I had my taxes prepared today. For the first time since 1988, I am getting a Federal refund. I owe a little over $300 to the State of MD - no biggie - Especially given the fact that I'd �grown accustomed� to owing larger sums both federal and state.
I sat heaving sighs of relief, and grinning ear to ear while at H&R Block .
All I can say is �What a Valentine's gift!� Tax relief in its truest form. It�s a beautiful thing I tell you. MK my tax-preparer asked me how I managed to go from $5k in the red (last year), to a little over $200 in the black (this year). I explained to her, that I grew frustrated with owing taxes year after year.
I channeled my frustration and discouragement, by calculating an average tax table using a 12% average increase for inflation and cost of living increases over the upcoming 12 months. I then waited to receive the January 31st leave and earnings statement, then used those figures as representatives in my equation. Next I calculated a potential mean average, of what I expected to pay in taxes by the end of the year, versus what my firm was withholding every pay period. I was then able to quickly deduce that the firm's payroll department was not withholding sufficient amounts of money.
I made a command decision to increase the amount withheld from my earnings, in an effort to minimize or altogether circumvent owing federal and or state taxes. This was the hardest step. Living on less money each month, in an effort to pay less money in penalties to the government at year-end.
For those of you who haven�t noticed; The penalties associated with underpayment of taxes withheld, is INCREASING sharply.
In addition to my strategy borne out of frustration, I'd returned to college, as such I�m eligible for a host of deductions and something called Hope Credits.
Today MK and I discovered that I needed to itemize my deductions, because they exceeded the allowable amount for the Hope Credits program, in the end, the itemized deductions worked better in my financial favor.
Last year I�d also made 2 large donations to Goodwill Industries. I'd lost so much weight, I could no longer wear my winter clothing. An entire corporate winter wardrobe netted me a nice deduction.
As did the Individual Retirement Account I opened.
I even sold some stock and prepaid the taxes thereon.
All in all, I never figured that my financial strategy would have me literally sitting pretty.
I must admit that I'm proud of myself. I am an economist to be reckoned with, despite having dropped my Econ class this semester.
Move over Greeenspan!