[This post is brought to you by Patrick Weinert, who’s making an encore appearance. You can find his previous post in the “Related articles” section at the bottom.
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When I was first introduced to the world of aviation, I was both excited and perplexed. I looked forward to climbing into an aircraft and accomplishing challenging missions. But, after I arrived at Naval Air Station Pensacola, Florida to complete my first training sortie (training flight), I realized there was a level of complication that I hadn’t anticipated.
Let’s take a few simple concepts. Altitude had always seemed like a pretty straight-forward idea to me, with the question of “How high in the air am I?” Simple question, simple answer. But in aviation, it wasn’t so simple. Altitude could either be above Mean Sea Level (MSL), Above Ground Level (AGL), or your Height Above Touchdown (HAT). Later, I learned more definitions of altitude to include Height Above Target. Speed, which I always thought was “How fast you’re moving” could be either indicated, calibrated, or true, and it could refer to either airspeed or ground speed. Your “heading” or the direction you are flying, could be either grid, magnetic, or true, and it could be given in either degrees or mils.
Needless to say, when I climbed into an aircraft for my first solo flight, I was a little nervous.
How do you make the complicated simple? That is a question that challenges the experts in any field. This concept applies continuously in the realm of personal finance.
I can’t think of a better example of trying to make the complicated simple with, you guessed it, taxes.
It’s that time of year again. And, if you are not looking forward to completing your taxes you are not alone. In a poll conducted by Liberty Tax, the majority of Americans indicated they did not look forward to tax season, even though most of them expected to get a refund.
Our tax law takes a mundane issue and makes it extremely complicated.
Maybe not quite this bad.
But, there is help. And I want to give you a few ideas that will not only help you simplify your taxes, but also help you save on your tax bill this year.
1.Pay someone to do your taxes. This is counter-intuitive, but very important. “But I can’t afford to pay someone to do my taxes!” This is ignoring a very important principle: Focus on your strengths. If tax law is not your strength, give the work to an expert. In many cases they are going to get you more tax savings than you can get for yourself. So, you’ll actually save more money and have less stress than doing the taxes yourself. Often times, this will more than pay for the cost of outsourcing the work. Compare prices for services at companies such as H&R Block, Jackson Hewitt, and Liberty Tax Services. Take the company with the best review and ask them if they can price match the lowest bid. Having a tax professional prepare your taxes will frequently result in much greater tax savings and peace of mind for you.
2.Tax Preparation Software. If you aren’t going the route of having someone do your taxes for you, many employers offer their employees a discount on tax preparation services. For example, many Fortune 500 companies (like International Business Machines [IBM]) offer their employees a discount on the use of Intuit’s Turbo Tax software. Your bank may also offer a discount. Here is a list of banks that offer these discounts. In some cases, you may be able to stack discounts to get even more savings.
3. More tax deductions. There are many tax deductions that aren’t included in standard tax preparation software. These include some instances of paying the baby-sitter, continuing education (Lifetime Learning Credit), and deducting some of your payroll tax if you’re self-employed. You can find a great list of tax deductions here.
4. Saving on Future Taxes. In order to make your tax burden lighter and less stressful in the future, consider tax-savvy IRA conversion plans.
For active-duty military, there are a few additional points I’ll add:
5. Free tax preparation services. The Volunteer Income Tax Assistance (VITA) program is offered on military bases to service members for free. Various companies also offer discounted or free tax preparation services. One example is a discount on tax preparation services through the United Services Automobile Association (USAA).
6. If you are deployed to a combat zone, contribute to the Roth TSP or a Roth IRA. Your income is already exempt from federal income taxes, so contributing to a Roth account will give you tax-free growth on top of your income tax exemption.
7. State Income Taxes. If your home of record has a state income tax, and you are stationed out-of state, check to see if you are exempt from this tax. Also if you are a veteran or retiree, many states exempt military pensions from state income tax.
I want to help you make 2018 your best year ever. I know I can help you save as much as possible with your taxes. If you haven’t already subscribed to my newsletter, you can do that here.
Until next time, I wish you unlimited success!
[Nords note: If it’s too late by the time you read this, then let me add two of my favorite tips for us late filers.
If you’re deployed to a combat zone (or in direct support of combat operations) then the IRS will wait until you’re finished. You’re automatically granted an extension and you may be exempt from any interest or penalties. Read the fine print at the IRS’ Extension of Deadlines — Combat Zone Service page.
Even if you’re not in a combat zone, another great way to get help on your taxes is to file for an extension and finish the returns after the rush has ended. This is “free” when you’ve already paid your taxes and you’re expecting a refund. Otherwise, if you owe money, you’ll pay interest & penalties in addition to the amount you owe. Just about every year during the last decade, I’ve paid my estimate of the total amount of taxes we’ll owe and then filed the return later. This is an interest-free loan to the government, yet it greatly reduces the deadline stress. You can apply for an extension using IRS Form 4868.]
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Patrick’s last post: Coping With The Fear Of Investing
I think the U.S. should simplify its tax code. I’ve heard that in countries like Norway the tax system is so simple that you can just fill it out on a postcard!
Having spent time in the Baltic area in my 6th Fleet days I am somewhat familiar with how the Scandinavian welfare states tend to operate. And yes, for the private citizen, the process of filing individual income tax any given year is very simple compared to the US. But here’s the catch. In a place such as Norway, only about 4.5 million people, 30% of the state budget comes from North Sea Oil. The rest is generated by what is common in Europe a VAT (value added tx) which effects every step of the productivity chain which adds about 20-30% to the cost of all goods and services bought, third are payroll taxes deducted by the State, which max out at about 60% of income. So by the time a person is paid or gets a paycheck, or buys something in the economy, the State really has very little need to process income filing.
In America would you forgo say, property taxes, sales taxes, itemized deductions, charitable contributions for the VAT? Or trade off a payroll tax for a tax day on bank accounts, investments, capital gains? Again very common in Europe. For those living now, in the states with high local taxes under the new tax laws, those options will be coming up sooner or later I think.
I’d be good with that too, Troy– I’m still waiting on K-1s before I can finish prepping my return.
I always have been for tax purposes a resident of Pa. A state that does not apply state income taxes to military pay or military retirement. Its allot like Florida or Texas, but with snow and ice. Over the years I have calculated that benefit alone was saved me over 6 figures of income, enough to send me both of my kids to college or just about.
I have always wondered why military centric states with high veteran and military populations treat its military so poorly in regard to state and local income tax. Va, MD, SC,NC, Calif. in particular. Discussion for another day. But I have always been of the mind that if the federal govt. if it really wanted to “support” the troops in a real and meaningful way, they would do the following.
-Exempt all active duty military pay, reserve, Guard drill pay when in federal service, from Federal pay role tax.
-Exempt all military retired pay from Federal pay role or withholding tax. Local State taxes would be a state by state issue.
If I was offered that deal when I retired, or accept a life time COLA, I think I would have taken that deal.
But 15 April is a few days away. Something to think about.
Sounds good to me, Peter, and not just around tax time!