This week I got the last of my 1099’s and although I had done a rough draft of my taxes a couple of weeks ago, I was able to finish everything last night. I think last year I lowered my number of withholding allowances at work, plus I had tons of stock market losses, plus my salary was frozen by the state budget crisis, so I wound up getting $2500 back federal and $700 back on state. I really don’t like getting that much back, so at work last month I bumped my withholding allowances up a bunch. That is nice because it is giving me an extra $300 per month in my paycheck (the only way to get a raise). Actually I may have overdone it because that will actually give me too much money back and I will end up owing taxes, which I’m not crazy about either (ideally I’d like to get a refund of about $200 which seems like a suitable reward for doing my taxes).
My taxes were ridiculously complicated this year. Because I had a busy year on the stock market, I had a ton of trades to enter. It does seem like some of this could be automated a little better and that Scottrade could let me download some kind of file that my tax software, Tax Act, could then read. That would eliminate some of the errors I wound up making (and correcting when I checked everything), though I still have to decide which shares I’m selling at any particular time (though it also seems like some software could figure out which shares would be best to sell tax-wise without incurring a wash sale instead of me doing that). I think for the first time I had to use the extra sheets on Schedule D for capital gains and losses.
It didn’t help that I also liquidated several mutual fund holdings in order to harvest losses. That gets complicated because part of a sale might include shares held long term (more than a year) and some shares might be short term (even if I didn’t contribute since dividends and gains are reinvested into new shares) even though I’m using the average cost basis for all of it. So one transaction then gets split into one short-term and one long-term transaction. In the end, I had 28 Schedule D transactions.
All of those losses are really working out though. I didn’t get all of my stimulus check last year, but since the stimulus check was an advance rebate on this year’s tax return, based on last year’s numbers (when I made more money), I was able to recover that missing $14 they had taken because I made too much. Also, I wound up with way more than the maximum deductible losses of $3,000 I can use to offset income, so I can carry forward losses for next year and maybe the year after that too. That’s a great deal because even long term losses will cancel out income or possibly short term gains taxed at 25% (long term gains are only taxed at 15%).
Last year, as I usually do, I filed my federal taxes electronically and my state by hand. But last year the state refund didn’t show up for months (I think because they were short on money) and this year could be worse (California has postponed all state income tax refunds due to lack of funds). I thought about filing the state return electronically too, but that would have been another $14 ($7 if I had ordered it when I got the federal software, which I would have done if I had realized how much I would be getting back, which I didn’t because I didn’t have the software yet).