Money and Business

When the new tax rates came into effect in early 2018, we did our spreadsheet analysis to try and pinpoint the correct withholding to use for the remainder of the tax year. I think we did pretty well with the withholding although we got a bit more in the deductions due to a couple of things: 1) we were especially generous this year with a couple of new pro-2A foundations* and 2) we paid the vehicle tax on the motorhome for 2019 in advance when we were upgrading to the W7GD call plates. All this resulted in a modest over-withholding to the tune of getting a good chunk back from the Feds and a small amount from the state. For the latter, our contributions to the Arizona Private Education Scholarship Fund completely eliminates any state income tax liability and are also deductible under 501(c)(3).

So, now all that is left to do is the actual filing; on-line for the Fed and via mail for the state. Since I only got the last of the 1099s today and because of an unusual circumstance involving class-action litigation from which we received a modest sum, I want to go over the numbers one more time before pulling the big handle.

So, that’s just about it for the 2018 tax fiasco. I am going to adjust the 2019 withholding spreadsheet since the Damsel will now start to get a small pension from her previous employer. We are still waiting for those figures to come in for us to account for them.

* Arizona Citizens Defense League Foundation and Gun Owners of America Foundation, both 501(c)(3) charities.

UPDATE 02/06/2019: Our refund was posted in the account today, less than ten days from the time we filed. The Feds seem to have the process worked out. Not so much Arizona, That refund is forecast to be deposited on or about the 11th of February. That’s still a lot faster than the old days.

Well, maybe we’re not really hard over on getting the tax return for 2018 in the works just yet. We did, however, get our 2018 copy of the tax program we use and installed it on the laptop.

One thing we do want to evaluate is how well we did with our estimation of how much to withhold this year. We used IRS Notice 1036 to get a head start on the withholding and posted about it in February. With the new Tax Cuts, we hope to be fairly close on the figures. During the tax year we also tweaked the withholding a time or two.

Another item I am interested in seeing what effect it might have and that is having ordered my Ham Radio Call Plates also resulted in prematurely (in 2018 rather than 2019) paying the Vehicle License Fee on the RV which will increase the deduction for taxes paid. It’s not a trivial amount, so it will be interesting to see. We may wind up getting a refund again and you may know how I hate to lend the .gov interest-free $$$.

So, the program is installed and I will begin dribbling information into it over the next couple of weeks in order to gain an inkling as to how well our estimated withholding worked. I’ll post on that when I know something more.

I mentioned in my two Federal Income Tax posts about filing and tweaking withholding that the IRS Calculator was offline due to the GOP Tax Reform Bill being enacted this year. I went back to the link to check the status of the calculator and it was back online. Today, I decided to check the numbers I calculated from IRS Notice 1036 and my withholding spreadsheet last month.

The calculator requires some accurate estimates of our 2018 income and deductions, so I gathered up our 2017 Tax Return and my spreadsheet before starting to input numbers. There is a list of things you will need to have handy on the calculator main page.

First, the calculator asks about filing status and whether someone else can claim you as a dependent. Then, it asks about income sources and if you and your spouse are over 65 years old as of January 1, 2019. There is also some child and dependent care credit questions, none of which are applicable to us. Finally, the user inputs income and adjustments before submission.

When I got my result report, the bottom line is that we are over withholding by about $785. We decided not to change anything at this time until we see how our expenses and deductions start to play out for the year. I made a note in the electronic calendar to check things out again in the fall.

The IRS withholding calculator may be found at this link.

Since the IRS Withholding Calculator is still unavailable as of this writing, I bypassed it and went directly to IRS Notice 1036 (pdf) which is intended to guide employers as to how much to withhold from employee pay. This notice is a typical IRS offering which is both confusing and difficult to understand. I did manage, however, to get the info I needed to proceed with our 2018 withholding “tweaking.”

The financial entity which manages our two pension distributions treats each one as if it were your entire income, thus complicating the final calculation because we actually have several sources of retirement income. Since they are virtually complicating things, I opted out of withholding altogether from the two pensions.

We do, however, have control over the rollover IRA and its exact (to the integer percentage amount) withholding. I figured out what we are paid in each month, cross referenced it to the IRS notice above and determined what we should be sending to the IRS each month.

I have a spreadsheet that I have used in the past for withholding and modified it to determine (to the closest percentage point) what the number should be. I used the “effective tax rate” method based on the numbers I derived to allow me to adjust the withholding from the IRA. This way, I only have one place that I need to be tweaking.

I should have done this last year instead of effectively loaning the .gov interest-free $$$! 🙁

Our Investment Consolidated 1099 forms were finally available today, so since the returns were 99.9% complete, we filed both Arizona and Federal Tax Returns online this afternoon. We were somewhat aggravated that it took so long to officially get the numbers on the proper forms, but now it’s done and we can start waiting for our refunds.

The 2017 withholding rate we used underestimated the effect of upgrading our motorhome for which larger amounts of Vehicle License Fees and 2nd home loan interest would work to our benefit. As a consequence, we overpaid into the Federal and State coffers all year.

Now, we can start to calculate and adjust the amounts to be withheld for the remainder of 2018. We have a spreadsheet that we used in the past to figure the proper withholding and will resort to it again this year. There are a couple of complications involved, however, due to the effects of the GOP Tax Reform and an increase in the IRA distribution.

Our Arizona withholding will be zero this year because we contribute to the Arizona Private Education Scholarship Fund which completely offsets our state income tax obligation. For Federal Tax, we will use an assumed effective tax rate to determine withholding. As an aside, the IRS withholding calculator is not available because of the recent tax reform bill.

Bottom line, we’re glad to have 2017 tax behind us. Now to figure out how to spend the refund!

UPDATE: 02/26/2018 Both State and Federal refunds were in the bank by the 22nd of this month. That is the fastest (approx. 10 days) that they have ever refunded the money.

We have received all but one tax form from our various sources of income. The last of the 1099’s to arrive (as usual) was the one from the Social Security Administration, the SSA 1099. We had an additional set of 1099 forms this year due to our pension administrators decision to switch financial providers during 2017. Not a big deal, but two additional income sources to input into the tax program.

The last form (1099 B) which we have not yet received deals with investment income; we had a negative capital gain in 2017 when we sold mutual funds to acquire the new RV. I completed the inputs for this event into the tax program, but there are a couple of items I still do not have to finish up the input for the investments section. For that reason, I won’t be able to file the return until about the middle of February. The numbers won’t change, but the missing information is required by the IRS.

I mentioned on the other blog that we would be getting a refund this year. The final calculation shows that to be true. Damn, I hate lending the .gov interest-free money, especially given the amount of the over-payment in 2017. Given the new tax deal from Trump and the GOP, I will have to make some wild guesses as to how much “tuning up” our withholding needs. I am especially anxious to file the returns so we can get our money back ASAP.