"Secret skimping is out, like false bosoms." - Marjorie Hillis, Orchids on Your Budget, 1937.

Wednesday, January 27, 2010

I wish I was a little bit taller, I wish I was a baller, I wish...I were a tax professional?

I decided to file my taxes tonight. So here I am. I've got all my shiz spread out, I'm using TurboTax, and I'm pumped for the refund I should be getting. Only I had to stop halfway through because I'm so. confused.

1. I received a 3% employer match this year in July of 2009 for the 2008 tax year. This is the first distribution I've been qualified to receive, I haven't received any kind of related tax form, and I've go no idea how to report it. Also - reinvested dividends? Where do I report those?

2. Once again - Roth IRA dividends - reinvested. I understand it's "non-taxable" and I didn't receive anything but a year-end statement of accounts, but TurboTax is telling me I still need to report it? But only if I've got the 1099-DIV? But Vanguard says I'm not getting one? Basically, it's a head-scratcher.

3. Remember that bonus I received this year? My employer gave me a 1099-MISC with item 7 ("Non employee income") filled. In prior years, it had always been in box 3 ("Other income"). And just to rub it in, they used my OLD address. Anyway, I'm clearly an employee, so shouldn't it be box 3, or an entirely different thing all together?

My finances are INCREDIBLY simple at this point in my life, so why the hell am I having such a hard time?


Investing Newbie said...

Oh girl, I just scratched my head too. I haven't gotten my W-2s, so I'm avoiding all tax talk until then. Good luck. And don't forget, there's always Google for the hard stuff.

me in millions said...

I'm with you! I haven't started either and I'm slightly confused by the bloggers who post that they are excited to do their taxes. It's confusing. I hate numbers!

Christopher said...

This is one of those rare instances where, in my opinion, it may be advantageous to pay a professional for help.

I used to do my own taxes. It would take me about six hours, and I would constantly be re-checking and second-guessing my numbers. Often I would forget about a credit or deduction I was entitled to and had to start all over again. It was maddening, and I eventually realized that, in the event of an audit, I would be royally f-cked.

I now pay a competent professional $80 once a year to do everything. The returns are always flawless, filed electronically, and triple checked. Best of all, when you pay a tax professional for tax preparation, they will usually assist you in the event of a discrepancy or an audit. This makes a world of difference, especially if you've never had to deal with the IRS before.

I'm not suggesting that everybody do this. If you have one source of income and no deductions, you can do your taxes on the computer in about 20 minutes. However, the money paid to a tax professional is almost always well spent, no matter who you are or how much money you make.

Sarah, are your taxes relatively simple, or are there twists and turns that could land you in trouble if you screw up?

Christopher said...

One more thing:

"Non-employee income" can be a blessing if you have deductible expenses. Getting a 1099 indicates that some of you income comes from being an independent contractor. I'd say let the employer make this mistake and use the opportunity to write off expenses that you use for anything work-related (e.g. internet, cell phone, car mileage or transit fare, etc.)

Worst case scenario: you get audited (which almost NEVER happens if you make less than $75k), and your employer gets blamed for the screw-up.

Kevin said...

With tax-deferred accounts (401k, IRA, etc) the only taxable event is when money goes into the account or comes out of the account. Transactions that are strictly inside the account -- reinvested dividends, rebalancing, swapping funds, etc -- are not taxable events.

You won't get forms about transactions inside these accounts. However when you put money in you get a form saying how much you put in, so you don't have to pay income tax on that money. When you take money out, that counts as income, so you get a form saying how much money you took out.

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Leah said...

With the 3% match are you referring to a 401K? You don't have to report anything in terms of taxes for this. Your contributions will reduce your taxable income on your W-2 so it should be reflected in there, but your employers contribution is not relevant to your taxes.

Sorry, but I love doing my taxes!!! And they are very complicated: we own a rental, a house, have 2 LLCs and 2 S corporations, a daughter (dependent care and childcare credit calculations), stocks bought and sold. I love Turbotax when the numbers roll around with each additional info. Of course it always ends up in the red, but this year I'm hopeful!

Leah said...

Turbotax will ask about your Roth IRA contributions, but as far as I can tell it's just for tracking purposes or to make sure you were eligible to make contributions - if your joint income exceeds $156K you can not contribute to a Roth. Not sure what the single phase out is. Turbotax doesn't need to know anything about interest earned or dividends reinvested.

eking out said...

I ended up emailing our bookkeeper who said something to the effect of "it doesn't matter". I declared it, so even if it's wrong, I hope I'm in the clear. Plus, I make pennies (no offense to anyone out there making less than me :X).

@ Christopher: my taxes are probably almost as simple as it gets, but I have a feeling that here in a couple years I might require some professional help.

@ Investing Newbie and meinmillions, seriously, I don't see how anyone could possibly get everything right on the first go. And I was using TURBOTAX which is supposed to make everything ridiculously easy. Of course, I found myself asking, "WHAT DO YOU MEAN BY [X]?!?", where x=some vague concept.

@Kevin and Leah, thanks for the heads up about retirement account contributions. Leah, I literally LOL'd when you explained how excited you get when doing your taxes. At least someone out there gets a kick out of it (other than THE MAN) :P