Tax Comparison

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Tax time has come and gone, thankfully. I wouldn’t say that I dread it.  Since I plan accordingly for it throughout the previous year, it usually is a non-event.  It is more of a time annoyance than anything else.  I did receive a small refund from both the federal and state governments.  What is more interesting to me, is comparing the return this year with my returns from previous years, and looking at the tax return as a window into my financial year.  I know complete surprise from the numbers guy.

Wages

It was not my best year ever, but it was close, 2014 was the best. Looking at the wages line on my federal return, does not quite tell the whole story.  The reason for this is all of my health benefits and 401k contributions are removed from my wages and only the net number is reported.  On a gross basis, I had total wages of $110,425 between my salary and performance bonus.  2014 was slightly higher at $114,750 due to a larger performance bonus that year.  My salary was higher in 2015 by almost $2,000, but couldn’t overcome the really good bonus in 2014.  My health benefits were about $1,600 lower in 2015 from switching to a high-deductible plan.  Since I am always planning, I’ve already estimated my 2016 taxes.  I still won’t catch the 2014 year in terms of gross wages, but I’ll be a lot closer, only $675 short.  I’m moving in the right direction.

Interest and Dividends

The taxable interest is driven by our cash reserves, though the comparison between 2014 and 2015 is a little misleading. My savings grew in 2015, but the interest comparison doesn’t show it.  In 2014, I took advantage of some bank offers and opened a couple of accounts for bonuses, about $250 in total which were reported as interest.  So, the $306 versus $145 doesn’t look quite as good.  The dividend story is quite different.  Since I have been growing my Vanguard account with diligent monthly contributions, the dividend numbers bear that out.  In 2014 the total was $324 and in 2015 it was $382.  Certainly nothing that I am going to retire on tomorrow, but it does show the progress I have been making in growing the Vanguard account.

Itemized Deductions

Since I have a mortgage, I itemize my deductions rather than taking the standard deduction. My 2015 number was down when compared with 2014.  That is a good thing.  The reason for the decline is that I am no longer paying PMI on my mortgage.  I refinanced in the beginning of 2015 and was able to secure a mortgage without PMI.  That means I had a lower mortgage payment, but a slightly higher taxable income.  My best year for deductions was in 2012 when I had over $37,000 worth of deductions.  The combination of a mortgage with PMI and medical bills allowed me to dramatically lower my taxable income that year.  I’m quite happy not having those deductions.

Tax

My total tax bill was little changed from the previous year, $5,207 in 2014 versus $5,424 in 2015.  My refund was much lower in 2015 compared with 2014, $277 versus $1,430.  I adjusted my paycheck so that less tax would be withheld and my paycheck would be larger.  There are some that like the forced savings that come from getting a large refund every year.  I am not one of them, 2014 being an anomaly.  I have become more diligent about my tax planning as the years have gone on.  My estimation for my 2016 taxes is a tiny refund of only $79, with the state refund only being in the $150 range.  It is fun to me too look back and see how my income and tax has changed over the years.  I began detailed tracking of it back in 2008, more or less when I became serious about my finances.  It’s nice to see the growth over the years.  What insights did you glean from looking at your return from last year versus this year?

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