How Income Taxes Work and My $0 Tax Bill

Taxes seem really complicated. So complicated that a reader asked me to write about how they work so here goes.

No, not all CPA’s are tax experts. Though I had to have an understanding of how taxes worked in order to pass the exam, my work has never involved income taxes. But, we’ve always done our own taxes, even when they were complicated by business sales and rental property.

Even if you hire someone to do your taxes, no one cares about your money as much as you do, so you need to be at least a bit knowledgeable about them.

I use Turbotax. I buy it at Costco in late December/early January when it goes on coupon special. I like answering all of their questions and making sure I’m getting it all right. The Federal e-filing is free and the process is super straight forward. There is an extra $20 charge for e-filing the state return but I still do it because it’s just so easy.

I use last year’s software to get an idea how our current year will pan out. I make a copy of last year’s return and replace the numbers with estimates for the current year. With Obamacare subsidies and the 15% bracket limits, earning an additional $1 of income can cost thousands in additional taxes and premium credit paybacks. So being able to play with my current year’s numbers is important. I know last year’s software won’t be completely accurate but it will be close.

Do you really know how much you are paying in federal income taxes? Continue reading “How Income Taxes Work and My $0 Tax Bill”

You CAN Break the “Rules” and Still Get Here

Being retired early is like a really good chocolate cake. Once you’ve experienced it, you want everyone you care about to enjoy it too.

I’ve been writing so much about budgets lately, my readers are probably saying “enough!”. But I truly believe I reached financial independence because I budgeted and tracked my net worth. When people want to get their financial act together, I suggest they start with a budget. It’s one of my rules.

But you CAN successfully reach financial independence in spite of breaking almost all of the “rules” of personal finance.

I’ve spent a ton of time reading FI/RE (Financial Independence/Retire Early) blogs since I Googled “Can I Retire Yet?” after a particularly trying day at work. There are hundreds of these blogs but most of them were saying this:

Get or stay out of debt
Live on less than you make
Invest the difference

BAM! – simple right? There are a bunch of ways to do this and each of the bloggers (now including me!) are trying to help you by sharing their path to FI/RE with you.

There are fewer paths than you would think: Continue reading “You CAN Break the “Rules” and Still Get Here”

It’s Budget Time!

Queue the Fixer Upper “It’s Demo Day” excitement because it’s budget time! Y’all know I spend New Year’s Day working on my budget and this year is no exception. Vanilla latte, Rose Bowl Parade and my budget . . . so cozy.

You know I love my budget but if you don’t love the idea of a budget, skip it. Yes, gasp! you can skip a budget. Decide what percentage of your income you are going to save and set up automated transfers to get that money out of your checking account. Invest it and live on what is in your checking account. Read my Budgeting Doesn’t Work For Me post for more help.

If you’re still reading, YAY! let’s budget! But what does budget time look like? Sorry but it’s even less exciting than you probably think. It takes about an hour, maybe an hour and a half. 99% of my budget this year will be exactly the same as it was for 2017.

Exactly the same you ask? Shouldn’t I increase each budget by inflation or some amount? Nope, I shouldn’t and I don’t. My “spending” category is my largest one and includes groceries, going out to dinner, buying clothes, etc. It’s pretty much anything other than utilities, vehicle/boat expenses, gifts and vacations. And my “spending” budget is the exact same amount as it was in 2006. Yep 12 years ago. Continue reading “It’s Budget Time!”