Tuesday, February 15, 2011

Should I itemize on my taxes?

One of the most frequent questions I get from the folks who come to me to have their taxes done is "Should I itemize?" A lot of these clients don't even know what the question means, but they ask anyway. And the answer I always give is that we will look at their situation and determine the best answer, because the answer is different for everyone.

To explain what it means, the IRS gives everyone a standard deduction. You can choose to take the standard deduction or itemize. Typically, you will choose which ever gives you the best tax break (while it sounds silly, there is at least one good reason not to choose the best, but I'll ignore that for now). This deduction is the amount of your income that is not taxable. Supposed you're single and make $50,000 a year income. You won't have to pay taxes on the entire income, the first $5700 is not taxable.

The standard deduction as mentioned about is $5700 for single people or for married people who file separately. For married people who file together, the deduction is exactly twice the single deduction or $11,400. There is another class of people, Head of Household and their deduction is $8400. I won't go over those choices in this blog post, I'll assume you know which filing status you fall into.

In order to decide on itemizing, you can simply look at your items and see the total. If they total more than the standard, you're better off itemizing. So what items are significant? My experience is that home mortgage interest is typically the larges. If your home is mortgaged, you should get a from from your bank that tells how much interest you paid.

People of faith also tend to have charitable contributions. And of course we all pay state taxes, you can choose to deduct your state income tax or state sales tax. Don't forget real estate taxes and property taxes on your automobiles. If the total of all of these items exceeds the standard, by all means itemize.

There are two other areas that are common: Medical expenses and miscellaneous deductions. Each of these is subject to some minimums. For example, medical expenses that exceed 7.5% of your income are deductible. For the person listed above making $50,000, that's $3750. If your expenses are less than that or are covered by insurance, you can't deduct them. If your expenses are higher, you can only deduct the difference. For example, if your expenses are $5000, you can only deduct $1250.

For miscellaneous expenses (job travel, union dues, etc), these have to exceed 2% of your income.

I purposely omitted Casualty and Theft losses as they aren't that common. By all means you should study the law yourself and not take my comments as always true. But hopefully, this will help you decide if you want to itemize.

Monday, February 14, 2011

Twenty-one years ago

Twenty-one years ago, my wife was pregnant with what was to be our third child. Everyone (except me) thought it would be sweet if the child was born on Valentines Day. We woke up that morning with my wife thinking this was the day. We hurriedly got our two girls up and gave them their Valentines presents, knowing we may not be home that night. Then we called a neighbor to take care of the girls before and after school.

We hadn't chosen a girl's name yet (which turned out not to be a problem). I had decided that if the child was a boy, he should inherit my middle name as his middle name. I hadn't made that decision with the first two, which was ok, since both girls would have seemed silly with James as a middle name. During the labor process, my wife thought about changing the first name, but all her choices started with "J" and the idea of JJ just didn't seem right. Little did we know, even without the JJ moniker, we were due for some dynamite (the link shows my age).

A few hours later, we were in the delivery room, still with no girl's name, but at least settled on a boy's name. Ultrasounds were not common and we didn't know what to expect. We had experienced similar but opposite problems the first two times around (no boy's name chosen back then). When our pediatrician told use we had a "little Muggsy", we knew we didn't have a problem this time either. I guess with what the doctor charged for his short time in the room, he could afford to be a big Hornet's fan.

After the birth, I went to the nurse's station to get some ice & water. OB nurses are always excited and asked "what did you have?" New dads (even experienced new dads like me) can be counted on to say something stupid, my answer was "just some water." After they laughed and explained their question better, I told them we had a boy.

Today, my youngest celebrates his big day. We've been through a lot together. I have the privilege of taking him on baseball trips every few years, camping now and then and other father-son experiences. He's seen enough changes to last him a lifetime, but I'm sure more changes are on their way. Hopefully, these changes have prepared him for a bright future. He certainly deserves it.

Adam is now a student, a bass player in a Christian band (when he can), and more than that, a young man. Happy Birthday Adam! Enjoy your special day. We love you.

Friday, February 04, 2011

procession of presidencies - part 2

It took me longer to get back to this than I thought. When I last left off, I had explained my theory on presidential elections. Basically, I had gone through presidents from JFK to JEC showing that the results of each election was predictable. It's almost as if some "invisible hand" was guiding not just economics, but elections too.

The last president I covered was President Carter. He took over after Ford, the only un-elected president we've ever had. America wasn't too happy with America. We'd been through the Vietnam war, then a crooked president. Then a president who tried to patch things up (Ford), but never seemed to do anything of note (except the Mayaquez incident). Inflation was high, unemployment was high. And things didn't get much better after Carter stepped in.

The hostage crisis in Iran sealed President Carter's image. Fairly or not, Americans felt defeated. A rescue attempt failed, costing the lives of 8 servicemen. The hostages were taken deeper under cover and were not released until after Carter left office.

America need to regain confidence in American. Ronald Reagan was the man for the job. Reagan was every man's grandfather. It didn't matter what he said, you just liked him. He believed in himself and he believed in America. He wanted to take the country back. I heard back then, that there was a huge boost in the sales of American flags. With him in office, America recovered. The economy got better, we ended the Cold War with the Russians and we actually made progress. We bombed Libya (on my birthday) and showed we would not put up with terrorism. Reagan surrounded himself with some very smart people, he may have been the last president to do so.

After 8 years of Reagan, control of the presidency went to his VP, George H.W. Bush. His time was lackluster. And his timing was worse. Americans had 8 years of Reagan and saw Bush as a continuation. They made fun of his "points of light" and everything else he did. When it was time for re-election, the economy was down and he seemed to not care.

In walked Bill Clinton. Like JFK, he held a Prince Charming appeal. America wanted a younger person in office, someone with charisma (a value Bush never was accused of). Sure, he was a womanizer, but he was a good looking womanizer. Men would laugh, women didn't care. And he said he would fix the economy.

At the end of his first stint, the economy looked good, so he was reelected. But after eight years, America decided it wasn't just the economy that was important, it was credibility also. They were tired of the snickers and back room jokes. Tired of the womanizer or maybe he had just grown too old? American wanted credibility again an reminisced about the days of a man named Reagan. He wasn't available and his VP Bush hadn't been all that good, but another Bush stepped in.

On George W. Bush's first presidency, 9/11 happened. Americans everywhere were convinced he was the right man for the job. There was even a political cartoon that showed Tipper Gore saying she thought he was a better choice. He was locked in for 8 years, primarily on the vote of Obam Bin Laden.

Americans can't be patient with anything and at the end of 8 years, the economy was again in a bad situation.Terrorism was no longer considered as big a threat as in 2004 and the reminiscing of Reagan fell flat. America wanted a change again, someone younger. A fresh view of the world. Someone who wasn't a cowboy. Someone who could negotiate.

In a perfect storm, a young candidate named Obama showed up. Not just a change, THE change. He wasn't Bush and he wasn't Clinton. He cared about people. He was a minority, but not too much of one. Americans could identify with him.

So what does this mean for 2012? Well predictions are easy in hindsight. It's the forward looking predictions that are hard. But I believe most presidential elections revolve around the economy. If the economy rebounds, President Obama will have no trouble getting reelected. If there is another 9/11 attack and if President Obama responds, he will have no trouble getting reelected. (I don't think there will be another 9/11, Bin Laden has no incentive) If on the other hand, the economic recovery still lags (and I think it will), the wars in Iraq and Afghanistan still linger and we have new issues crank up (Korea, Tibet, etc), I think he will face strong opposition.

It will be up to his opponents (both Democrats and Republicans) to surface a new face, one that shows confidence. One that shows patriotism (I think we're headed back to that).

What do you think?