The U.S. Government Just Made Me Its Bitch

Posted on February 20, 2006 by Him and tagged taxes

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I'm lounging around on this fine President's Day, and I decided to do my taxes. I fire up good ol' TaxCut, enter in all of my data...

...and I owe the U.S. Government $474.

Next year Uncle Sam, please be gentle. Ouch.

Anyone got any good ideas on how to lower that tax bill?

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cory | Feb 20, 2006

If you've got some extra cash laying around, a Traditional IRA contribution can get you a nice tax break. Of course, before you put down your money, do the math in TaxCut to make sure it'll be worth your while. Last year, my situation was similar:

I owed the gov't about $400, and I owed the state about $200. After dropping 2k into a traiditonal IRA, I came out with a total refund of about $200.

Had I not bought the IRA:
-600 (taxes) - 0 (IRA contrib) + 0 (value of investment) = -600

Buying the IRA:
+800 (change in taxes) - 2000 (IRA contrib) + 2000 (value of contrib = +800

Which is pretty much an immediate return of 45% on my investment. The mitigating factors for me where that I had not already exceeded my yearly IRA contributions and I took cash out of my "emergency fund" to pay for the IRA. In the long run I'm glad I did it because I got to pretend I pulled a fast one on the gov't and I got a $2000 investment for $1200.

This is a great last minute fix becuase you can continue to contribute to your 2005 IRA until April.

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Heather | Feb 20, 2006

Buy a house and make a baby. ;-)

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Cap | Feb 24, 2006

Here's a trick from Dave Barry's new book, Money Secret.

Write your name on the tax return form, follow by the word: DECEASED.

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