Holy tax cut, Batman!

Well, the latest Stimulus Plan appears to be on its way to becoming reality, which means that most Americans will see some extra moolah in their paychecks come April or May. But how much? Technically, individuals will see up to $400 more over the course of the year, while couples will receive up to $800.

I've just discovered that one of my favorite online calculators, at Paycheck City, actually has a pre- and post- 2009 Stimulus Bill calculation. Using this, I was able to see that I'll receive $35 more in each paycheck (I'm paid monthly) after the tax cuts go into effect. This is about what I expected. In fact, before the November 2008 election, a page at Alchemy Today had a tax calculator, so we could see how much tax savings we'd have under an Obama presidency, versus a McCain presidency. Now, I have no idea whether this calculator is truly accurate (especially on the McCain side). However, the results show that I would receive approximately $468 under Obama.

Well, $468 over 12 months is $39! So it wasn't far off from the Paycheck City calculator (and I'm assuming that Paycheck City is using actual figures from the text of the Stimulus Bill. . . .)

Not bad. Now all I have to do is figure out how to ensure that I plug that money into savings before I ever see it, rather than frittering it away on useless items I don't need. . . .

Frugal taxes. . . .

The tax season is almost upon us! Last week I briefly mentioned a realization that I recently had concerning my tax refund this year. Because my salary is relatively low compared to the money I spend on my mortgages (most of which is interest payment), I generally receive a nice, hefty tax refund. Last year's refund allowed me to pay down a good chunk of credit card debt, and add some money to my emergency fund.

This year, however, I created a little estimate of my 2008 tax refund, and determined that--because of the earnings from my second job--I'll be lucky to get even $200 back! Egads! I was counting on a healthy refund to pad my 'internship year' fund, with which I'll make up the loss in earnings I'm anticipating next year. (Note: it's amazing to me that I'm even planning ahead for this. A year and a half ago, it would never have entered my mind that I would actually be able to save enough money to allow myself to work part-time temporarily).

I've been reading articles about the latest U.S. 'stimulus package' to learn whether I can expect a 'rebate' check this year, which may help. Actually, there appear to be quite a few changes in the works that could help many American taxpayers this year:

• First-time homebuyer's credit: my prospective realtor mentioned this to me late last summer, when I was researching the feasibility of selling my house (I decided not to try just yet). The catch is that the $7,500 'credit' is actually an interest-free loan to be paid back over 15 years. There are rumors, however, that the 'loan' may be transitioned into a true 'credit', though, so if you purchased a home after April 8, 2008, you will want to keep your ears pricked.
• Foreclosure tax break: I sincerely hope none of you are in the midst of a financial crisis that resulted in the foreclosure of your home. However, if this did happen, there appears to be a (slight) silver lining to that black cloud: Whereas in the past, forgiven mortgage debt was actually TAXED, this year any forgiven debt under $2 million will be tax free.
• The standard deduction is increasing: to $10,900 for married couples filing jointly, to $5450 for singles and married filing separately, and $8,000 for head of household.
• The personal exemption is also going up: of course, it's increasing by a mere $100, but in this kind of economy, every little bit helps!
• Don't forget the benefit of free filing: if your adjusted gross income is less than $56,000, you're eligible for Free File. I use H & R Block, and have found the website to be user-friendly and accurate. There are many companies that can help, though, so go to http://www.irs.gov for more information.

Most of these changes and new benefits don't apply to me, unfortunately. And it sounds as if any new stimulus package will result in lower payroll taxes, rather than a lump sum payment, which may make it more difficult to save. If, in fact, our payroll taxes are lowered, I plan to pay close attention to how much this increases my take-home pay, and will have that amount automatically sent to my savings account---if I never 'see' it, I won't spend it!

The inevitable disclaimer: I'm not a tax professional, just a mere mortal trying to figure this stuff out myself. For questions or more information, check out the IRS website. I've actually found this site to have a wealth of information, especially the various electronic publications housed on the site---there's even a toll-free number you can call for additional assistance!

Why can't the government be more frugal?

I just received a letter from the IRS--dated May 12--telling me that my rebate check was deposited in my account on May 9. As if I hadn't been checking my ING account on an hourly basis since May 5th. How much money did the government spend (and how many trees were killed) to tell me something I already knew?

I. Just. Don't. Get. It.
Why is it that ordinary Americans (like me, and probably you) are living frugally, economizing, buying generic groceries and taking public transportation in order to make ends meet, but my government feels that it's necessary to send me snail mail to inform me of an event that has already passed, and for which no action is required on my part?

In a general Yahoo search on government waste, I came across a website called Citizens Against Government Waste. According to the website,

"Citizens Against Government Waste (CAGW) is a private, non-partisan, non-profit organization representing more than one million members and supporters nationwide. CAGW's mission is to eliminate waste, mismanagement, and inefficiency in the federal government. Founded in 1984 by the late industrialist J. Peter Grace and syndicated columnist Jack Anderson, CAGW is the legacy of the President's Private Sector Survey on Cost Control, also known as the Grace Commission."

This site focuses primarily on government waste related to pork barrel projects, and even names the Porker of the Month (politicians who have shown a blatant disregard for American taxpayers).

Another website, called The Heritage Foundation (warning: I think this is a conservative site) has an interesting list of examples of government waste, including:

The Missing $25 Billion
The government knows that $25 billion was spent by someone, somewhere, on something, but auditors do not know who spent it, where it was spent, or on what it was spent. Blaming these unreconciled transactions on the failure of federal agencies to report their expenditures adequately, the Treasury report con­cludes that locating the money is “a priority.” The unreconciled $25 billion could have funded the entire Department of Justice for an entire year.

Unused Flight Tickets Totaling $100 Million
A recent audit revealed that between 1997 and 2003, the Defense Department purchased and then left unused approximately 270,000 commercial airline tickets at a total cost of $100 million. Even worse, the Pentagon never bothered to get a refund for these fully refundable tickets. The GAO blamed a system that relied on department personnel to notify the travel office when purchased tickets went unused. Auditors also found 27,000 transactions between 2001 and 2002 in which the Pentagon paid twice for the same ticket. These additional transactions cost taxpayers $8 million.

Embezzled Funds at the Department of Agriculture
A recent audit revealed that employees of the Department of Agriculture (USDA) diverted mil­lions of dollars to personal purchases through their government-issued credit cards. Sampling 300 employees’ purchases over six months, investigators estimated that 15 percent abused their government credit cards at a cost of $5.8 million. Taxpayer-funded purchases included Ozzy Osbourne concert tickets, tattoos, lingerie, bartender school tuition, car payments, and cash advances.

Credit Card Abuse at the Department of Defense
The Defense Department has uncovered its own credit card scandal. Over one recent 18-month period, Air Force and Navy personnel used govern­ment-funded credit cards to charge at least $102,400 for admission to entertainment events, $48,250 for gambling, $69,300 for cruises, and $73,950 for exotic dance clubs and prostitutes.

And this is just the tip of the iceberg! Have you noticed any abuses of government funds? Well, guess what? There's actually an eHow website letting you know how to report it! Unfortunately, the site advises us to contact our elected officials---isn't that kind of like warning the fox that we've noticed our chickens disappearing at an abnormally high rate?

Festival of Frugality. . . .

Thanks to Rather Be Shopping for including my post, "Frugal healthcare. . ." in the 121st Festival of Frugality. . .the Tax Day edition, to be published tomorrow!

The tax rebate dilemma . . . .

According to an article at MSNBC, Americans may not be spending the upcoming tax rebate in the way politicians and economists would like us to. The idea behind the rebates is to strengthen our weakened economy by bringing more money to the market; Americans are expected to spend their 'windfall' on items such as TV's, clothing, vacation travel, and other goods.

However, it appears that at least some of us may be planning to use the money to pay down debt or increase savings. With the shaky state of the economy, families are wondering if it might be better to have that $1200 or $600 in the bank rather than frittering it away on a new, fancy BBQ or car stereo. In fact, much of the money might already be earmared for increased fuel costs, which according to the MSNBC article, won't do much to help the economy since most of that money goes to our overseas oil suppliers.

Despite the hints that the rebate money might not enter the economy for quite some time, some economists are counting on Americans' inability to live frugally. For example, David Wyss, a chief economist at Standard and Poor's, says this: "Americans have an amazing ability for self-deception, and I have full confidence that they’re going to end up spending the money regardless of what they say they’re going to do with it.”

I feel a bit insulted by this comment! Mr. Wyss is saying that no matter how smart we think we are, our instinctual drive to consume will trump our intelligence. For my part, the rebate check will be going directly to debt payment. This will (if all goes to plan) more than double my monthly payment to the credit card company, and will result in my credit card debt disappearing a full month sooner than expected! Now THAT is smart, and no amount of advertising or consumption lust will convince me to spend that money on items I don't need, which were probably produced overseas, anyway.

If you haven't decided how to spend that rebate check, here are some ideas to consider:

How about buying yourself some freedom? Freedom from debt, that is. Do you carry a credit card balance? Have you been ignoring it, paying the minimums month after month? Why not pay it down (or off)? Consider the satisfaction you'll feel as you watch your balance shrink, along with your minimum monthly payment.

Split the rebate. Are you a family of four? Are you receiving $1200? How about dividing that by the number of family members and allocating the money this way: $300 to debt repayment; $300 to retirement savings or emergency fund; $300 to the upcoming camping trip; and $300 toward that new TV or other purchase.

If you purchase, buy American! If you decide the use the rebate check to buy something fun (or necessary), make sure you're purchasing something that was made in America! I know, I know, this is almost impossible these days, especially in the case of electronics or appliances. However, the only way the rebate will serve its true purpose (to improve the American economy) is to buy items made by Americans. An alternative to buying a thing would be to travel domestically---this also benefits Americans.

So, I'd like to know: what are YOU going to do with your rebate check?

What are you going to do with your rebate check?

Although I know, as a good American, I'm supposed to go out and spend my rebate check on shoes and other nonessential items, I also know that my rebate check is going directly into my debt repayment.

I found this great little calculator on fivecentnickel's website, which supposedly will tell you how much you can expect to receive when the rebate gets into your hot little hands. . . .