2007 Federal and State Taxes Review
Part of me enjoys doing taxes, but a larger part of me dreads doing them because I never know if I’m doing them right. I always worry whether I’m putting a number in the wrong place, or worse, not including a number that will then trigger an audit.
I used to do my taxes on paper in college, then when I graduated, I began using H&R Block’s TaxCut online software and then did so for the next few years. This year, though, I wanted to try something different. I found a great deal on TurboTax from Costco (although it only lasted for a brief time) and bought the software. I hear about many more people using this software than any else, so I figured it should be good.
After using TurboTax, I think I like their questionaires more than TaxCut’s, as well as the interface in general. However, I still won’t know if I filled out all the questionaires I needed, but I didn’t have as much trouble this year as I did last year in figuring out if something applied to me. I think I’ll use TurboTax again next year.
Our Tax Results
This year was another record year in earnings, as each year has been since graduating college. Obviously you don’t want to see your income decrease from one year to the next. This is probably the only topic where I won’t give out real numbers, but I’ll say our combined income is low- to mid- 6 figures. The extra income from this site helped, but then again I also have to pay taxes on it.
I was worried at the end of 2007 because I hadn’t been filing quarterly returns to account for taxes owed on my site income. Then again, I had no idea I would make half of all my site’s income for the year in just 2 months. Luckily though, I increased my withholdings by $700 extra per month starting in October and changed to zero allowances (from 2). That means by year end, I gave the gubment about $2100 above my regular tax withholdings. I was just really hoping it would be enough to avoid a penalty!
So after having paid more in federal taxes this year than I made all throughout college combined, we only owe $400 to the IRS. Even better, we get back about $1400 from the state of Maryland, for a net refund of about $1000.. After reviewing the return, the reason we get so much back in state taxes is because of over $30,000 being lopped off our gross income due to federal deductions. Otherwise, I’m sure we would have owed state taxes too.
Also, what’s nice about tax software (at least TurboTax and TaxCut) is that it shows your effective tax rate, or in other words how much of your total income actually went to taxes. Even if we’re somewhere between 25-28% tax rates (I don’t want to give too much of a hint of our income), we don’t actually pay that much once all is said and done thanks to deductions and refunds. Last year, our effective tax rate was about 17%.
This year, our effective tax rate was 11.33%. I’m sure we could get it even lower, but then we’d have to have kids or maybe deduct more business expenses. But then again that means we would be spending money on kids or more money on our businesses, which we aren’t currently doing.
Oh, and you may be wondering what deductions I took for my website. Did I take a home-office deduction? No, because I sit on a chair in our living room while typing up articles. Did I deduct my laptop? No, because I got it for $100 about 3 years ago and I don’t use it solely for blogging. So what did I deduct?
$199 in website hosting and domain registration fees and $30 for a 6-month PO Box contract. A total of $229 for my website costs last year. I’m sure other bloggers have more expenses, and even deduct our happy hour lunches and mileage to drive to those events, but personally I didn’t want to bother with it. Plus I usually paid cash and didn’t have a receipt. In reality, though, my expenses probably would have netted me about $5. Eh, I’ll leave that on the table for someone else.
So in 2008, I’ll start filing quarterly returns, keep taking additional withholdings from my day-job’s paycheck to cover those taxes, and assess whether I need to increase or decrease those withholdings each quarter. Also, I expect to deduct more for Stacie’s side-business this year as we’ve actually been spending some money on it. It’s still not off the ground, but we’re working on it. Also, I might apply for an LLC status for my business, and maybe even Stacie’s.
How are we filing?
For some reason, I can’t e-file my Maryland’s tax return through TurboTax. Perhaps it’s a certain form that they don’t accept electronically as I know they accept e-filing. Thus, I have to mail the paper in and wait a bit longer for our refund, but it’ll save us the money we would pay otherwise to e-file.
As for federal, since I owe $400, why would I want to e-file and give them my money even faster, AND pay for the privelage? Nah, I’ll just mail it in with the check.
What are your tax experiences this year? Were surprised for either good or bad reasons? Fellow bloggers, care to share your own experiences?
We got surprised this year. I increased my allowances and reduced my withholdings since I am now a sole breadwinner and we ended up getting a larger refund this year than any previous year. Our combined Federal and State refunds totalled nearly $2,800, even though we made $20K less this year than last. That pleased me greatly since we desperately needed a new washing machine.
I just finally sent all our information to our CPA last night, so I’m not sure what the refund/bill might be. Hopefully, he’ll have it done soon so it’ll be one less thing to think about.
I’ve used turbo tax every year since I graduated college, except one. I found a good deal 2 years ago on TaxCut, so I bought that.
I didn’t like TaxCut nearly as much as I liked TurboTax. I thought it was way more confusing than it should have been. It also caused many problems because of the way it listed income form the sale of stock options. I nearly had to pay 5 figures in back taxes and penalties because of this.
I will never use TaxCut again, but I will highly recommend TurboTax.
We were in the same situation as you regarding the website income. TaxAct had a nifty feature that took you through 2008’s estimated earnings and tried to estimate how much your 2008 taxes would be. I grossly overestimated our website income and any raises from our day jobs. That led to more tax having to be paid. I don’t want to deal with the quarterly filing so I just upped my withholding at my day job and hopefully it will cover my tax liability.
While the extra income from the website is nice, it is a large pain when it comes to taxes.
I hate with a passion anything that has to do with H&R Block. Due to their incompetency, my wife and I almost lost $20k last year, but TurboTax saved the day. I have always been a loyal TurboTax fan, and last year’s experience proved how good their service really is. H&R Block is a joke. I wouldn’t send my worst enemy there.
I guess this is a good example of how I don’t let my sponsors sway my writing. I just remembered that H&R Block purchased a text ad in the left sidebar this year and last (under “Online Taxes”) and here I am saying I don’t use their product. Oh well, I’m just being honest 🙂
I used to do my taxes by hand until I found H+R blocks taxcut software and I found it so much easier to use! Not only did I get a bigger refund, I save a lot of time.
Clever Dude… First, I have to question any dude’s sanity when they start by saying, “Part of me enjoys doing taxes.” While I agree that TurboTax can make doing your taxes easy, I’m not quite at the point of saying “bring on April 15!”
Anyway, even though you have to pay, there is a good reason to file now. With TurboTax you can file now and tell the IRS to debit your bank account on April 15 for the balance due. There is no extra charge for this. That way you can send off the tax return now and not have to worry about it again. Just make sure you have sufficient funds in your account on the date you tell the IRS to take their share.
I hope this information helps.
Bob Meighan
VP, TurboTax
By the way, I should clarify one of my points above. While you can elect “direct debit” to pay your balance due, you must electronically file your federal return for the IRS to process these instructions. Using TurboTax Online, efiling is free, while efiling using TurboTax CD is extra.
Bob Meighan
VP, TurboTax
You can i-file your MD taxes on the MD Comptroller’s site for free and get your refund within days.
Last year, my effective tax rate was ~8%. The most I’ve ever made but the least I’ve ever paid. Owning a home makes a big difference. I have no idea what my tax rate will be for 2007. The accountant is still working on that pile of “stuff” I dropped off last week.
I’ve written a couple of posts on our taxes for 2007. Having a child and a full year’s worth of mortgage has been huge! We will be getting low 5 figures between state and federal. I haven’t filed my returns yet because there’s a glitch in Taxcut that isn’t taking into account a deduction. It’s frustrating since most of our taxes are done. I think I might have to change to Turbo Tax next year.
I used Taxcut this year but for the Mac. I mentioned my experience in taxes on a mac It only took me 20 minutes and we had a significant return.
I assume that Taxcut asks the same questions in their Mac and PC software, but the process was very easy. Next year I’ll have to try out Turbotax.
Single Ma, that’s a good idea. Now that I have the printout of my MD taxes, I can plug in the numbers more easily and get the refund much faster.
This year there was some dissapointment in my tax filing, 2007 was the last year I would be filing as non resident (from next year I will be filing as resident). Unfortunately for me I will not be eligible for the 600$ rebate that the government is giving all resident taxpayers.