Where my taxes went: 2009

A couple years ago I constructed a graph of what percentage of my total tax expenditure went where, and I decided to do the same thing for 2009. My tax situation is a bit different now, as since my last chart I’ve had kids and I purchased a significant amount of land from my parents. This shows out of all the taxes that I keep track of, which agency gets how much of my total taxes. This includes taxes on income in 2009 (modified by refunds received in 2010 for the 2009 tax year), taxes on assets, and sales taxes that I kept track of. This does not include other taxes on expenditures like gas tax, cable tax, meals tax, or sales tax where I didn’t enter the sales tax amount as an itemized split into my finance program (since I’m not worried about tracking it that closely). I would have preferred a pie chart, as it’s more customary for this kind of thing, but it’s hard to show a negative percentage in there very well. Total appears to not be 100.00% due to rounding.
[2009 Tax Expenditure Graph]

Property Taxes, FY09

The Town of Charlton fiscal year (like for all MA towns) is from July 1 through June 30. So, FY09 was from July 1, 2008 through June 30, 2009, and recently ended.

Property taxes for FY09 are based on the assessed value of property as of January 1, 2008, and were due on August 1, 2008, November 3, 2008, February 2, 2009, and May 1, 2009. The two payments in 2008 are “estimated” based on a guess as to what the taxes would be, and then the estimates are made up for on the two 2009 dates once that actual tax rate data is known, such that the total tax for the year ends up being correct. For FY09, the total was $9.05 per $1,000 assessed value of property.

The upshot of this, is that one don’t know how much the town is assessing one’s property for until the first actual tax bill due at the start of February 2009, which arrives at the end of December 2008. Remember, this is the town’s assessment of how much the house was worth as of January 1, 2008, which you finally discover at the end of December, 2008.

When we got our bill this year, the valuation looked higher than what we thought the property was worth, so we filed an abatement. (An “abatement” is just the formal term for an appeal of the town’s assessment of the property value.) Due to the purchase of my parents’ land, we had an appraisal from our bank from the correct time period, which we delivered to the town as the basis of the appraisal. This was filed in January 2009 (as the deadline for filing was February 1, 2009.)

The Board of Assessors had until May 1, 2009, to make a determination on the abatement application. They of course, took their time investigating, and on April 9 mailed us a notice that our abatement was approved, for a reduction of $162.90 off of our property tax for the year. (Hooray!)

That was the last I heard of it, until today, July 2, 2009, where we finally received a check for that amount, dated June 30. I assume that June 30 was the last day they could legally mail out the check, as that day was the close of the fiscal year.

I’m just amused that it took the entire fiscal year to work out what I was supposed to pay in taxes, based on a year-and-a-half-old assessment date, and I in fact get the check after the fiscal year ended.

Although in retrospect, perhaps it’s not all that different from how we calculate the correct amount of income tax and square up with the government up to several months after the end of the income tax year.

Yes, your “retirement” fund will be all removed by fees

As I’ve mentioned before, instead of the Social Security tax that private-sector workers pay, government workers (at least those working for the Commonwealth of Massachusetts and its subdivisions) have an alternative 7.5% mandatory contribution to the “SMART Plan”. This is an actual account, kind of like a 401(k), where one actually has an account balance that slowly grows and one gets at retirement. (Those working full-time for the state have a more complex system, but I’m describing how it works for part-time workers, where it’s just a straight deduction and there are no choices on how it’s invested.)

Jessi was involved in this plan when she was substitute teaching, although we eventually managed to get the money out of it when she stopped working. (Which is a plus of this system over Social Security.)

For being Town Moderator of Charlton, I get a $150 stipend per year for my services. This is treated as me basically being a part-time employee of Charlton, and so my stipend is subject to this 7.5% mandatory contribution to the “retirement” plan.

This 7.5% of $150 works out to $11.25 per year. The administrator of the SMART Plan, Great-West Retirement Services, charges $18.48 per year to administrate the plan. Basically, each contribution will be eaten away by fees that go to Great West, and the balance of the “retirement” fund will always be zero at the end of the year.

My mom, who is on the Planning Board in town and has a slightly larger stipend, says that her balance ends up being about a dollar or two each year.

You’ve just got to love a government mandate that requires a portion of elected officials’ stipends go to administrative fees and that provides no actual useful value whatsoever.

Happy Tax Day

While I (and many others) got my taxes filed long ago, when most Americans think of April 15, the first thing that comes to mind is that it’s the day that income tax returns are due.

So, in honor of today, here’s a link to IRS Form 1040 for the tax year 1913. I, at least, found it somewhat interesting. (It’s likely some sort of reproduction seeing as the PDF hadn’t been invented at that time, and it doesn’t look like a scan, but it’s posted on the IRS web site, so I assume that it’s representative of the real thing.)

Random Update

  • Apparently, the newspaper got it wrong that Mr. Singer would attempt to appoint a successor for Town Moderator if he were elected to the Board of Selectmen. It’s still not clear to me who would. The Board of Selectmen would be a possibility, although I would think that it could be Town Meeting. However, it’s possible that the Town Meeting has delegated that authority to the Board of Selectmen via their annual vote to let them fill appointments. But Mr. Singer would need to get elected, first, anyway.
  • Making the Selectmen’s race more interesting is that there’s a Bay Path senior who plans on running.
  • I’ve basically gotten the custodian of Jessi’s former 457 plan to admit that they gave us an incorrect 1099-R, but that they won’t send a corrected one. I may call the IRS and try to get them involved in correcting the situation.
  • I made enough money judging last year that I’m claiming it on my taxes. I hope they accept my assertion that it’s “hobby income” and not “self-employment income” and thus not subject to self-employment tax. Especially as I consider it a hobby and not employment.
  • I’ll be judging this weekend at the Conflux prerelease, on Saturday at TJ Collectibles and on Sunday at Rising Phoenix Games.

When the company who generates a taxable event doesn’t know it

Most people who have a job pay the “FICA” or Social Security tax. This tax is 6.2% of income paid by the employee as withholding from each paycheck, and another 6.2% of income paid by the employer. But of course, this system that’s supposedly good enough for the rest of us doesn’t apply to government employees. No, they have their own program. For part-time government employees in Massachusetts, there’s a 7.5% compulsory contribution to the Massachusetts SMART Plan instead of a payment into Social Security. It’s a 457 plan, which is somewhat like a 401(k) or 403(b). Although, unlike those, there was no choice as to how to invest the money. The fund that it gets invested in is called “The Income Fund”, which is a fund that isn’t supposed to lose value, but that I can’t easily find many details on.

So, while Jessi was working part-time as a substitute teacher in 2006 and 2007, she had contributed about $300 into this fund. However, the monthly fees being deducted for maintaining the account were more than The Income Fund was growing on $300 of principal. So, rather than waiting for it to whittle away to nothing, in 2008 we thought that it would be smart to transfer the money to a Roth IRA at Vanguard that we had already established for her. This is the advantage of a system like this over Social Security, is that you can transfer the money out, at least once you leave employment. Now, the 457 plan is pre-tax money that grows tax-deferred, and a Roth IRA is after-tax money that grows tax-free, so basically this transfer means that (1) we pay taxes on the $300 now and never need to pay taxes on what it grows into (good as with all the deductions we have, we’re paying little in Federal Income Tax in 2008, and I expect tax rates to go up in the future), and (2) we can invest the money as we wish. So, we eventually (over several months) managed to get all the paperwork filled out for them to transfer the money directly to Vanguard.

So yesterday, we got the 1099-R from the 457 plan, describing the distribution for tax purposes. However, the form describes the transaction as though the money were transferred into a Traditional IRA, which would be a pre-tax account that didn’t generate taxable income. After a few phone calls, they do seem to think that some sort of error occurred, as their paperwork indicates they thought that they were transferring the money to a Traditional IRA when in fact they transferred it to a Roth IRA. They don’t seem to understand the concept of transferring the money directly to a Roth IRA, which was added to the tax law in 2008. (Previously, you’d need to transfer to a Traditional IRA and then convert that to a Roth IRA, which Congress and the IRS eventually realized was just adding extra steps for no benefit.) And yet, they did do a direct transfer to a Roth, they just didn’t realize it and aren’t reporting it that way.

So, they’re supposed to call us back this evening with an update on whether they’ll be able to send us a corrected 1099-R.

It’s somewhat frustrating when I know exactly what I’m supposed to filing for taxes, but the companies are reporting contradictory information to the IRS, and so I probably shouldn’t file just yet until I get this all cleared up. All this work, for $300 of reportable income…

Tax filing coming kicking and screaming into the 21st century

Interesting developments in filing taxes this year. On the federal level, the IRS’s Free File program now has a basic just-fill-in-the-forms web filing option, without the restrictions that the “regular” Free File program has. It looks like the IRS strong-armed the tax software industry into making it for them.

In past years, I’ve used TaxACT for federal filing because they offer it completely free as long as you keep on clicking “No, I don’t want the useless deluxe version” every other screen. I may still use it, but I’m very happy that there’s an option that just emulates the paper method, but does it electronically.

And on the state level, the Massachusetts Department of Revenue has replaced its awful telephone filing system with a web filing system, which on first glance seems to be very nice.

In the past, I’ve occasionally needed to file a paper return for one organization or the other due to not filling free electronic or telephone filing requirements, and it always infuriated me that I needed to pay the cost of a stamp just to tell the government to return money that it had compulsorily borrowed from me during the year. Hopefully, that era is over.

Vote NO on Question #4 (Charlton), just in case it matters

“4. Shall the Town of Charlton be allowed to exempt from the provisions of proposition two and one-half, so-called, the amounts required to pay for the bond issued in order to design, construct, and equip a new highway operations facility?”

As a little background for those unfamiliar with Prop. 2½, it was a measure passed by ballot initiative in 1980. Each municipality in Massachusetts has a “levy limit”, which is the maximum that they can levy in property taxes each year. This limit gets increased each year by 2½% plus an adjustment for any new growth in the town. However, a town can pass a ballot question to increase their levy limit permanently (a “Prop 2½ Override”) or temporarily to pay for something (a “Prop 2½ Debt Exclusion” or “Prop 2½ Capital Outlay Exclusion”). (Although often colloquially the temporary form will be called an “override” as well.)

In order to borrow the money to pay for a new highway barn ($3,500,000), it needed to pass with a 2/3 majority at the Special Town Meeting on October 28. It was defeated, 78 in favor to 52 against. If that had passed, this debt exclusion ballot question would have allowed for the property taxes to be increased for the 20 year life of the bond to pay for it.

I had actually voted for the borrowing at town meeting, somewhat to my surprise. It seemed like a wise investment to protect the millions of dollars in highway equipment we have, and would have increased public safety and the lifetime of these very expensive vehicles. Also, the price wasn’t likely to get cheaper in the future. (Contractors are cheaper now than they used to be, but that won’t last.) But, the price was too high for some people (which I can understand).

So now, this ballot question is rather pointless. In fact, since it needed to be sent to the state to be put on the ballot before there was a dollar amount for the project, passing it now could be a blank check to have a debt exclusion for any highway operations facility of any cost in the future.

So, I’m voting against it just to be sure we don’t end up in an odd situation like that. It’s not clear that this question would have passed even if the vote at the town meeting had passed, but now I’m pretty sure that this question won’t pass, and I’m going to be a part of helping make that the case. (It wouldn’t surprise me if the newspapers didn’t report on the result of the question at all on Wednesday morning.)

Vote YES on #1 (Massachusetts)

I think I’ll do a blog series on my thoughts on the five ballot questions that I’ll be voting on this coming Tuesday. (If you want to see if your town has added questions to the three statewide ones, plug your address into the Secretary of the Commonwealth of Massachusetts’s Election Division Voting Info site.)

Question #1 is about repealing the state income tax. I’m wholeheartedly for voting for this question. I think the main goal of getting it to pass is to force the Legislature to take a hard look at its programs, and cut those that it really doesn’t need. I think that the 40% reduction in their budget is possible, but I’m expecting that they won’t actually reduce things that much. I mean, there was a ballot initiative that passed in 2000 to lower the income tax from 5.85% to 5.0%, and the Legislature basically ignored it, although they did eventually slowly lower it to the current 5.3%. (Although, you can still voluntarily pay 5.85% if you want. I always get a chuckle out of that check box on the state tax form.) So, it seems unlikely that they’ll actually just keep all other taxes the same and cut the 40% of the budget. But I bet they’ll cut some things, overall taxes will be somewhat lower than they are now, and it at least sends a message that we’re tired of paying for expensive government programs that don’t work. I hope that this will increase transparency of our state government, as they publicly demonstrate what is and isn’t important to them.

I’m really not sure what the question’s actual chance of passage is. In 2002, this was on the ballot and got 45% of the vote, which was more than I think most observers were expecting. We just need 5 more percentage points. But there’s been a lot more publicized opposition to it this time, especially from the teacher’s union. (Like the politicians are actually going to cut school funding? They’ll threaten it to get you to vote against it, but I don’t think they’ll actually do it.) So, I tend to doubt it will pass this time. But, I was pleasantly surprised last time when it got 45%, so I hope I’m pleasantly surprised this time and it’s higher than that. (And even if it doesn’t pass, if more than 45% of people vote for it, it will hopefully send some sort of message to the Legislature.)

Where my taxes went: 2007

This past weekend, I calculated and informed the state and federal government how much I was supposed to pay them in taxes in 2007, and scheduled the transfers to and from my bank account to settle up. I also constructed this graph, showing what portion of my total tax expenditure went for what. (Note that this only includes taxes based on assets and income, not taxes on expenditures, because I don’t track those as closely.)