Nov 18

Remember New Coke?

Remember Qwikster?

My Spidey senses tell me that Intuit’s TurboTax product is about to have its own moment of marketing mishap. Now. As a tax nerd, I don’t put my TurboTax on the shelf after I file my return. I open it regularly to plan my year. Since one of my goals is to avoid paying more tax than I have to, I use it to plan my stock sales, Roth conversion, if any, and forecast my tax bill well in advance of April 15th. It’s been a ritual of mine to buy the new tax year software the weekend it’s out, usually the weekend after Thanksgiving. This year, as I started to look to see a product release date, I found that the versions offered had their contents revised.

turbotax2014

(Right-click to open in new screen)

You can see, the Deluxe version no longer handles any stock transactions, i.e. Schedule D, or any rental property details, Schedule E. Last, with part time blogging income, I need to file a Schedule C, which is now a Home and Business offering.

Here’s my concern – people are creatures of habit. When was the last time you “read the fine print”? We buy what we’ve bought and rarely catch the changes until it’s too late. Unfortunately, in this case, it with be a painful process, realizing your return wont have the forms you’re expecting and you need to upgrade the software (hopefully that option will be available, to pay the difference and move on) or buy the right one for your needs. The 2014 version was just released, and Amazon reviews are already running negative, 8 reviews so far with 7 showing One Star.

I’ve been a user of TurboTax since filing my first return in 1985. We’re having our 30th anniversary with this next purchase. For the last decade, I’ve taken advantage of the ability to produce multiple returns, using my copy to print returns for my daughter, mother-in-law, sister and sister-in-law. I’m not going to quibble over a change that I read about and can adjust to. But I’ll sit back and watch how the reviewers are already having their say and see how my friends at TurboTax respond.

Update (11/22) – The reviews on Amazon continue to mount -

turbotax2014reviews

The one star reviews are all focused on the price increase. Unfortunate, I hope TurboTax jumps on this to stop the potential loss of customers.

written by Joe \\ tags: , ,

Nov 05

The 2015 tax rates have just been announced by my friends at the IRS. If you’ve been reading this blog for a while, you know how taxes work, more or less.

The tables aren’t the actual tax you pay on gross income, but on taxable income which is gross less a number of items, including the personal exemption which rises to $4,000 in ’15 and the standard deduction for single $6,300 or joint $12,600.

I’ll be referring back to this article over the next year whenever the tax table is part of the conversation. Check out the new rate table and start planning for 2015.

Single

Taxable income is over But not over The tax is Plus Of the amount over
$0 9,225 $0.00 10% $0
9,225 37,450 922.50 15% 9,225
37,450 90,750 5,156.26 25% 37,450
89,350 189,300 18,481.25 28% 90,750
186,350 411,500 46,075.25 33% 189,300
411,500 413,200 119,401.25 35% 411,500
413,200 119,996.25 39.6% 413,200

 

Married Filing Jointly
Qualifying Widow(er)

Taxable income is over But not over The tax is Plus Of the amount over
$0 18,450 $0.00 10% $0
18,450 74,900 1,845.00 15% 18,450
74,900 151,200 10,312.50 25% 74,900
151,200 230,450 29,387.50 28% 151,200
230,450 411,500 51,577.50 33% 230,450
411,500 464,850 111,324.00 35% 411,500
464,850 129,996.50 39.6% 464,850

written by Joe \\ tags: ,

Oct 26

This year has flown by and as we approach year end, the IRS shares the numbers that will impact your 2015 retirement savings limits. 2013 inflation was low enough that we saw no increase in ’14. 2015, however, sees a bit of a bump, so let me share these numbers.

Employee contributions to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000. The cath-up provision, for those 55 and older in 2015 is also increased a bit, to $6,000.

The IRA limit is unchanged at $5,500 with a $1,000 catch-up for 50 and older. The phaseout for IRA deductibility for a single filer covered by a workplace retirement plan is between $61,000 and $71,000, and for married filing joint, between $183,000 and $193,000. The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly.  For singles and heads of household, the income phase-out range is $116,000 to $131,000.

There are still quite a few numbers we need to see. Marginal rates, HSA limits, FSA limits, etc. As soon as I see the IRS press release, I’ll share the numbers.

written by Joe \\ tags: ,

Jul 05

As my regular readers will recall, I often pass Walden Pond, as I live a few towns away, and while writing at Walden Pond, Thoreau wrote, “Our life is frittered away by detail. Simplify, simplify, simplify! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb-nail.” Partially with this in mind, I like when a bit of proposed tax code aims to provide some level of simplification to our utterly incomprehensible too-long code.

The particular proposal I am looking at today offers to simplify the tax benefits for higher education. as the Ways and Means report states:

  • Under current law, there are 15 different tax benefits relating to education that often overlap with one an other.
  • The current-law education tax benefits are so complicated that they are ineffective because many taxpayers cannot determine the tax benefits for which they are eligible.
  • The IRS publication on tax benefits for education is almost 90 pages long.
  • Streamlining education tax benefits would enable taxpayers to understand better the tax benefits for which they qualify.
  • The provisions would help to simplify considerably the tax benefits relating to education.

The above puts in perspective just how difficult it is for the average parent to navigate their choices amongst the different benefits. The new proposal appears simple, a 100 percent tax credit for the first $2,000 of certain higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses. So far, so good. A total $2500 gift from Uncle Sam to pay for your child’s college tab. Not so fast, a phase out for MAGI between $86,000 and $126,000 for joint filers and $43,000 and $63,000 for other filers. This is a tough one for me. For a Joint filer, that next $20K of income will kill $2K worth of the tax credit. In effect, a 10% extra phantom tax for the AGI between $86K and $106K for that couple. Many people with college age children are not far from retirement, and on my advice, they might be navigating to avoid the phantom tax that will hit retired couples on their social security income. The effect of this phaseout is that a couple will see a phantom 25% rate for income that should otherwise be taxed at 15%, the 15% bracket I suggest that pre-retirees “top off” by converting some money to their Roth IRA. I suppose that any credit such as this one should have a cap, an income level above which one doesn’t qualify. The real question is whether a joint AGI of $86K is the right level for the phaseout. My own opinion is no, I think $125K or higher is more appropriate. What do you think?

It doesn’t end there. The government gives and the government take away. This provision includes the repeal for the exclusion from United States savings bonds used to pay higher education tuition and fees. In other words, you followed the rules, you patriotically bought US savings bonds with the promise that the growth would not be taxed if these were used to fund higher education. Ouch. The estimate is that this will save $100M over 10 years, so only $10M per year or so. But save in this case means that people will be taxed when they weren’t expecting to pay tax on this money.

Other take-aways include the repeal of any student loan interest deduction, the repeal of deductions for qualified tuition, and the end of the Coverdell Education Savings Account (The account formerly known as the education IRA.)

That’s about it. It seems that simplification comes at a price, and anyone who thinks they understand today’s tax code enough to benefit from it had better keep up on changes that our congress may vote on. To miss these changes can be quite costly.

written by Joe \\ tags:

Mar 17

The estate tax is a tricky beast. Just 15 years ago, Federal estate taxes kicked in at $650K of an estate’s value. This may seem like a large sum, but consider it included all that you leave behind. Your home, saving, retirement accounts, and perhaps the biggest item, life insurance. Biggest, because even if you are just starting out, newlyweds with no savings yet might easily decide to each have $1M life insurance policies. Just putting this number into perspective.

The exemption amount grew each year, up to $3.5M in 2009, and then the tax was repealed for 2010. As a Klingon might have said “This is a good year to die.” It might have been, expect the step up in basis was suspending that year so beneficiaries of those who passed in 2010 were in a unique position, having to research basis for their windfall. 2011 saw the return of the estate tax with a $5M exclusion, and a generous ‘second to die’ provision, in effect, allowing the spouse to pass along the $5M from the first spouse for a $10M total. In 2013, the exclusion was $5.25M.

Now, the 2015 proposed budget….. let me say this, in 2010 when congress was debating what to do, I suggested they pick a number, and offer a modest inflation rate, but stop the crazy swings up and down. They don’t listen. I am seeing a proposal to roll back the exclusion to the 2009 number of $3.5M, no inflation adjustment. It keeps the spouse portability, fortunately.

I see this as upsetting to those it impacts, but I’m sure that couples with $7M in gross assets including insurance, aren’t going to get much sympathy from my readers. If you fall near this number, it’s time to start gifting the $14K/yr to your loved ones.

This bit of new code could have been avoided. The budget could have simply frozen the number at 2014 levels $5.375M (I believe) and stop messing around. And for Pete’s sake, stop calling any code “permanent.” That’s just nonsense.

written by Joe \\ tags: