Preliminary 2007 Tax Figures
Last night I sat down and decided to figure out my taxes for 2007. In past years, we went to H&R Block and had them do our taxes for about $365. Considering that I make about $32 an hour before taxes, it would be a net profit if it took me less than 11 hours to finish them. Since I did my own taxes before getting married, it wasn’t that hard to get back into the groove of things. For now I will call these numbers preliminary, because I do not plan to file until closer to the end of the month to allow for any straggler documents to arrive. I’ve had to file amended returns in the past and it’s just a pain in the butt.
After my wife quit work last February to stay home with our daughter, I raised my personal exemptions as high as I thought I could to bring home the most money I could and end up with a small tax refund. I think I was able to add about $100 per month to my take-home income with the changes which was sorely needed. So with this in mind, I sat down with my forms, my pencil, and my calculator and got to work.
As I totaled our income I was surprised by how much we gave up over the past year. After looking at the numbers, we earned almost $20,000 less in 2007 than in 2006. It is amazing that we didn’t lose more savings than we did over the past year. It really speaks well of our resolve to maintain a frugal lifestyle after our child was born. Granted, we didn’t save any appreciable amount of money (outside of my standard 401(k) contributions), but it feels nice to know that we didn’t lose all that much.
But the biggest surprises came when I calculated the data for the 1040 Schedule A. Even with the dramatic decrease in income, our total deductions increased by nearly 35%! This isn’t all that surprising but the numbers do come as a shock if you’re not prepared. The increase came mostly from the doubling of both our property tax and mortgage interest. We only lived in this house for half of the year in 2006 and lived with my parents for three months while house hunting, so our overall expenses were much lower that year. And I’m pleased to say that even with the decrease of income, we were also able to raise our cash charitable contributions by over $1,000. That put us within arm’s reach of tithing and I think this year we’ll be able to stretch out the remaining amount.
After finishing all of the calculations for deductions, credits, withholdings, taxes, etc, the final result was that, even with the increase in personal exemptions, I still withheld $2,374 more than I needed to! And after adding the state tax refund, that number ballooned to $2,794. Talk about poor planning leading to a great blessing…
“What great blessing would that be?” you are probably wondering. Well, if you’ve been following along lately, you know of our washing machine woes. Until last night, I was trying to figure out where the $1,000+ (including sales taxes) would come from to pay for a new washing machine. Now we’ve decided to use that money to buy the perfect washing machine to meet our needs and apply the rest (probably $1,500) to the car loan to help get that paid off this year.
I know it’s smart to minimize one’s withholdings to maximize your income throughout the year, but sometimes it’s a real blessing to have money hidden away where you literally cannot spend it - even if it is an interest-free loan to the government. If you’ve already calculated your taxes, how did you come out this year?
Don’t forget to stop by Blueprint for Financial Prosperity and check out Jim’s list of free tax preparation services. Since I’m a customer of State Farm, I’ll be filing for free through TurboTax Online this year. If you plan on filing on your own, you owe it to yourself to check out that list and find if any of those offers apply to you.
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