• July 22, 2014

Calling All Tax Geeks

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Brian Taylor

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Brian Taylor

The only time that Pennywise has ever wished he were a schoolteacher is around April 15 of every year.

I would love to say that is because the Easter season fills me with a spirit of service to humankind, making me eager to face a roomful of middle-school students every day. But middle-school teaching would demand either inner sainthood or a shield of indifference well beyond Pennywise's constitution. A less-noble concern underlies my K-12 longing, namely that schoolteachers receive special tax breaks that university professors are not permitted. That seems unfair—after all, we teach, too—until one reflects upon a life spent in a middle-school classroom in Altoona, Pa. Some of life's callings deserve all the small nurturing incentives we can award them.

It seems that taxation—or at least the arcane American income-tax system—is the wellspring of endless resentment. This year all the press coverage is about the rage-filled Americans possessed by the feverish conviction that the president of the United States is a Marxist Muslim born in Kenya who personifies the Antichrist.

An altogether different sort of fantasy captivates Pennywise as I sit with pencil behind ear totting up rows of expenses every April. I like to imagine a new tax itemization, one where we allocate where our dollars go. "Not a farthing to the salary of Rep. John Boehner, that ignorant scoundrel," I would say. "Not one penny to the unmanned drones killing villagers in Pakistan. Yes, yes, a bit more to the K-12 teachers."

Truth be told, I like paying taxes. I'll even go further—gasp, if you must—and say that I like the redistribution of wealth. I like knowing some of my money goes to medical care for the poor, benefits for the jobless, federal parks, passenger rail, well-paved roads, and a public postal service. I wish a bigger bite were taken from the Big Boys whose share of the national pie is now at positively gourmand dimensions. Improved tax fairness would benefit civilization while reducing the proportion the rest of us must pay every April.

Even the annual tax chore, believe it or not, holds appeal for me. I think of tax time as a giant game in which I figure out what I made, what I can deduct legitimately, and whether or not I owe more than was withheld from my paycheck. Call me a tax geek. Admittedly, this became a whole lot more fun with the invention of tax-preparation software. Back in the day, Pennywise used the long forms provided by the IRS. That was no fun at all.

Academic professionals and other university employees can legitimately shield their hard-earned income from the Man. This column contains myriad suggestions. But first a bit of advice: Play it clean. Be careful about claiming a home office or deducting a "research" trip to Cancun. Such maneuvers can flag an audit. Study the rules. Deduct only if the claim is legit. But do consider these sound measures for reducing your tax hit:

Retirement savings. The most effective way for academics to shield income from taxation is via tax-favored retirement saving. Here are some options:

  • Increase your contributions to your employer's plan. That will diminish your taxes while improving your long-run financial security and allowing you to take full advantage of your employer's match. In 2010, contributions for each income earner are capped at $16,500 ($22,000 for those age 50 or above). How does it work? Let's say you are 48 and your salary is $65,000. If you save the full amount allowable in 2010, the IRS will count your taxable income as only $48,500.
  • Open a supplemental retirement account. Your institution may offer an opportunity for further contributions—$16,500 more—in a voluntary additional savings account. High earners should consider this.
  • Open a Roth IRA. A Roth is a superb tax diversifier. It minimizes taxes in a way distinct from employer-based accounts, with no present-year tax deduction but accumulations that grow free from taxes forever after. This protects you should tax rates increase over time or should your later-life income put you in a higher bracket. Tax diversification—shielding wealth and income from taxation in a variety of ways, both present and future—is a shrewd part of any financial strategy. Each person can contribute (corrected wording here-eds.) up to $5,000 ($6,000 for those age 50 or above) to a Roth in 2010. Any number of providers, including Fidelity, Schwab, TIAA-CREF, and Vanguard, offer Roth IRA's.

College savings. Saving for college is another excellent tax reducer. If you have children or grandchildren, Coverdell Education Savings Accounts—available at the same companies that offer Roth IRA's—allow tax-free earnings.

State-specific plans (529s) are also worth exploring. In them savings grow tax-free and, as an additional plum, the current year's contributions may be deducted from state taxes. College Savings Iowa, for example, allows Iowa taxpayers to deduct $2,811 in contributions for each beneficiary account this year. Ohio's plan, CollegeAdvantage, allows a deductible contribution of $2,000 for each child from Ohio taxes. Be sure to examine the plan's fees and expense ratios carefully, as some are scandalous. (Iowa's and Ohio's are both excellent.) Typically they need not be spent in-state.

Tax efficiency. If you have savings or investments in taxable accounts (you will know if you receive the 1099-INT or 1099-DIV forms), then scrutinize their tax efficiency. Tax-efficient investments include tax-exempt bond funds, index funds, and funds designated as "tax-managed." Also consider drawing upon any excess taxable holdings to subsidize living expenses while maximizing tax-favored retirement saving—in effect, moving taxable sums into tax-advantaged shells.

Prepare your own taxes. Around 60 percent of Americans pay someone else to do their taxes, at a cost of roughly $200 or more a year. For most people, there's no need for that. Tax-preparation software offers simple interview formats and sound guidance about IRS rules, making self-preparation a snap. TurboTax is the best known brand, but this year I downloaded H&R Block at Home 2009 Deluxe from Amazon.com for $22.50. That covered the entire cost of my tax preparation, state and federal. Hiring a preparer is acceptable if you lack the confidence, time, or inclination to do your own taxes, but you may save yourself more if you do them yourself, since you know your particular financial history better than anyone. The sense of authority and expertise a tax preparer provides may be largely illusory, given the cattle-call nature of the business.

Adjust your withholding. If you are due for a huge refund, it may seem a triumph. In actuality it's as if you loaned all that money, interest-free, to the IRS for a year. Reduce the amount withheld from your paycheck by consulting with your institution's human-resources office, and then redirect the savings to tax-advantaged retirement savings. A double advantage will result.

Professor Pennywise is the pseudonym for a professor in the humanities who has taught from the Pac-10 to the Big Ten. He is merely a frugal academic, not a financial professional. Send questions and suggestions to professorpennywise@yahoo.com.

Comments

1. 12009444 - April 12, 2010 at 08:58 am

Unbelievable. If Prof. Pennywise likes paying more in taxes, more power to him - donate all you want to whoever you want. To like the redistribution of wealth is to legitimize Robin Hood and to give him a gun. Why a gun? Try not paying your taxes for a while and see what happens.

2. professorpennywise - April 12, 2010 at 09:13 am

Hey, I'm trying to save you on taxes here. But try your own method. It sounds like a real winner.

And yes, Robin Hood is a folk hero, though I think he was limited to bows and arrows against the equivalent of today's robber barons.

3. jchristophm - April 12, 2010 at 09:39 am

"This year all the press coverage is about the rage-filled Americans possessed by the feverish conviction that the president of the United States is a Marxist Muslim born in Kenya who personifies the Antichrist."

Generalize much? You're political point would be stronger if you restrained from lumping all those you disagree with into the same loony-tunes category.

Otherwise, fairly standard and useful advice. I even like the idea of getting to allocate my tax dollars. How awesome would it be if we as individuals could choose where our dollars went. If we had the choice of which programs and services to support, and only those programs and services with enough support would be financially viable. You know, like some sort of market place, where goods and services are sold and where individuals get to decide free of coercion. Something like that would be nice.

4. tiredcog - April 12, 2010 at 09:55 am

What a hypocrit. You should not be taking any deductions given your absurd beliefs. Pay your tax plus some additional if you would like, but stay out of my pocket. If you want to redistribute income, start with your own through donations not through taxes. Or better yet, just forego your pay and consider your work as a donation of your skills to society as a whole.

AS far as your tax advice, it is in every newspaper, personal finance magazine, and new channel this time of year. Don't waste our time.

5. professorpennywise - April 12, 2010 at 10:13 am

Hypocrit? New channel? You're point?

OMG, I am feeling so reaffirmed in my sense that we must fund K-12 education more fulsomely.

Pennywise is leaving the house now.... Have fun ranting, all you Tea Party types!

6. supertatie - April 12, 2010 at 10:23 am

*snore*

You like the redistribution of wealth? Well, why wouldn't you? What do YOU make? What do YOU produce? So many of those "robber barons" you slander have made their money making ovens and refrigerators and microwaves and shoes and computers and MRI machines, and indoor plumbung, and roofing materials, and groceries, yes and lending money and issuing insurance policies, and all the things YOU take for granted that make YOUR life so much better than those who live in redistributionist hellholes like Cuba and North Korea and Myanmar where "redistribution of wealth" has reached the point where the only people with wealth are those in government, and virtually everyone else lives in a tenement or a jungle shack.

As for "rage-filled Americans"? Dear me, you have been spending too much time listening to the Pravda press, haven't you? Well, that's the administration's official message, and the whores in the media dutifully spout it to discredit the productive citizens in our society. And you buy it? Pitiful.

Plenty of Americans are angry, and not because they think Obama is the AntiChrist, but because they see that our government has lost its moorings and now disregards the will of the people and proper legislative procedure in order to cultivate additional dependence upon a government hurtling towards bankruptcy; dependence which will produce nothing but misery for most and graft for many when the system comes crashing down - which it will.

The warnings are everywhere and have been for some time: the most profligate states (like California, and my own, Illinois) are bankrupt. Entire companies and industries built on the same unsustainable fiscal models (paying out more than they take in) have gone under. Even countries (Greece?) are clamoring for bailouts from nations whose welfare state is not as far gone.

And then there was Hurricane Katrina, which should have warned all of us what happens when 70% of the population is on the dole and unable or unwilling to care for themselves, having spent multiple generations dependent upon government handouts. It wasn't the levees that failed in New Orleans, it was the welfare state.

But what is the liberal trope that is trotted out everywhere, including this column? More taxes! More welfare! More government dependence! It's all your fault, you "rich people," and you need to pay your "fair share"!

This is beyond fiscally irresponsible and economically unsustainable. It is immoral. Spare me the tax advice. I prefer to take my advice from someone who demonstrates at least a rudimentary understanding of human history and basic economics.

7. cwinton - April 12, 2010 at 10:36 am

LOL - methinks el professoro has roused a few non-literati with some entertaining tongue in cheek. No one likes taxes, but making a bit of a game of it should certainly help ease the sting come the Ides of April (although technically I think that's April 13).

8. jchristophm - April 12, 2010 at 11:09 am

"methinks el professoro has roused a few non-literati with some entertaining tongue in cheek."

As usual, let's not bother arguing on the facts. Instead, lets just call those that disagree with us stupid or crazy. The libel of a segment of the US population is considered entertaining? It's a game to sneak cheap shots at political enemies into a column about personal finance?

I find it hilarious that most in academia presume that conservatives do not exist among their ranks. When an academic attacks conservative thought without facts in places such attacks have no business, they are astounded when called out on it by others. Continue to assume any response must come from the peasant class. One day you may realize that you are surrounded by other smart, highly-educated people that fundamentally disagree with you on a lot of issues.

9. squidward - April 12, 2010 at 12:04 pm

In support of Pennywise, it is not much of an exaggeration (or libel) to note that the very vocal majority who have gotten so much press lately as the anti-tax "Tea Party" are very vehemently anti-tax and also include many people who are very ignorant regarding the details of government and taxes; these include many of the people who believe that the president is a Muslim, or was not born in the US, and frequently call him a socialist, communist, etc.

Because of this vehement anti-tax sentiment expressed by a loud minority, it has become hard for anyone to express their opinion that taxes can be used for something good, and to venture that we should perhaps be paying even more for taxes. We have now just seen that behavior manifested in the first comments here.

Dare we mention that it was G.W. Bush who oversaw the largest expansion of the federal government in recent memory? And that was done through cutting taxes, not in any way making the effort to pay for this expansion? How many Tea Party supporters were also in favor of the Iraq war? How did they expect the government would pay for it?

In essence, we all need to be paying more taxes, to pay back the money that has already been borrowed under both Republican and Democratic administrations. No amount of cutting programs or eliminating waste is going to cover it all, especially because as soon as you start wielding the knife, people are going to start screaming.

We also need to look closely and admit that our taxes support things we all benefit from - roads, medical research, education, defense, security, etc.

10. jchristophm - April 12, 2010 at 12:53 pm

"In support of Pennywise, it is not much of an exaggeration (or libel) to note that the very vocal majority who have gotten so much press lately as the anti-tax "Tea Party" are very vehemently anti-tax and also include many people who are very ignorant regarding the details of government and taxes; these include many of the people who believe that the president is a Muslim, or was not born in the US, and frequently call him a socialist, communist, etc."

It is not much of an exaggeration to note that the very vocal majority of those that call themselves liberals are very vehemently redistributionist and also include many people who are very ignorant regarding details of government, taxes and economics; these include many of the people who believe that 911 was an inside job, that Bush should be tried for war crimes, that Hugo Chavez, Che Guevara and Mao Zedong are simply misunderstood, and that are self-labeling Marxists and/or communists.

I can do it too. Both sides have idiots. It is intellectually dishonest to suggest that the ideas of those idiots contribute to your political opposition's philosophy. Straw Man. Argumentum ad hominem.

Of course the main point should be this: why include sharp political barbs that in no way contribute to the article's central theme? I know I nail my students for this.

11. azfaculty - April 12, 2010 at 01:01 pm

I'm amazed by the hostility that Prof Pennywise's excellent column has evoked. The line about "Marxist Muslim born in Kenya" was among the best the Chron has printed in the past month or more. I, too, ponder with compassion and gratitude the person who has spent 30 years or so teaching middle school in Altoona PA. At the large research University where I work I have many undergrad students whose idea of constructing an argument is the sort of name-calling that Prof P's excellent suggestions have evoke. Prof Pennywise, I thank you for showing that a humanities prof can write, consistently, an column that contains thoughtful critique and clearly presented observations about the economics of being a college professor.

12. lakemendota - April 12, 2010 at 01:13 pm

Good for us.

13. squidward - April 12, 2010 at 01:45 pm

from usc158: You can hold that "redistribution of wealth is immoral at best and theft at worst", but you can also argue from the other side that making a profit off the labor of other people is likewise immoral (or thievery). Capitalism is functionally a legalized method of redistributing wealth, from the bottom up, taxes and government are the method of redistributing from top to bottom.

What the arguments and name-calling about redistribution leave out is that those high income people and corporations are actually profiting dis-proportionately from the system set up and maintained by the government. The laws regulating all our economic interactions allow some to get wealthy, and the government supports this by protecting the assets (military, police, laws), giving access to resources (water, land, minerals), funding basic research, protecting copyrights and patents, protecting against unfair competition, educating the workforce, etc. The list is quite long. We don't even need to get started on corporate bail-outs and subsidies. It is not immoral or theft to expect those who benefit most from the system to pay more to support it.

At any rate, one can have an informed debate on ideological points, or can resort to name-calling and snarky remarks. But really, this is the time for realism and compromise - getting down to solving some major problems, which means we can't hold to ideological extremes.

14. jchristophm - April 12, 2010 at 02:44 pm

"At any rate, one can have an informed debate on ideological points, or can resort to name-calling and snarky remarks."

Exactly. In the future the author should refrain from lumping all conservatives and Tea Party participants in with Birthers and other fringe elements.

15. thirdcamper2 - April 13, 2010 at 04:43 pm

In his speech at the tea party convention in Nashville, WorldNetDaily's Joseph Farah notes that Obama was just 4 when the Cloward-Piven strategy was written. "We think," Farah said. He paused dramatically before adding, "Without the birth certificate we really just don't know," as a sizable portion of the audience broke into applause.

For the rest of this excellent article on Tea Party insanity:
http://www.thenation.com/doc/20100412/kim

16. midtownlabgeek - April 13, 2010 at 07:14 pm

@squidward (#9):

"Dare we mention that it was G.W. Bush who oversaw the largest expansion of the federal government in recent memory? And that was done through cutting taxes, not in any way making the effort to pay for this expansion? How many Tea Party supporters were also in favor of the Iraq war?"

I imagine those were rhetorical questions, but they were also worth answering. I don't have statistics either, but I know (personally and anecdotally) that a significant number of "Tea Party supporters" were not, actually, in favor of recent foreign wars or expansion of the federal government - funded or not. Nor do they (we!) all insist that Pres. Obama is "a Muslim Marxist born in Kenya" - we can disagree with his policies regardless of where he was born or what religious beliefs he holds. (Pithy summary, but straw men can be filled with pith also.)

For many (if not all) "Tea Party types", it's pretty simple: Overall, we aren't convinced that the federal government does everything well, and we'd rather see it shrink than grow. This doesn't automatically translate into "free market everything"; obviously there's some stuff that only a government can do. Are we opposed to well-paved roads and an efficient post? Do we really believe (as squidward seems to suggest) that taxes can't be used for "anything good"? Hardly; we just don't accept that the only path to a well-paved road goes through DC.

Are some "Tea Party supporters" (there must be a more mellifluous term) nuts? Undoubtedly. Are some of them confused, ignorant of facts and logical argument? Undoubtedly, despite many generations of public education inefficiently controlled by government officials.

17. jchristophm - April 14, 2010 at 08:19 am

"'We think,' Farah said. He paused dramatically before adding, 'Without the birth certificate we really just don't know,' as a sizable portion of the audience broke into applause."

35% of Democrats believed G.W. Bush knew about the 9/11 terrorist attacks in advance. Therefore, all Democrats are idiots.

Is this how arguments are built in the humanities? Are you freaking kidding me?

18. davi2665 - April 15, 2010 at 11:43 am

Thank you, Professor Pennywise, for reminding me that all of my earnings and assets REALLY belong to the government, excuse me, "the people" and exist for you and your ilk to "redistribute" according to good Marxist policy. And thank you also for reminding me that my achievement that permits me to earn a decent living has come from exploiting the poor and the downtrodden. And, of course, we now understand that everyone has a "right" or entitlement to have everything that even the most successful entrepreneurs have because our president and congress have shown us the way. And now our children and grandchildren also have the "entitlement" to a bankrupt country that has spent itself into oblivion for decades, and printed dollars as if they are monopoly money to pay off people on both sides of the aisle. What a great system! I am sure Karl would have been proud.

19. fonlenmalesen - April 15, 2010 at 11:59 pm

<Comment removed by moderator>

20. whm3113 - April 16, 2010 at 09:09 am

I amazed that there are well educated professionals that believe that the problems of society can be solved by bureaucracies. Have you taken a look at the bureaurcrats at your college or university? It doesn't get any better at the state or federal level.

For example, paying teachers more hasn't improved student outcomes. We need to discover and solve the problem of why the best and brightest don't want to teach elementary, middle and high school students. Maybe it is having to deal with the developmental issues of your averge middle school student, rather than the compensation. It could also be that the best and the brightest don't want to spend their professional careers monitoring the cafeteria and detention room. It isn't the money, it is that it can be soul sucking work. How is the federal bureaucacy going to solve that?

Let's have the federal government do what the Constitution says the federal government should do. Let's leave the public schools to the the management of the local school district and let's leave the roads to the individual states.

Taking my federal taxes, which I am also proud to pay, and filtering it through a half dozen layers of government only to be returned to my local school district is inefficient at best.

Solving the problem of recruiting and supervising qualified teachers can't be done at a national, or even a state, level.

And as for the wars in Iraq and Afganistan, I would prefer that we didn't have to spend treasure and lives in either place and I don't know anyone, Tea Party supporter or not, who does.

21. soxplayer - April 16, 2010 at 10:26 am

You say you like paying taxes but then you reveal yourself by saying: "Improved tax fairness would benefit civilization while reducing the proportion the rest of us must pay every April." It seems you really don't want to pay taxes but you want to get even with anyone who makes 'too much' money. I see no nobility in your outlook.

22. thirdcamper2 - April 16, 2010 at 12:34 pm

Give me my Social Security, my Medicare, just cut out the socialism--there's the logical Tea Party. Oh, yeah, and Obama is a Muslim.

http://www.nytimes.com/2010/04/15/us/politics/15poll.html?scp=2&sq=tea%20party&st=cse

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