Taxes, Before and After

Another year's taxes are in the books so I thought I'd wheel back around to one of my old favorite conversation topics that nobody likes: money. (Reread that post. I'll wait.) It's been awhile since I broached the topic. Why so quiet?

Well. Let me give you the short story.

A few months after I quit work and we weren't really sure what our long term income was going to look like, Dave was offered the opportunity to work at a high end subdivision representing builders in new construction. Even though it meant working 13 out of 14 days a week, he accepted because he knew it would give us financial security for several years.

In 2016, we passed the 'money conversation' line for the first time ever in our lives. All of a sudden, talking about money felt constrained. Since this topic, the gaping silence, was already on my radar, I examined my sudden reticence. Why didn't I want to talk about money anymore?

For me, it came down to three reasons.

First, money just didn't occupy the same space in my brain. The most notable way this was true is that I stopped watching the price of gas. I don't mean I didn't know how much I paid for a tank of gas. I mean that I previously noted the price of gas at just about every gas station I passed, silently collecting data points about where I should fill up the tank. This habit of obsessive price watching was born in the gas spike ten years ago, when we came dangerously close to my not being able to afford to drive to work and also not being able to afford to not drive to work. The thought that I would just stop paying attention to gas prices was amazing. And yet it happened.

Second, I suddenly felt sheepish. I, too, didn't know what to say when someone would lament some expense when I knew I could write a similar check for myself in that situation without blinking. I, who have complained about getting a "mmm-hmm" for my troubles, could think of nothing except "mmm-hmm." What do you say without sounding hollow? I still don't know.

Third, it wasn't my money. It *is* my money and I know it, but it feels different to talk about income when your name isn't on the check. It's one thing to talk about money earned at your own job; it's different to talk about money earned by someone else at their job, even if you are married to that person.

That's what happened and I didn't talk about it.

So there we were, living the high life of filling up our gas tanks with reckless abandon whenever the need arose. We fully funded a generous emergency fund, which is vital when your income is as volatile as real estate. We put a nice down payment on a good piece of land close by. We decided to have a baby and paid for her pregnancy and birth. Thanks to our primo Obamacare insurance, that was only $9000 out of pocket. (I think Grace's birth cost us $500 back in the halcyon days of 2005). We started to save money to be able to build a house on the new property that would actually accommodate our family, instead of making do in our current, glorious, hallway house.

Then, in my ninth month of pregnancy with Ella, Dave's team leader had a falling out with the owner of the subdivision, and within a week, the team was summarily dismissed from the subdivision. Thus ended our foray in the land of comfortable budgeting. They were allowed to work all the houses that were under active buyer's contracts, which took most of the rest of 2017, but then we started 2018 essentially on our own. It was like starting all over again. We had no lead pipeline. We got paid once in the first five months of the year. We ate our house fund.

I'm not going to lie, 2018 was rough, but we eventually found our equilibrium and got to know our old friend, median income, once again. We have hopes of maybe breaking the conversation line again in the future and being able to save up for a new house. One day, right?

But I titled this post taxes, and I haven't mentioned them yet. Back in the years of my employment, I always felt vaguely guilty about our yearly tax refund because our federal withholding rate was usually $0. I am here to announce I don't feel guilty no more! As soon as the opportunity presented itself, our benefactor, Uncle Sam, took his full share and more. Packed down and flowing over, so to speak. The unearned crumbs I had agonized over have been paid back with interest.

The two years we made big money, we paid an eye-popping amount in taxes. Now, I don't have a philosophical problem with paying taxes--I think everyone should have some skin in the game--and I understand that the tax rates are set without regard to what you made the previous year or what you might make in a subsequent year, but it's hard not to feel like they took a punishing amount of money that we really could make use of in these latter days.

Wouldn't it be nice if your taxes took into account how likely it is that you will see this income amount again soon? Like a rolling weighted average or something. I am just spitballing ideas. I know tax tweaks get unwieldy fast. 

So how much did we pay in taxes? It's a little hard to compare a 1099 worker to a W2 employee because the calculations are done so differently from the perspective of the individual. (From the global perspective, it's not so different.) Probably the straightest comparison is the tax rate after subtracting the self employment taxes. It's a far cry from the 2% of old.

2016 AGI after self employment taxes: 16.1%
2017 AGI after self employment taxes: 14.5%

The problem, such as it is, with living in a low property tax state that has no income tax, in an inexpensive house mortgaged at a low interest rate is we almost never accumulate enough allowable expenses to itemize our taxes, even at the old $12,000 amount. In my adult life, I have only itemized one year. That year, we bought two cars, a refrigerator, and a hot water heater, in addition to our normal deductible expenses. Now that the deductible has doubled, I honestly don't ever see us ever itemizing again. The tax rate reflects our income after the standard deduction because there is not much else we can do to lower it. The rate from the top line, including all income and all taxes, were remarkably stable year over year:

2016 Top Line: 20.5%

2017 Top Line: 20.5%

The old top line was around 9%.

If we made approximately the same year in and year out, I don't think the tax rate would necessarily be all that out of line, but we don't. It was only two years. I see the money paid in taxes and think about the new (to us) van we need, and the down payment we need to fund a construction loan, and, and, and. It wasn't a lifestyle for us. It was a quick punch of money that left almost as quickly as it came.

I don't want it to seem like I am complaining. Well, I am not complaining too much. We are definitely better off for having two years of fine living. We did have the money to carry on as normal during the five month dry spell, and we saved enough that we could weather another dry spell if necessary. We were enabled to buy a good piece of land before the price of raw land skyrocketed up some more. I suppose I should be pleased we were able to repay our societal debt. I am grateful we were given such a solid platform to start sole proprietor life and that Dave had such a nice cushion while he thoroughly learned the business. We are in much better shape financially than we were before, but in our day to day expenses, we are back to treading water. Baby steps and patience.

So what does the new tax regime look like down here back around the median with five dependents?

2018 AGI after self employment taxes: 0%
2018 Top Line: 1.5%

Looks like we got a tax cut after all. 

The Church Budget

Once again, I will gingerly touch a third rail in Catholic life: money and the Church.

My 15 minute timer is running so I can't promise complete coherence, just a few things on my mind surrounding church budgets, what is prioritized, and what is not.

Back in the fall, I had a rumbling of a complaint, but never quite put it to words. The parish had just finished its annual Sunday School registrations--yall, I'm in the South and I'm gonna call it Sunday School. The fee associated with registration was $30 a child. I understand this is rather cheap as far as Catholic CCD classes go. With four kids eligible, our total was $120, which frankly I did not have on hand in August so I registered my children and sent them to class and paid my fee later in the fall when the checking account looked happier. And to be certain, no one gave me any guff about it. Nobody once asked why I hadn't paid any money yet and the kids' registration was not contingent on paying the money.

As I said, registration had just finished, and at about the same time, the Men's Club of the parish started a fundraiser. It was a reverse raffle. For $50 a ticket, you had the opportunity to win up to $3000? $5000?--I can't quite remember now. a chunk of money--and every fourth ticket won something. Prizes ranged from $10 on up.

We had to decide whether to buy a raffle ticket. Well, no. We still had $120 outstanding in Sunday School Fees. Something clicked, and rankled, in my mind. Parents are given the opportunity to give more money to the church and in return get to send their kids to class, which is somewhat required. Non-parents are given the opportunity to give more money to the church and in return get a chance to win a pile of cash. The discrepancy was glaring once I saw it. I am not saying the money for classes isn't worth it or that I resent paying for my kids to go to Sunday School or that they should fundraise anything like that. I am only noticing the difference in monetary expectations.

I live in a majority Protestant area. By majority Protestant, I mean the number of Catholics in this area has probably doubled in the last ten years and we now make up nearly 4% of the population. 4%!! Man, you run into Catholics everywhere now. Given this density, you get a pretty good idea how differently church budgets are treated in Catholic and Protestant churches.

So in most Protestant churches around here, Sunday School is free. It's just part of the church budget. Vacation Bible School is free. Retreats are free. The expenses are carried by the entire church instead of cordoned off to be borne by parents.

What brought this back to the forefront of the mind now is that Grace went on a large diocesan retreat this past weekend. While registering her for it, I discovered the diocese charges $60 a kid for this retreat. $60?! Really? And that didn't include an extra $15 for the retreat T-shirt. Our parish picked up half the cost so this retreat cost me $30 out of pocket, not including the T-shirt.** They did provide three fast-foody kind of meals, so $15 in food, $45 for retreat, maybe?

And again, I'm not really complaining about paying for Grace's retreat, but I do notice what (and who) gets charged. Why does the diocese think it's okay to charge $60 a head for a retreat aimed at teenagers? It feels incongruent that a pro-life/pro-family religion sticks it to parents financially. I know that you can ask and get charitable waivers, but friends, it gets old continually having to tell people you don't have the money. Why isn't the expectation that you give what you can to the church and the church covers the expense for all the kids, whether the child's family is rich or poor. No awkward, 'hey, I'm actually poor' conversation required. I don't really understand why it's unreasonable to expect a diocese to look after its own people instead forever nickel and diming parents, who are expected to give charitably and then pay fees on top of that, without a whiff of a raffle drawing in return.


** When I registered Grace, I asked if she wanted a T-shirt. She said no. I breathed a sigh of relief because this has been a stupid expensive run of weeks and keeping an extra $15 in my pocket would not hurt my feelings at all. After the first night, she said everyone had T-shirts. I internally sighed and gamely asked if she wanted a T-shirt now that she saw everyone else had T-shirts. She said no, because $15 is too much money to spend on a shirt she knows she will only wear over this one weekend. Right? Yay! But it also grates the conversation even had to be had.

***

I totally blew through my 15 minutes, but I have a sleeping baby on my lap so I couldn't go anywhere anyway. This is more like 45 minutes. Eek.

Swimming Lesson Economics

When people discover you have five children, they immediately gasp and lament how expensive children are. I generally shrug. Children are about as expensive as you allow them to be. Yes, there are definitely expenses that add up over time and birthing them safely is a humdinger of an expense, but most childhood "requirements" are nice options if you can afford it, but otherwise it's really not a big deal to skip when you can't afford it.

And then there are swimming lessons. Swimming seems like an important life skill that should be prioritized if at all possible.

Our history with swimming lessons is a bit fraught. We do not have a pool. Our neighborhood does not have a pool. The nearest available pool is at the local rec center, which requires a membership to use. Swimming has not been a regular part of our lives. Money and time. Money and time. One reason I sprung for the summer rec membership is to help get my kids in a pool more often.

The rec center offers swimming lessons without a membership, but they aren't very good since it is generally one 16yo girl paired with five or six swimmers for 30 minutes. Lots of blowing bubbles in the water, not a lot of stroke instruction. With a price tag of $90 a child, it's not a good deal. We have resorted to them over the years, but I'd rather find something better.

The majority of the private lesson instructors in this area requires that you have access to a pool. As I said, we do not have access to a pool. Once I scheduled lessons with a woman who was highly recommended who told me she could arrange pool access for us. She charged $100 per kid with a four to one ratio. She cancelled the Friday afternoon before the Monday the lessons were supposed to start because she could *not* arrange pool access for us. This happened to be the same week Marian was born. I might have cried.

Fast forward a couple-three years and I found a woman who offered lessons at her house every June, and only in June, for $100 a child with a two to one ratio. It was a drive--35 minutes--but swimming lessons, right? The week went well and I felt I had finally found a solution to the swimming lesson problem. Come the following March, she sent out an email declaring she was no longer offering lessons because she was expanding her regular work. The swimming lesson problem was not solved.

Last year, I couldn't even think about lessons. I told the children I'd think about it in September after the baby was born and look into off season lessons. I did not look into off season lessons.

This year back at the beginning of April, my sister happened to mention a swim school in her neighborhood. She thought I knew about it. I did not know about it. It runs all day long, all summer long.

The school was almost full for the summer, but by some miracle, the instructor had one four slot set of lessons available in the morning for a week in July. *This* week in July. It costs $125 a child. I was lucky to get them signed up. Every available slot was gone by the end of April. It felt like divine intervention. The schedule could not have been better.

The set up of this swim school is that the owner of the pool is a swim coach. He employs his swimmers to work one on one with each student. There are only four students and four teachers in the pool at a time. Since I have four children in need of lessons, we nicely consume exactly one session all for ourselves.

As I drove over this morning, it occurred to me that he makes $500 for each and every full session since that is what the lessons in this full section are costing me. My mind boggled with the possibilities. If you run 30 minute sessions back to back for eight hours, you can gross 80 thousand dollars over the course of the ten week summer swim season. It was amazing to consider.

My mind immediately jumped to my former wage. I earned around 42K in take home money working full time, 40 hours a week, 50 weeks a year. Could you really make more money giving swimming lessons over the summer? Also why aren't I a stronger swimmer and have a pool and only work 10 weeks a year?

It turns out he does not run back to back sessions, but a new sessions starts every 45 minutes. This is only 10 sessions a day for a total of 50 thousand dollars, gross, over the summer.

I do not know how much he pays his teachers, but they are teenagers. They cannot be demanding top dollar, I wouldn't think. I would guess his expenses can't be more than half his gross. Don't you think a teenager would work for $500 a week giving swim lessons? That sounds like a generous wage to me, but I don't know about modern expectations.

An easy speculation, making a ton of assumptions, is that he clears, after payroll, taxes and other expenses, between 20 and 25 thousand dollars a summer or approximately half of my professional working wage. Wow. He could tweak his setup and make more if he wanted. He could squeeze in more lessons or employ fewer teachers by offering a 2-1 ratio instead of one on one. He could do some of the teaching himself. He could only employ one other person, have a 2-1 ratio, teach, and clear as much money as I made working all year round.

You really can make a livable, if not extravagant, wage giving swimming lessons during the summer and do nothing else. The mind boggles again. All you have to do is know how to swim well enough to coach, have a steady supply of teenagers wanting to be Michael Phelps, have your own backyard pool, and live in a climbing suburb full of parents for whom swimming lessons is a non-negotiable. Easy, right?

As for me, giving all my many children access to swimming lessons has turned out to be very expensive, indeed. 

Tax Temptations

It's getting to be our favorite time of year again. Tax Time! Well, maybe you are already finished, but I haven't gathered the courage yet. I actually like doing taxes except the mileage. Calculating mileage kills me every year.

This year will be a little different because it will be the first time that we report significant income under Schedule C instead of nominal amounts. I expect that our tax amounts will not be very different from last year because Dave's real estate income pretty much matched the missing portion from the third of the year I did not have a job. Our refund is likely to be much lower since we will have to pay in the Social Security taxes, AKA self-employment taxes, that were not withheld for us. I am fairly confident we will not have to write a check, but if we do, the money has been duly set aside to do it. I also expect to meet the threshold to have to do quarterly payments during this tax year and into the foreseeable future. Joy.

I have often wondered about how sole proprietors get into tax trouble. It seems like a fairly straightforward affair to avoid it. You find a percentage of your gross income that should cover your tax bill and then set that money aside every time you get paid, whether through record keeping or through moving it to a separate account where you don't even have to think about it until tax time. Right now, I am pulling 15% out of every commission check and putting it into a designated tax account. This estimate might be a touch high, but I don't want to have to write a check out of our personal cash flow. As we get a better understanding of how our income will work, I can always adjust this percentage.

We knew when we launched into this real estate career that the financial year would be a cycle of feast and famine. The key to surviving is to plan ahead and save enough during the feasting time of the year (spring and summer) in order to weather the famine time of the year (fall and winter). This is the major reason it took me so long to submit my resignation. We wanted to make sure our surplus was in good order because we expected our first famine to be significant since Dave was not well-established in the business yet. And so it has turned out to be.

A couple of weeks ago at the beginning of February, the first commission check since September was deposited into our account. It was a great relief to finally see new money, and yet the amount left after taxes only covered a little over half of one month's expenses. Our surplus was gone. We now had to dip into accounts which hurt my feelings to withdraw from.

As I duly calculated the amount I should transfer into the tax account, a wild thought popped into my mind. What if I just made a note of the money due to the tax account and kept all the money for our use now? Then, when the cashflow was better later on, I would transfer that amount into the proper account.

I actually considered this course for several hours. Danger! There be dragons!

I was shocked that I would consider something so reckless. I was presuming the money would come later and I could set the accounts right. What if it didn't? I realized how easy it is for the lure of cash in the hand now to override common sense.

I am a person who feels pretty confident in my understanding of money and how taxes work. I, who calculates the likely percentage of taxes due and subtracts it from even the promise of a commission before determining a budget, was tempted to conveniently ignore all that for the extra padding of an amount of money under $400. Madness.

I understand how easy it can be for someone to unwittingly slip into tax trouble. It is always easier to think the money for taxes will come around later while you need the money for bills now. The abyss of seeing the end of the money can panic a person into rash decisions, especially if he isn't sure when the income will begin its upswing or if record keeping isn't a strong point.

Luckily for us, the end of the famine is in sight. By the beginning of April, our cashflow logjam should be freed, we will begin replenishing our stores, and hopefully next year's famine won't be quite so deep. But either way, I'll keep transferring money into the tax account because it's the smart thing to do.

Insurance and Everything After

On Monday we had an appointment to sort out one of the most joyful aspects of self-employment: individual insurance policies. There is a local insurance agent who has been highly recommended repeatedly so we asked her to come over and help us out. I expected to talk about insurance options and HSAs and dental and vision insurance options. Instead she sat at my kitchen table for two hours and filled out an online government form for me. I was annoyed. I can fill out government forms by myself. Heck, I even do my own taxes. I guess I am not the normal client. She gets rave reviews and I came away thinking most of her clients must be incurious.

By the time our appointment time was finished, we were the proud owners of a shiny new Obamacare account and not much else. We signed up for a basic medical insurance product to carry us through the rest of the year, but no other burning questions were answered because first, the stupid website was an insane maze of redundant questions--shocking, I know--and second, the agent did not even attempt to broach any other subject beyond setting up an Obamacare account. She didn't ask what our concerns were. She didn't ask if we had any questions. She just asked data questions in order to fill out a form, showed us the options that popped up, clicked a few buttons, and left. I was not impressed. The old adage still holds true. If you want something done right, you must do it yourself. I figure she got a little bit of commission from whomever pays her for driving out here and I'll figure out the rest myself.

So if anyone has any knowledge about how HSAs work, if they are even available on individual plans, and whether or not it is worth it for adults to get dental and vision insurance, let me know because I am going to spend the next few months trying to figure out the answers to those questions.

What was really stunning about our trip through Obamacare is how much money is being given out by the government. Mind blowing. The EITC is peanuts compared with this sum. Without government subsidies, the policy we bought would be over $900 a month and carry a $4000 individual deductible, but we get it for $450 a month with a $2000 individual deductible. Apparently the government thinks we are really poor. No, really. There are six levels of subsidy and we qualify for level five or the *almost* poorer than dirt level. I have a hard time wrapping my mind around that fact.

Not to belabor the point but we make around the median household income in the US. How can the median household income in a rich country be considered so poor as to need five levels of assistance among all the other assistance?  I am caught between being happy about having a reasonable monthly payment and being wary of the overarching implications of such a subsidy policy. Could we afford to pay more? Probably. Would it really suck and make it hard to afford to do anything else? Yes. I admit it pricks my pride to have the money offered to me and to actually need it, but I also worry about whether or not the country can afford such a generous policy. My gut instinct is that we cannot.


***

Most ridiculous series of pages in signing up for Obamacare: Dave had to affirm that he was the parent of Grace <click> the parent of Olivia <click> the parent of Sam <click> the parent of Marian<click>. I had to affirm that I was the parent of Grace <click> the parent of Olivia <click> the parent of Sam <click> the parent of Marian<click>. I had to affirm that Grace was my child <click> Dave's child <click>the sister of Olivia<click>the sister of Sam<click>the sister of Marian<click>. I had to affirm that Olivia was my child <click> Dave's child <click>the sister of Grace<click>the sister of Sam<click>the sister of Marian<click>. I had to affirm that Sam was my child <click> Dave's child <click>the brother of Grace<click>the brother of Olivia<click>the brother of Marian<click>. I had to affirm that Marian was my child <click> Dave's child <click>the sister of Grace<click>the sister of Olivia<click>the sister of Sam<click>. And after all those clicks, it all popped up on one page and had to be confirmed one more time. There is a reason it took two hours to sign up for an account. Money well spent for website contractors, I'm sure.

Putting Your Marriage First

The Friday outrage centered around this deeply misguided Good Housekeeping article where the author explains why it is okay that she is a terrible wife and that she puts her children and everything else above her husband on her priority list. Anne gives the piece the fisking it deserves.

And yet I am somewhat sympathetic to her plight.

“For most of the last 10 years, I’ve been the breadwinner. I worked long hours commuting into Manhattan full-time. Now, John has a job, but I still commute, and also work from home trying to keep us ahead of the bills.”

Breadwinner and mother. It's challenging and exhausting. There are so many demands made on you, your body, and your time and there isn't enough of you to go around. You are completely used up, not in a sweet, fulfilling kind of way, but in a chewed-up and spit out kind of way.

I recognize the temptation to view your spouse as an adult who just has to deal while you tend to the more urgent demands in life. It's hard to carve out time for your marriage when you don't have a strong, philosophical understanding that your marriage must be your top priority. It's hard even when you do have that understanding.

When your time at home is extremely limited, your children don't care that you are tired or have been working all day or that their father also needs your attention. They want your attention. Now. They need it and have a right to it.

 “John’s a great dad, but I play a singular role in each of my kid’s lives.”

It could be that the author is one of those women who demands to be in complete control over her children's lives and leaves nothing to her husband's judgement. He must not pick out the toddler's clothes because He. Won't. Do. It. Right. We all know people like this, so it could be. Or it could be that children want their mother's attention more than any of us quite remember or imagine.

My children spend the majority of their time with my husband. He changes diapers and gives baths and rocks babies and drives them to activities and does all the standard parenting that goes with 'at home' parenting. And yet I am the one to whom they want to pour out their problems. When I come home from work, it is I who gets to hear about the problems of the day. Problems that they never breathe in his direction, even though he asks about their day. It's isn't because he won't listen, but because I am their mother. They surround me, fight over me, and cling to me. I am astounded by how much children desire their mother. And, honestly, I am astounded that I am astounded. What could be more natural? And yet the culture has beaten this knowledge out of us.

It's easy to want to sleep after the children go to bed, especially when you know one of them will be waking in the night soon enough. My husband isn't the only one who sometimes gets overlooked. There are other things that get pushed down the priority list too, like my own hobbies and personal exercise. When you only have three to four hours a night to do EVERYTHING, a lot just isn't going to happen even if it is important.

Our oldest is nine so we still haven't exited the demanding stages of early childhood. Of course, parents of older children and teenagers say it doesn't ever get any easier, it only changes. (Oh, I don't know. I say if you get to sleep all night, it has to be easier than being woken up twice a night, every night.) But I understand the temptation to say I am done for today. I can see where you might slide into a habitual doneness if you didn't actively decide to avoid it.

If you happen to have a worldview that puts having a career! and micro-managing your children as the most important activities in your life, which is pretty common these days, I can see why you would put your spouse at the bottom of the priority list. If you must work and commute eleven hours a day and be the class room mother and plan blowout birthday parties and have your children involved in seventeen different enrichment activities and sleep and eat with your remaining time, what's left? You are completely expended. You have nothing left to give your spouse. I can understand why she can't see her way out of the problem.

Now unlike the author, I don’t think this situation is okay and I don’t think it is sustainable. Something has to give. I am already not a micromanaging parent and yet, most of the time, I feel stretched to my limit. For me, my status as breadwinner is preventing me from leading the life that we want to live and prevents me from putting first the people who need to be first. They might be first in my intentions, but my time is a different matter. We are fighting hard to change our lives so I can put my priorities in the proper order. The order *we* want them in.

But until you see that using yourself up in your job is the problem, that the money you make isn't worth the broken relationships and sheer exhaustion from doing it all, that there is more to life than avoiding student loans, and that a happy, stable marriage is the best gift you can give to your children, I can totally understand why she thinks she has no other options than to ignore her husband and hope he is still around when the children leave.

This author is wrong, but I understand more than I would like. It's like peaking over into the dark side of what might have happened if we didn't deliberately choose another path. When I read what she has to say about her life, I feel scorn and outrage and wonder what her husband thinks about his public castration, but I mostly feel pity.  Their children need their marriage more than her money.

Tax Post Mortem

I spent the weekend doing our taxes.

Happily this year's edition was much less painful than last year's. In 2013 my desire to keep proper records was thwarted by pregnancy, childbirth, recovery, going back to work, and the mental space all those things require. When I finally sat down in March 2014 to do the taxes, a bona fide disaster awaited me. If I recall correctly, it took three or four weekends of solid work to finally make a coherent data set and complete the taxes.

The reason our taxes can be so onerous is because Dave has been running several micro-businesses over the years. We run these ventures through Schedule C in order to write off his expenses so documentation is the name of the game.

Knowing the weekends of doom that were awaiting me in the Spring of 2014 from the 2013 neglect, I started tax year 2014 with the resolution to keep up with as much documentation during the year as possible. This resolution turned out quite nicely since it took less than a weekend to do both our taxes and my MIL's taxes. Dave also kept up with most of his mileage this year so I did not have to reconstruct a thousand trips with email and Google maps as reference. That was a big sigh of relief. I hope to maintain this system in the future. So far, so good.

Here are results of the 2014 tax reckoning. Based on AGI, our tax rate is -5.45%. If you calculate on gross income and include paid payroll taxes in the figure, our tax rate is 2.28%.  So we weren't a net drain on society this year! That is gratifying, I suppose.

What I find interesting is that our AGI for 2014 is about $900 more than our AGI for 2013, and yet our tax "refund" this year is about $800 higher than last year. Why is this?

I mentioned Dave's business ventures. One of his sources of income is to create projects to display on his blog to advertise the blue big box home improvement store. The way the program works is they send him gift cards and a list of project ideas. He picks one of the ideas, builds the project with materials purchased with the gift cards, writes a blog post about it with links, and then he can pocket as income anything left on the card which he uses for other projects that need done around the house. The big box store reports these gifts cards to the IRS as nonemployee compensation on a 1099. We run this income through Schedule C where we can write off the project expenses and report the balance as profit. All profit is subject to the self-employment tax which is just the payroll taxes in disguise.

This system worked reasonably well for us until, at the very end of 2013, the powers-that-be dumped about $2000 worth of gift cards on us in pre-payment for the 2014 projects. To say I was wrathful is an understatement. I knew at the very moment of opening the mail, we would have to pay taxes on their year end dump because we could not write off expenses which had not yet been incurred. And so it came to be.

This year, it just so happened that my employer decided to discontinue our vacation banks and made us cash them out--at 50 cents on the dollar, but that's neither here nor there--and the extra income we received from that maneuver just about equaled the amount of the gift card dump at the end of the previous year. So the money in our pockets was similar, but the unexpected income this year was run through the standard employee tax model instead of through the self-employment tax model.

Last year for 2013 based on AGI, our tax rate was -3.93% and 2.88% based on gross income and payroll.

Running wages through a standard employment model causes the individual to pay fewer taxes than he would pay as a self-employed person. Isn't that an interesting take on America as the land of independent businessmen?

However after calculating these percentages, it occurred to me that the employee portion of the payroll taxes are not all the taxes paid on my behalf. My employer also pays an identical amount of payroll tax in my name. I decided to calculate the full percentage of all income based taxes for 2013 and 2014. The full tax rates are:

[Edited]
2013--8.91%
2014--9.03%

So after all, we earned a smidge more money in 2014 and a smidge more in taxes was contributed on our behalf. I thought that was interesting.

Of course these numbers do not include our true income, noting that our health insurance premiums and retirement contributions come right off the top, and I don't get a handy sheet of paper every year telling me what these items cost. A vexing piece of the tax code is that health insurance paid by the employer is tax free, but health insurance paid by the individual counts towards taxable income. This might have changed with all the Obamacare. I'll have to research it. Once my employment is gone, we will have to figure out these vagaries of law since we will have to buy our own insurance.

Something else of note is the saver's credit. This credit is over and above the tax free contributions allowed into retirement accounts. Basically if you choose to make a deposit into a retirement account, you get a little bit of a credit, but choice is the key component. If you are required by your employer to make the deposit, you do not get the credit. My employer requires a 3% deposit into a retirement account but will match up to 5%. We take full advantage of the match, but only get the savers credit for the 2% difference between the requirement and our actual deposits. It creates an odd paradox where the paternalistic urge to compel employees to save actually takes money out of their pockets. I would be better off if the 3% retirement contribution were not required because I would always take full advantage of a match. That's 100% guaranteed ROI coming right out of the gate. It would be foolish to let that money go. And yet I know that without the requirement, many employees would never save a dime since present needs always seem more pressing than future ones.

Anyway these are just some of the thoughts that occupied my mind as I completed a thousand different forms. I am really curious to go back and see how our percentages shake out for Tax Years 2011 and 2012. Those years we only had my wages and the small profits from Dave's little ventures. Nothing unexpected happened income-wise those years so I do wonder how negative our tax rate got and if it was absolutely negative or just negative in the narrow sense.

But the saddest thing about having done the taxes is that it somehow never made my written 'to do' list. It only took up mental real estate in my head which means, now that it is done, I have nothing to scratch off the list. Sigh.

Money Talks

Here is a random observation. This started as a one or two liner and then got longer so I changed the title:

The more income a person has, the less comfortable he is discussing it with general company. When there is disparate income between relatives, the higher income person really, really does not want to discuss money. There is a certain level of income above which nobody wants to discuss it unless they are quite certain that everyone around also makes a similar income. I am ballparking this income amount around 75K when all of sudden the topic falls to the verboten category, but that's not a hard and fast guess. When the topic of money comes up, the people who have it fall strangely silent.

Now why is this? I think there are two things at play. First I have heard that around 75K of income is the level where money stops being an issue. At that income and above, you can afford all the basics and a reasonable amount of luxury on top of it. I wonder if the topic falls away because money just isn't really a concern anymore for those who budget wisely. Nothing to talk about. Second I think there is some level of guilt, especially with family, from having more than others. I'm not saying that people who make more think they don't deserve their income (or that I think they don't deserve their income), but that when you are in a position of having and others, especially family, who come from similar circumstances as you but don't have as much income or actually struggle to make ends meet, there is some feeling of guilt about the situation. Why do I have this money while others don't? I think there is a self-consciousness about the differences in circumstance that makes the higher income person clam up.

I would also imagine this scenario happens when most of the company has lots of money and there's that one guy who doesn't. The conversation is all about their venture capital investments while the poor guy is hoping that nobody notices that he is just smiling and nodding. I would guess that happens too.

Agree? Disagree?

(See, I like to talk money, but I've found that almost no one else does.)