Tax REFUND, not tax RETURN

[cicy33]

Re: Tax REFUND, not tax RETURN

I just wish I understood how they work better. You would think I would understand these things but I just never have got it.

[tabbycat31]

Re: Tax REFUND, not tax RETURN

This year ours is paying taxes on the house which keep going up and up and up.... back to the roth is this something you have to do every month? Or can you just fund it once? I have no knowledge about these things.

I fund mine all at once, however you can do it monthly. I have mine in an ING Direct acct until it's fully funded.

[disneysteve]

Re: Tax REFUND, not tax RETURN

what is the point in putting the money in digustingly low interest savings account that I have to pay taxes on the interest I do make? As long as you dont' pay for them to give you back your money you are not really losing much.

The point is it is better to get some interest than no interest. Savings accounts are paying over 5% now, which I don't think is "disgustingly low." Why should I sacrifice 5% and let the government hold my money for free?

As for opening a Roth, others have answered that. You can sign up for an automatic monthly plan with a pretty low minimum. Or you can save the money on your own in a high yield account until you have enough for a lump sum contribution that meets the company's minimum.

[kristinecfp]

Re: Tax REFUND, not tax RETURN

If I want to be a popular accountant all I have to do is make my clients up all their withholdings. They LOVE refunds - doesn't matter how rich or poor, as long as they get a refund they are happy. It boggles the mind. Well if all you want is a refund, the bigger the better, I can arrange way too much withholding - hehe.

So true! I've been trying to train my clients that the extra money they are withholding could be put to better use elsewhere (paying down debt, increasing retirement savings, etc.), but it never fails at tax time - they still want that big tax refund! I refuse to be the popular accountant though. I'd rather they owed a little than get a big refund.

[kristinecfp]

Re: Tax REFUND, not tax RETURN

Ok, this is just a financial pet peeve of mine. If you do your taxes and have an overpayment, the money you get back is called a TAX REFUND. It is not called a tax return. The tax return is the form you filed, your 1040.

Sorry to vent but I know all the tax threads will be starting soon and this term will be misused frequently.

Steve - I prepare a lot of tax returns, and I don't recall people calling their refunds a tax return. Maybe it's just a forum thing?

[jodi]

Re: Tax REFUND, not tax RETURN

Shall I keep this question on this refund/IRA post or start a new one? I'll try it here. Here's our situation this year. Stupidly low income + student loan interest deductions + two kids = large tax...um...credit? Not really a refund for us because we haven't actually paid the money. Anyway, we have not been able to contribute to our Roths this year since DH was a student and I made less than $25k. We want to use our refund money (probably several thousand - we got $4k last year) to put into our Roths for 2006, not 2007 (providing we file early, as we plan). But since we won't have the money until after we file...do we have to amend our 2006 return to include the contributions? The alternative would be to take the money out of the EF (once we know what our refund will be), then replenish it with the refund. Follow me? Any ideas?

[cicy33]

Re: Tax REFUND, not tax RETURN

The point is it is better to get some interest than no interest. Savings accounts are paying over 5% now, which I don't think is "disgustingly low." Why should I sacrifice 5% and let the government hold my money for free?

As for opening a Roth, others have answered that. You can sign up for an automatic monthly plan with a pretty low minimum. Or you can save the money on your own in a high yield account until you have enough for a lump sum contribution that meets the company's minimum.

Well, apparently we do not have the same banking, cuz mine is around a measly 1% not enough for me to do the happy dance. and I don't want to do an online bank account. The last one I did I apparently forgot to read the fine print and was charge a fee cuz I did not have an item that did auto deposit, like that is my fault! I am talking about a paycheck that is an auto deposit not a monthly thing I do. I think that it is great to see someone can get 5% but I don't think that is the norm.

[cicy33]

Re: Tax REFUND, not tax RETURN

and keep in mind that wonderful interest you just made, you got to add to your income and get taxed on it. so if you were on the line and made a sizeable interest amount it could throw you over the line and into a brand new tax bracket. but do keep in mind it is to each their own. I wouldn't probably save it. getting to the bank is hard enough now.

[cicy33]

Re: Tax REFUND, not tax RETURN

I just went to a local web site for one of the banks in my area. Here are their rates for a savings account. Note how much I would have to have to earn anything of value. the columns are a little off but you get the idea. obviously the first one is for the first number item. etc.

Interest Rate % Annual Percentage Yield Daily Minimum Balance to Obtain Annual % Yield
Savings Account 1 1.10 1.11 $100
Smart Kids Savings Account 2 0.95 0.95 $10
Money Market 3 1.35 1.36 $2,500
Banterra’s Preferred Money Market 4 (Tiered Interest)
2.20 2.22 $10,000 to $24,999.99
2.90 2.94 $25,000 to $99,999.99
3.70 3.76 $100,000 to $249,999.99
4.10 4.18 $250,000 to $499,999.99
4.20 4.28 $500,000 and over

[safari]

Re: Tax REFUND, not tax RETURN

Shall I keep this question on this refund/IRA post or start a new one? I'll try it here. Here's our situation this year. Stupidly low income + student loan interest deductions + two kids = large tax...um...credit? Not really a refund for us because we haven't actually paid the money. Anyway, we have not been able to contribute to our Roths this year since DH was a student and I made less than $25k. We want to use our refund money (probably several thousand - we got $4k last year) to put into our Roths for 2006, not 2007 (providing we file early, as we plan). But since we won't have the money until after we file...do we have to amend our 2006 return to include the contributions? The alternative would be to take the money out of the EF (once we know what our refund will be), then replenish it with the refund. Follow me? Any ideas?

Roth IRA is not tax-deductible, so you don't need to report your contribution on the tax return. Here is an excerpt from the IRS website:

Do I report my nondeductible Roth IRA contributions on Form 8606?

There are no forms to report a Roth contribution. The financial institution, which is the trustee of your Roth IRA, will send you information on the amount in your Roth IRA. They will also send the information to the Internal Revenue Service.

Source: http://www.irs.gov/faqs/faq17.html

[safari]

Re: Tax REFUND, not tax RETURN

I just went to a local web site for one of the banks in my area. Here are their rates for a savings account. Note how much I would have to have to earn anything of value. the columns are a little off but you get the idea. obviously the first one is for the first number item. etc.

Interest Rate % Annual Percentage Yield Daily Minimum Balance to Obtain Annual % Yield
Savings Account 1 1.10 1.11 $100
Smart Kids Savings Account 2 0.95 0.95 $10
Money Market 3 1.35 1.36 $2,500
Banterra’s Preferred Money Market 4 (Tiered Interest)
2.20 2.22 $10,000 to $24,999.99
2.90 2.94 $25,000 to $99,999.99
3.70 3.76 $100,000 to $249,999.99
4.10 4.18 $250,000 to $499,999.99
4.20 4.28 $500,000 and over

Local banks generally don't offer competitive rates. There are many online accounts that currently have rates above 5% without any strings attached. For example, I have a GMAC Money Market account, which pays 5.2% APY on balances over $500. There are no fees and they give you a free ATM card and checkwriting.

Also, if you're worried that the extra interest will put you in a higher tax bracket, that's a common misconception. The higher tax rate will only apply to the portion of your income that exceeds the ceiling of the previous tax bracket. In other words, you won't pay higher tax on your entire income. For example, for 2006 the tax brackets for a single person are:

$0–$7,500 10.0%
$7,500–$30,650 15.0%
$30,650–$74,200 25.0%

If you made $31,000 in 2006, only $350 will be taxed at 25%. The rest will be taxed at 10% and 15%.

It doesn't make any sense to try to stay in a lower tax bracket to save on taxes. It's like saying I don't want to make $1 mil because I'd have to pay more taxes. The higher your gross income is, the higher your net income will be.

[jodi]

Re: Tax REFUND, not tax RETURN

Roth IRA is not tax-deductible, so you don't need to report your contribution on the tax return. Here is an excerpt from the IRS website:

Source: http://www.irs.gov/faqs/faq17.html

Thank you! For some reason, I had it stuck in my head that we reported our Roth contributions on our tax returns. I must have been thinking back to when DH had a regular IRA. So it looks like I can sock my refund away in the Roth IRA for 2006 without having to amend anything.

In regards to previous posts, I also got 5% or more in interest on my savings at a local brick and mortar back (HSBC). However, if I were getting extra money each week (in lieu of a bigger refund), I would be throwing it at my student loans and knocking that interest down each week, rather than paying the interest all year long then paying down a big chunk in April. Just my two cents

[cicy33]

Re: Tax REFUND, not tax RETURN

Local banks generally don't offer competitive rates. There are many online accounts that currently have rates above 5% without any strings attached. For example, I have a GMAC Money Market account, which pays 5.2% APY on balances over $500. There are no fees and they give you a free ATM card and checkwriting.

Also, if you're worried that the extra interest will put you in a higher tax bracket, that's a common misconception. The higher tax rate will only apply to the portion of your income that exceeds the ceiling of the previous tax bracket. In other words, you won't pay higher tax on your entire income. For example, for 2006 the tax brackets for a single person are:

$0–$7,500 10.0%
$7,500–$30,650 15.0%
$30,650–$74,200 25.0%

If you made $31,000 in 2006, only $350 will be taxed at 25%. The rest will be taxed at 10% and 15%.

It doesn't make any sense to try to stay in a lower tax bracket to save on taxes. It's like saying I don't want to make $1 mil because I'd have to pay more taxes. The higher your gross income is, the higher your net income will be.

what do they do for lower amounts? I just don't have $500. and again, how do you fund it? I would guess you have to do transfers from your own checking account? bank of america is the one that required an auto deposit to not be charged any extra. I don't even know what a money market account is. Is that different from a savings account?

[safari]

Re: Tax REFUND, not tax RETURN

what do they do for lower amounts? I just don't have $500. and again, how do you fund it? I would guess you have to do transfers from your own checking account? bank of america is the one that required an auto deposit to not be charged any extra. I don't even know what a money market account is. Is that different from a savings account?

GMAC is paying 5.1% APY on balances below $500, but they charge a monthly fee if your balance is lower than $500. In your case, since you don't have $500, I recommend opening an ING Direct account through a referral link and earning $25 bonus with $250 deposit. The interest rate is 4.5%, and there are no fees or minimum balance requirements.

Money Market is the same as Savings account. You fund it from your checking account. Automatic deposits are not required. You can make deposits and withdrawals whenever you want, but there is a limit of 6 withdrawals per month (this is the case for any savings accounts at any bank).

[cicy33]

Re: Tax REFUND, not tax RETURN

I have actually done an ing a long time ago. But again, I don't have that kind of cash all at once. We are simple people who are trying very hard to save up but it takes time when I just went back to work and my dh is a contractor so sometimes work is scarce. Do they have any ing offers for returning people with a lower deposit? Or other banks?