amount you might have to PAY to be as low as possible also; the closer to zero in either direction the better.

Maddle

 

[buckler]

The people getting money back don't have a "secret" that is letting them pay less in taxes. You are paying the same as another family with the same number of people and taking the standard deduction.

Let's say you and a friend both owe another person $10. You pay the $10 but your friend accidentally gives the person a $20. A few months later, the person realizes your friend gave him $10 too much and gives your friend the $10 he overpaid back. Your friend goes around waving the $10 in the air hooting and hollering that he just got $10 and you didn't. Bottom line, you both paid $10 and your friend is fooling himself that he got something for "free" that he didn't.

 

[Figment_Fan]

Buckler, that is the best explaination I have heard yet. Although, I must admit that I attempt to ensure a refund every year of some amount so that I don't have to write a check. But, as has been noted, a refund is nothing to be bragging about, the higher the refund, the worse the money management.

Sandi, thanks for reminding me, I filed the Federal return at the beginning of February, haven't done the State yet. I'm over in Grand Rapids, so keep an eye on that capital building for me.

 

[mjkacmom]

Well, DH makes a 6 figure income, and we only had to pay $3000 in federal taxes, thanks to having a mortgage, VERY high property taxes, a home equity loan, and 5 children. We always get back at least $5000, which drives DH nuts (he's a CFP). I know we are giving our government a zero interest loan, but it forces me to save (we also have a couple MM accounts, but I do tap in).

 

[BrettS]

Along the lines of what Buckler said, think of it this way. If you get $3600 back, that means that you are paying $300 extra in taxes each month. Instead, you could reduce your witholdings and have an extra $300 every month. Even if you just took that $300 and put it in a savings account every month to let it earn interest you would wind up with (a little) more than $3600 at tax time.

 

[Becky2005]

True but sometimes it has nothing to do with your withholdings being too high. Sometimes it's the tax credits. I have yet to figure it out & just enjoy my refund.

DH had a small amount taken out and then all of a sudden he had zero taken out for federal income tax (I think part of the stimulus thing? I don't have a clue why). We got a lot of credits (mortgage interest - I'd rather have no mortgage!, 4 kids, donations, we missed EIC this year but have gotten it in the past), we managed to get about $5,000 back.

I haven't got a clue how you can make it a zero tax refund when you are already getting zero federal tax withholded. As far as I know, you can't go negative with your federal tax withholding, so if they are holding out $0.00 in federal taxes and you still manage to get a refund, not sure how you are supposed to adjust that.

I get the concept that you want to make your liability $0 but still have no clue how to make it work in our case.

I never want to assume those credits will be there the following year or anything of that nature. As long as I'm not OWING $5,000 we are good.

Our state is the one that we never know which way it's going to go. We have gone anywhere from owing $100 to getting $200 back. It's a guess each year.

 

[nepean]

I am an accountant who specializes in small businesses and prepare a lot of returns. I suspect that Americans are the same as Canadians and don't always tell the whole truth. I have had clients ask me why another client got so much back or how come they don't pay as much as them. The reasons are varied but usually people inflate the situation to others to sound good. They like to brag. You shouldn't get a lot of money back or pay a lot at the end of the year. If either situation is occuring it means you are not having enough or too little withheld. Self employed people usually owe something. This year my DH who has never had to pay has to pay more than $1500 and you should have seen the look on his face. After I explained that his back pay from the new contract and the part time job in addition to his regular income was the culprit he understood. So even though he hears my clients complaining and knows from me the situation he still complained. Taxes are the most complained about thing in the world.

Nepean

 

[yoopermom]

Thanks everyone for making me feel better. DH has a very small (used to be larger when the economy was better) business and we are scrupulously honest about only claiming what's legal, and filing estimated quarterlys on time (although this past years were pretty minimal). And we would LOVE to buy a different house (sold ours four years ago, and are hunkered down in a tiny "summer house"), but with MI's economy...eh.

Thanks for the explanations and support

Terri

 

[livie1205]

Buckler, that is the best explaination I have heard yet. Although, I must admit that I attempt to ensure a refund every year of some amount so that I don't have to write a check. But, as has been noted, a refund is nothing to be bragging about, the higher the refund, the worse the money management.

Sandi, thanks for reminding me, I filed the Federal return at the beginning of February, haven't done the State yet. I'm over in Grand Rapids, so keep an eye on that capital building for me.

we get a very good refund every year and we are GREAT with our money...we dont have alot of debt and we have a great savings...we have 3 kids and get the credits that we are allowed.

 

[buckler]

we get a very good refund every year and we are GREAT with our money...we dont have alot of debt and we have a great savings...we have 3 kids and get the credits that we are allowed.

Check your W-4 to see how many withholding allowances you are currently claiming. If you always get a refund, you probably need to increase the number of withholding allowances so less tax will be taken out of each paycheck. If you receive a weekly paycheck and each paycheck is the same amount, ideally you should have 1/52nd of your expected annual tax withheld from each weekly paycheck.

Info on how to compute the number of withholding allowances to claim:
IRS Withholding Calculator

If you always owe on your taxes (and pay a penalty as a result), you need to have more tax withheld so you need to have less withholding allowances or pay an additional set amount on each paycheck.

After you change your withholding, check your paycheck to be sure the amount of tax withheld will be enough from each check for the rest of the year. Then come 2011, check your numbers again.

 

[Cheshire Figment]

I tell my tax clients that their target for Withholding and/or Estimated is that they will not get a refund or owe more than $500.

I had, a few years ago, a client who was "really needing" their $7,000 refund as they were living very ticket on paycheck to paycheck. I adjusted their withholding rates so the husbands take home pay went up about $250 per (2 week) pay period and they still got back about $1,000 the next year, but always had money available at the end of a pay period.

It is a matter of personal option. For some people it is a matter of forced savings which they use to pay cash for big ticket items.

For myself, I did my taxes over a month ago and owe about $450, I will wait until April 15 to file and pay them. And because of fluctuations last year I did get a refund of about $200; at least I keep myself within my standards.

 

[Calliaz]

I know that you already heard lots of good ideas, but I'm throwing this out as it has helped my aunt with her confusion. Taxes are a bill that you pay every other week. You've been paying your bill. Everybody else has been paying their bill plus some extra just for the heck of it. Do you pay the gas company $50 extra each month 'just because?' Nope.