Sunday, November 25, 2018

Wants and Needs....and Kids

This isn't really a tax post, but something that comes up a lot when talking taxes. The impetus of this was a Facebook post saying: I'm stuck between "I Need to Save Money" and "You Only Live Once".  I told them that I had figured out the secret in my twenties. When asked, I told them, "Don't Have Kids" (with a winky emoji, of course). But it highlights an important point to be made:

How to prioritize spending is the most important question most people struggle with when it comes to finances. Here's the less smart-ass answer:

The real trick is actually separating wants from needs, paying for needs and then prioritizing wants. Most "needs" are actually wants. Kids skew this because it's much easier to identify a want as a need with kids. Parents spend too much on toys, clothes, cars, and supplies because their kids "need" them and they would be a horrible parent if they didn't give their kids everything they needed. Being tough, and separating what kids truly need from what they want, and then prioritizing the kid's wants among all your other wants is critical. This doesn't mean the kids only get what they need, it just means their wants go in the bag with all the rest of the wants and get taken care of at a proper priority. The brand new, fully loaded, "safe" SUV is the poster child for this.

Nowadays, vacations are my biggest want. Every other want gets measured against the vacation that would need to be sacrificed for it. Needless to say I'm not getting that new kitchen anytime soon...

Wednesday, November 7, 2018

Rental Property Sale Worksheet

This is a worksheet I made up for my rental owners to help them estimate what the tax implication of a sale will be. I usually provide the information in the first three boxes from their return when I send it to them but you can get the data from most tax return printouts (ALWAYS print a copy of your tax return!)

The results are ESTIMATES because they are missing income data to determine tax brackets, but they are reasonable for managing expectations and making sure you save enough. They do not include any state taxes you might owe.

Here's the link:

Wednesday, October 17, 2018

Master Index of Posts

I've compiled a Master List of my posts for easy reference. Not every post is included, and I have changed the order to put the most important or timely ones on top, and to group some based on categories (Military, Obamacare, Tax Software). I will try to keep this updated and just below the latest post. Please let me know in the comments if I screw up a link :) Some of the posts are OLD so be careful assuming the information is current.

If you have a Kindle, you can get a copy of my entertaining and useful book, The Short, Cheap Tax Book for Everyone for only 99 cents!

For the new tax law, there's The Short Cheap Tax Book for the Trump/GOP Tax Law

If you like the blog, buy my other books: Kirk Taylor, EA Author Page

Important or Time Sensitive Posts

Emergency Fund Advice
Quick Thoughts on the New Tax Law (Post Tax Season Edition)
2018 Tax Bill Changes
What the New Tax Law Didn't Change (2018)
Solar Credits and Solar Sales
"Office" Hours for Questions
Will Your Refund be Delayed (2016 Tax Year)
Tax Identity Theft State Efforts and Delays (2016 Tax Year)
The Dreaded CP2000 Letter from the IRS
Need a Copy of Your Tax Return? Get a Transcript Online! NOT! Updated advice...
The IRS did NOT Call You!
I Got an E-mail from the IRS!
I Want to Lower my Taxes!
Last Chance for 2013 Refunds
10 Simple Pieces of Tax Advice
10 Things Everybody Should Do
Check Your Withholding


Military Spouses Residency Relief Act Details and Matrix
Retiring from the Military? Tax Warnings!
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes
2017 Military State Tax Guide
2016 Military State Tax Guide
2017 Boomer Deduction Worksheet
2016 Boomer Deduction Worksheet
2015 Military State Tax Guide
2015 Boomer Deduction Worksheet
2014 Boomer Deduction Instructions for TurboTax Online
2014 Boomer Deduction Instructions for H&R Block at Home (store bought or downloaded)
2014 Boomer Deduction Instructions for TaxSlayer
2014 Boomer Deduction Instructions for TurboTax (Store bought or downloaded)
Boomer Deduction - History and References
More Boomer Deduction Information
Minnesota Combat Zone Credit
SC Military Retirement Change (2016)

Tax Software

TurboTax Admits That Easy Is Better Than Accurate
Tax Preparation Software Sucks - An Open Letter to H&R Block

Business Guides

Sole Proprietorships are Bad
Avon, Pampered Chef, Party Lites, Amway, etc. MLM Tax Guide
UBER Driver Tax Guide
Tax Guide for Contractors - or - 1099MISC WTF?
Real Estate Agent Tax Guide

General Posts

Getting Married? One Piece of Important Tax Advice.
The Dreaded CP2000 Letter from the IRS
Investing and Taxes - A Primer
How Much does it Cost to File Taxes?
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes
Open a Roth IRA Today! And Not For the Reason You Think
Foreign Earned Income Exclusion Warnings - Update
Charity Made Simple
How Fast Can I Get my Refund?
Make Estimated Tax Payments the Easy Way
Depreciation Recapture - an inaccurate description
Don't Touch that 401K or IRA!!
What do you do with that Big Tax Refund?
It's Okay to Get a Big Refund - Really...
Common Tax Return Errors - Updated
Common Tax Return Errors
I Have a Blog and I Want to Bitch!
Mortgage Tax Credit Information
Lesson from the Government Shutdown - Emergency Fund
Don't Pay Capital Gains Taxes if You Don't Have To!
I got a 1099C - Now What?
Cancelled Debt and Insolvency
The IRS, email and privacy...
IRS Checking Facebook?
>$250 Donation Acknowledgement
Drop Box Donations - US Marines
Tax Scams
Rental Property Guide for Homeowners
Taxes and Divorce
Random Thought about Books
Taking Care of the Client
Warning - Tax Resolution Scams
Foreign Earned Income Exclusion - WARNINGS!
IRS.GOV Website Update

Affordable Care Act (Obamacare) Posts

Obamacare in SC - Something's Fishy
The Affordable Care Act (Obamacare) and People with Health Insurance
Affordable Care Act (Obamacare) for the 2014 Tax Filing Season
Obamacare, Affordable Care Act and Married Filing Separately - Warning
Affordable Care Act, Obamacare update and advice
Healthcare Law, Obamacare, Affordable Care Act Info
Weird Obamacare Strategies and Incentives - 1
Weird Obamacare Incentives and Strategies - 2
Weird Obamacare Incentives and Strategies - 3
Weird Obamacare Incentives and Strategies - 4
Weird Obamacare Strategies and Incentives - 5
Weird Obamacare Strategies and Incentives - 6

Friday, August 24, 2018

More Emergency Fund Advice

First things first: YOU NEED AN EMERGENCY FUND!!!
Now that we got that out of the way, let's talk about what an emergency fund is and is not.
When people suggest an amount for an emergency fund, it is often couched in terms of 3 to 6 months of expenses. This leads to the idea that its primary purpose is for loss of income. This could not be further from the truth. While job loss is the worst case emergency for which your fund could be used, it is not the most likely, especially for a someone with a solid job. Your emergency fund is most likely to be used for an unexpected repair or an emergency trip. I recently had a slew of emergencies (hence the impetus for this post) and they included AC repair (which looked like it might be a replacement) a broken dishwasher and a near dead dryer. I also either need a new car, or have some impending repairs due on the old one.
All of the above is no sweat because I have an emergency fund. Not only that, I have a budget line item that feeds into the emergency fund so I don't have to refigure my budget to refill the fund for the money I just took out.
Knowing how much you need, and how to get the money in there is hard. That's why people simplify with the 3 to 6 months expenses trope. It will generally overfund it, as well as covering the worst case, which is often an extended job loss (it's just not the likely one). What follows is a mix of what I do, and advice for people just starting out.
I set my emergency fund at six months of MANDATORY expenses: rent/mortgage, basic (or locked in by contract) utilities, basic food, and miscellaneous NEEDS (no BS wants disguised as needs). This was easy since I have a budget (you do have a budget, right?) I then set a budget line item that filled the budget in 12 months (this is overkill - 24 months is plenty - 30 months the longest you should go). If my emergency fund gets over-filled, I buy myself something I want, but wouldn't ordinarily be willing to budget for (like a trip or fancy electronics). Make sure this amount will cover a major car repair or a trip to your furthest relative's home.
Doing it this way ensures you will eventually be prepared for almost every emergency likely to occur. But what happens if an emergency happens while filling the fund? The honest answer is you might be screwed. To avoid that, use a tax refund, other savings, or a bonus to fill the fund up as quickly as possible.
Bottom line, you need an emergency fund. The added bonus of having one is that our old buddy Murphy tends to cause emergencies for people who aren't prepared. Having an emergency fund is, paradoxically, one of the best ways to avoid needing one.

Monday, August 13, 2018

"Office" Hours

I've decided to set up a little time outside of tax season specifically for handling emails and phone calls (I answer emails anytime, but I hope office hours will get me back on track with the ones I procrastinate on).  I will publish them here and am perfectly willing to give you a call to answer questions from anyone and everyone - client or not.

I love answering questions - it keeps me smart.

Big caveat - if you aren't a client, the answers are free, and you get what you pay for.  I make no guarantees, and answering your question in no way establishes a preparer-client relationship as defined by any IRS regulations.  It's just a tax guy answering questions for a friend.
Also, I don't work for my employer off-season, so everything I'm doing at this time is outside of our normal in-office relationship.  Again, friend to friend.  I will be back in the same office every year unless something goes to hell in a bucket so you'll see me there as usual.

So if you want to ask a question, feel free to email me at
I prefer to handle it all via email, but if you think a conversation is in order, go ahead and ask me to call you within one of the office hour windows.
I will do this for as long as the volume of questions allows (after Jan 2nd I will be in regular office).
I will update the dates as I set time aside.

If you ask me a question via email, I WILL add you to my email list.  I email when I publish a new book, and when something BIG happens that people need to know about.  I don't send a lot of emails and you can unsubscribe using a link in the email.

Hurricane Florence has required a suspension.  I'll let you know when I'm back.

And buy my books:

Kirk's Amazon Author Page

Wednesday, June 20, 2018

Common Tax Myths

This is one of the new chapters in the 2018 edition of Everyday Taxes (coming out soon).  It may seem like I am just pimping for the new book since it keeps referring to information in the book, but that's just because I copied it right out of the book, which links internally to chapters on the subject, and I was too lazy to link to a website.

There are a lot of myths and confusion out there, and I’m going to try to clear a few of them up.  Some are a big deal, others are a bit nitpicky.

1. You do NOT have to buy a new house in order to exclude the gain from the sale of your personal residence.  I have a whole chapter on it in the book, but, basically, if you owned and lived in the home for 2 of the last 5 years, never rented it out and never used it for a business, you can exclude $250,000 of gain ($500,000 if Married Filing Jointly and both of you meet the timing rules) regardless of what you do after selling.

2. Moving up tax brackets is a good thing.  It means you made more money.  Only the part of your income that is in the higher bracket is taxed at the higher rate, everything else is taxed at the lower rates based on what bracket THAT income falls into.  The only real trick about crossing tax brackets is when your household has multiple sources of income.  If all your (and your spouse’s) jobs fall into the 12% tax bracket, but together you hit the 22% bracket, your withholding is not going to keep up very well.  This is a source of endless frustration for people using software that updates their refund constantly.  I talk to a lot of people who put their income information into the software, and then freak out when the really big refund plummets as they put their spouse’s income in.  The refund is only useful as a number when you are done – don’t look at it along the way.

3. Deductions are nice, but not spending money on things you don’t want or need is better.  Just because you can deduct something doesn’t make it a good idea – you are only getting pennies on the dollar back in taxes.

4. Income tax is voluntary, 16th amendment was never ratified, income tax is tax is illegal or any other scheme that avoids taxes.  The IRS refers to them as frivolous tax positions and you can be fined just for using the arguments in IRS proceedings.  Most of these have been thoroughly litigated through Federal courts, many all the way to the Supreme Court ruling on them or refusing to review a lower court ruling against them.  Here is the IRS page on the subject:

5.  Individual Retirement Accounts (IRAs) are not an investment, they are a shelter AROUND an investment.  This may not seem like a big deal, but it matters because a lot of times people open IRA’s and think that means they have worthwhile investments in them.  If you open it at a bank, this will often be a money market account or Certificate of Deposit which is wholly unsuited as a retirement investment for most people.  The process of opening an IRA involves setting up the account AND determining what an appropriate mix of investments is for the account.  You can have almost any common investment in your IRA: Stocks, bonds, mutual funds, publicly traded partnerships, exchange traded funds, closed end funds and much more.  An IRA should be opened with the help of a competent financial professional or after you have done a lot of personal investment research.  You should also consult your tax professional to make sure there aren’t income limitations regarding how much you can invest.  

6.  Head of Household means something different for taxes.  In life, you can be the head of your household, but it doesn’t mean that’s your tax filing status.  For taxes, Head of Household means you are unmarried and are taking care of a certain type of qualifying child for a certain amount of time.  The rules are covered in the Filing Status chapter of the book.  Starting on 2018 returns, the IRS is going to be taking a harder look at Head of Household and fining tax preparers who don’t exercise due diligence when determining if their clients can file as Head of Household (this is a big deal, because in most cases I can believe anything you tell me and not get in trouble.  There are very few things that I can be fined for if I’m not being suspicious enough regarding what a client tells me).

7. Social Security is taxed in a weird way.  Also, if you retire before reaching your full retirement age, you have to pay back Social Security if you make too much money from a job or business.  People confuse these things repeatedly.  Up to 85% of your Social Security can be subject to tax if you have other income.  I cover the details in the book.  This calculation of taxability applies no matter how old you are.  Having to pay back Social Security if you make too much money only applies when you are below full retirement age, and the numbers are a lot stricter (though this is NOT my area of expertise).

8. Tips are taxable income.  You are responsible for reporting them to your employer so it can be included on your W-2 and have various taxes withheld from your paycheck to cover the tips taxes.  Even if your employer doesn’t insist that you report them (or actively discourage you from reporting them) does not relieve you of responsibility to report them.  I’m not your Mother or Father, so do what you want, but recognize that failing to report tips is tax fraud and may be other types of fraud if you receive other benefits or subsidies based on your income.  

9. This is pure tax professional nit picking here: You file a tax RETURN to determine the amount of REFUND you get or your BALANCE DUE that you have to pay.  The money you get is not your return it is your refund.  You only get a refund if you have too much in taxes withheld from your paycheck and/or you qualify for a refundable credit such as Earned Income Credit, American Opportunity Credit, Electric Vehicle Credit, Solar Credit etc.

Saturday, April 21, 2018

Quick Hit Thoughts on the Trump Tax Law - Post Tax Season Edition

So shortly after the tax law was passed, I wrote a book about it (The Short Cheap Tax Book on the Trump/GOP Tax Law).  In the book, I included a link to a spreadsheet that I created to convert a 2017 tax return into a return using the new law.  I took every tax return I did (646 of them) and used this spreadsheet to determine how much taxes would be paid under the new law as opposed to the current law (later my tax software was updated to do this automatically).  Below are results based on those calculations, as well as some conjecture and suggestions.

But first, some caveats: while the spirit of the below discussions is true, ANYTHING that could even remotely risk disclosing of private client information has been modified to maintain the basic truth of the situation while eliminating the risk of disclosure.  Any opinions are my own, and not those of the IRS or my employer.  None of this information or advice should be relied on as the sole source of decision making data.  Advice you can count on and use is paid for ;).  My dataset is skewed by my region and my clients.  For example, only 2 of my clients made more than $315,000 the point at which the new tax law gets weird for businesses.  I also do a high proportion of military clients and rental property owners.

So here are the bullet points:

27 of the 646 tax returns would do worse under the new law.

People with children under 17 did especially well, especially those who made over $100,000.

Small business owners and rental property owners did well.

Very low-income families did better, but not as much better as families with middle to higher incomes.

Truck drivers, flight attendants, outside salespeople, and people who work from home did very poorly.  If you are one of these you need to take a serious look at what you are withholding.  Basically, if you have a large amount of deductible employment expenses - you're about to get screwed.

Upper and middle-class families with large amounts of itemized deductions didn't do well.

People making over $200,000 did very well, especially if they had children under 17.

People filing Head of Household are going to do well under the new law (unless they've been lying about it).

I have about 20 clients subject to the Alternative Minimum Tax - none of them would be under the new law.

Married Filing Separately will be even less desirable next year compared to Married Filing Jointly.

Most people's paychecks went up in late February as they lowered withholding to adjust for the new tax rates.  Most people didn't realize this was why.

Between a gut feel based on looking at the new withholding tables, and reviewing information from clients who brought in pay stubs, I'm pretty sure the tables overestimate the effect of the law, such that most people will get a smaller refund next year, though they are getting that money in their paychecks.

If you had a very small refund last year ($1000 or less), you should probably drop your withholding allowances by 1, or use the IRS withholding calculator to figure out what you should be claiming.

Don't be surprised if you get a lot more questions about filing Head of Household next year.  They added it to the list of things (now 4 of them) that we can be fined for if we aren't suspicious enough about it (called due diligence).