2008 Taxes are Done

Our taxes got e-filed this weekend so now we just have to wait for our returns. Federal refund was a little smaller this year, but it should come back quickly. California refund on the other hand may not materialize for a while. The state has until the end of May to get payments out or they have to start paying us interest on our refunds. Have to see how screwed we are once the legislature passes a budget. I’m predicting our taxes will go up.

Check your savings account rates

I had moved all my savings to Wamu before they failed and were offering 5% on their savings accounts. I knew they had been dropping the rate, but I looked the other day and it was down to 1.15%. I signed up with ING Direct to try them out since they’re offering closer to 2.5%. Was easy to setup an account and withdraw funds from my checking. If you’re interested in opening an ING Direct account, leave a comment and I can send you a referral email that gives you $25 just for signing up (I get $10).

Just a few thoughts on itemizing and deductions

I know, another boring post about money and taxes, but stick around you might learn something.

The answer to the “should I itemize?” question is actually pretty simple: if you don’t have enough deductions to surpass the standard deduction then you don’t itemize. You take the larger of the two and be done with it because that’s what benefits you the most. Note for the married folks, if you file separately and one of you itemizes then the other has to too.

The standard deduction is great for people with very little to deduct and itemizing is great for people with lots to deduct. Once you get in the situation where your total itemized deductions are close to your standard deduction then things like the mortgage interest deduction aren’t really that valuable. The mortgage interest deduction is touted as one of the benefits of home ownership, but people like me wouldn’t benefit at all from it.

In our situation, if we owned a home we’d have to hand the bank around $6,000 in interest every year and pay $3,000 in property tax to simply break even with the standard deduction. It’s only after the $10,700 threshold that each additional $1 deduction would benefit from itemizing. Even then I’d only be getting about 20% of that back, so what is the benefit of giving away $9,000 a year and then spending $1 to get back $0.20 after that. In the future, the standard deduction will increase with inflation and we’d gradually pay less interest over the life of a mortgage making it less likely that we’d be over the standard deduction. So whenever I hear someone talk about the tax benefits of owning a home, I take it with a big grain of salt.

Most Americans Don’t Itemize on Their Tax Returns gives a pretty good break down of who itemizes. Those individuals with higher incomes have a greater incentive to itemize because the deductions are more valuable as you move up the tax bracket ladder and this is certainly reflected in the itemizing rates.

I did hear about a proposal to add an additional $1,000 to the standard deduction for people with mortgage interest that don’t itemize. Can’t find anything through Google right now so post a link if you know what I’m talking about.

Tax Time 2008: Free TurboTax Deluxe From State Farm Again

Last year State Farm offered free TurboTax with federal and state e-filing to all of its customers. This year they continued that offer, but limited it to their banking customers which excluded me as an insurance only customer. When I found out I applied for one of their credit cards and the other night I got it added to my State Farm account. Logged in and the link to sign up for TurboTax appeared. Yeah free filing again this year.

There was some uproar from TurboTax customers this year when Intuit tried to introduce a $10 fee to just print more than one return. You got the first federal e-file free, you could print a state return or pay to e-file it, but then any other return you wanted to do would cost $10 to simply print. People were just absolutely hammering on them in reviews. They saw their error and now you get 5 free federal e-files and you can print as many other returns as you want. If I was paying for it I might have considered switching to TaxCut.

If I can get into H&R Block’s TaxCut to do a test return I might post some of my impressions and compare the two packages.