personal Finance Story

I have been hearing a good bit of groaning at work and online on my favorite blogs. It happens around this time of the year like clockwork. Taxes are not the most fun thing. There is quite a bit not to like.

• It’s complicated.
• It’s time consuming.
• It’s expensive.

Everyone at some point deserves to gripe about taxes. And then there are the upward 2% of the population that will (hopefully tongue in cheek) complain to no end that their tax bill is too high and patently unfair. That is simply ridiculous. The rich pay more in taxes because the rich make more money. It’s just that simple.

I find it very telling that many rants such as these will gladly post their final tax bill for the world to see but somehow neglect to add what their yearly income was. I would not be surprised to find that as a percentage of their gross income, these individuals pay less than they would have the public believe. There are plenty of ways for the wealthy to pay lower taxes per dollar of gross income. Contributions to tax advantaged retirement accounts reduce taxable income. Income from dividends are taxed at a lower rate than earned income. Long term capital gains are taxed at a lower rate than earned income.

Let me be clear I would love to have the problem of a six figure tax bill on April the 15th of every year. That would mean I’ve made mountains of money in the last year. I would be bragging about the size of my tax bill if I indeed made so much money.

The actual dollar amount is arbitrary. You need to know the percentage of gross income to know the full story.

Lowes and J.C. Penny want your economic stimulus rebate check. So much so, you may be able to cash your check directly in the store in order to pay for your purchases.

Neither store has officially confirmed the plan, but if history is any bit of a guide, I wouldn’t bet against them giving it a try.

Temptations are everywhere these days to spend. The era of the credit card has made it easier than ever to overextend yourself. That may very well be coming to an end. The evening news tells the story rather bluntly that consumer spending is pulling back as the economy weakens.

Take a moment and prioritize your financial goals and put your rebate check where it will do the most good. I will more than likely use the funds to help payoff my car loan. Doing so will give me an instant $250 a month raise. No car payment also means a slightly lower emergency fund since I won’t have to replace that income in the event of a financial need.

This raises the question, how many of us really are going to blow the money at retail outlets like the government wants? Conscidering you are a reader of personal finance blogs, I’m guessing your money is going to be saved and or invested. Will the stimulus plan work?

Yes, but not as was originally intended. I’d like to add at this point that I think there are many better ways the government could spend $152 Billion, but I don’t think it will be a total waste either. Regardless, check is (practically) in the mail.

My check is not going to end up in the coffers of some department store. I’ll be paying off debt. I expect to pay off that debt completely within this year. With that extra money in my pocket at the end of each month, I’ll be able to invest more. And more investment is ultimately good for the economy as a whole.

I doubt that my tiny contribution would do much, but en masse, the results could be more pronounced. There is a proverbial army of personal finance bloggers and readers who I expect see things the same way I do. We are not all going to pay off debt at the same time, but $600 or so will certainly advance each cause significantly. It may take longer to see the effects, but in the end the economy would benefit greatly and more importantly, it would be sustainable. That is far better a result than a good quarter of retail sales could ever provide.

The final tally? A measly $107.

I couldn’t be happier.

By estimating my tax bill at the start of last year, I made sure to take an extra allowance. Doing so helped me minimize the amount of taxes paid during the year. That’s more money in my pocket instead of Uncle Sams. Its been said many times by many a PF blogger but it is worth repeating, a huge refund means you gave the government a hefty interest free loan. You are better off putting that money to good use during the year. If you follow a budget carefully enough, and as a reader of personal finance blogs I assume you do, you will come out ahead.

Worried about under paying? Its true that if you do underpay the IRS can fine you for your carelessness. It is important to note that there are exceptions that will waive any possible penalty if you have at least paid as much in taxes as your last tax return. This makes sense for the majority of us who receive pay raises on a semi regular annual basis.

The IRS has a special document, known as Publication 919, that helps you figure out the optimum withholding. Take a moment and see if your 2008 taxes could be adjusted. After all, you know better than the government how to spend you own money so keep more of it for yourself during the year.