Paying Taxes

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For the last several years, I have waited to file my taxes until April because I no longer get refunds. When I watch TV, I laugh at the advertisement that says “the best part of paying taxes is getting a refund”. If that’s true, wouldn’t it be best to pay no taxes in the first place or to only pay what we actually owe? The trouble is that sometimes things surprise you at tax time, as they have me.

During the Clinton Administration, I was surprised when, at the age of 14, I owed money to the IRS. My memory is a bit fuzzy as to how exactly this happened, but we somehow discovered that I needed to pay taxes and file a return even though I wasn’t actually employed. I had put everything I earned into a mutual fund, and that fund managed to earn over $400 in capital gains. Under the much lauded Clinton tax rates, capital gains over $400 were taxable regardless of income. Well, needless to say I didn’t have any income per se because I didn’t have a standard job; most of the money I earned was allowance from chores. However, I had to write a check for like $32 to the IRS, and that moment changed my life. Why was a 14 year old boy being harassed for failure to pay taxes?

This year, I discovered another strange thing. When I filed, I had not yet maxed out my IRAs, so I looked into putting more money into them. It was a good thing I checked BEFORE I made the contributions, because if I had put in more, I would have had to pay a penalty for “Saving too much”. You see, the state retirement counts as a 401K account, and since it is “maxed out” because the state matches at 100%, I am allowed to put away less money for savings. Most people cannot add to an IRA if they earn more than $98000 if they are single, but under my special circumstance, I cannot add to an IRA at all if my AGI is more than $64000. The tax professionals and the advisors at work had to look into this, because none of them had ever seen it. You see, I am the only person at my age who is single who is maxing out all of his retirement accounts, and usually people have dependents and so it went unnoticed all this time.

In essence, I am being penalized for saving too much for my retirement. At a time when they consider going after our pensions and talk about putting money aside, it strikes me as odd that I would be penalized for saving too much money. After all, what would Cyprus seize if their people didn’t put any money away for later?