Any tips on lowering TAXES?

[pyriel]

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I sent this email traffic to our AGR force. I think it is relevant here as well. Just to give you a little bit of background with our tax return program, the government is broke and it is taking them 2-3 years to pay back the people's tax return. Here is something I wrote for them to help them get their money a little faster. If you are receiving a hefty tax return. You might want to read this...

ALCON,

This is a follow up email from the previous one I sent entitled: 2006 TSP Are you Ready? I received alot of good responses from my first email that I thought it is worth writing a followup on this issue. Please read on.

I am looking for Service Members (SM) that will give me $200, $300, $400, or maybe even $500 per month. I do not promise to give it back after 12 months or maybe not even 36-48 months. Better yet, I will just promise to pay the SM when I have money to spare.

You are probably thinking that Pyriel is losing it. There is no way any SM will give him any money and follow the terms that he mentioned above. However, is the scenario presented above really far fetched? NO WAY!!! Uncle GOVGUAM is doing it to our SM year after year and there is no end in sight (at least at this time). In fact, we still have SM waiting to be paid for their 2001/02 tax refund.

Tax refund is a refund coming from the government because SM paid too much taxes for the year. On my first email, I thought you how to find out how much taxes SM is supposed to pay according to their tax bracket. I also showed how to lower down the SMs income so that they have less taxable income, thus having to pay less tax. In my last email, I believe that a SGT with ten years experience will be overpaying about $2250 if he follows my advice. The result is that he will receive a tax refund of $2250. Now, I said that SM can wait a year to get their tax refund or they can get them now. To get them now, this is what they need to do.

Change the exemption in their W4.

How do you calculate how much exemption should you put in? Please follow the website below.
<http://www.irs.gov/individuals/article/0,,id=96196,00.html>

$2250 divided 12 equals $187.50 per month. Now, I know for a fact that I can do alot with $187.50 additional income a month. SM members need to play around with this so that they will not overpay or underpay their taxes. If you are within a $100.00 of paying or receiving refund every year, this means that SM is paying the right amount of taxes.

I feel bad whenever I hear SM tell me that they received $4K or $7K on their tax refund. They are so happy because they now have a lump sum of money that they can spend. This tells me that the SM is not aware that he is overpaying his taxes and Uncle Sam is using them to earn interest for the Federal Reserve.

Many SM I spoke with do not want to put high amount of exemption in their W4. They are putting 1 or 2 exemption eventhough year after year, they are receiving ridiculous refund. Some SM have told me that putting in more exemption in W4 is actually cheating Uncle Sam. HOGWASH! The IRS will not allow you to do that. When SM do their income taxes, whether it is 1040, 1040A or 1040EZ, it will even out in the end. Let me explain.

When SM puts in 10 exemption in their W4, taxes being taken from them is less. At the end of the year, taxes taken from the SM on a monthly basis will be added. If it is below the SM's tax bracket (look at tax bracket in Publication 17), SM has to pay the difference.

When SM puts in 1 exemption in their W4, taxes being taken from them is more. At the end of the year, taxes taken from the SM on a monthly basis will be added. If it is above the SM's tax bracket (look at tax bracket in Publication 17), SM will receive a refund.

W4 is utilized so that SM may identify how much tax they have to pay, not to report how many dependents they have. You report your dependent in your 1040, 1040A or1040EZ. In the early days, dependents were utilized to find out how much tax SM has to pay. However, with the new inception of retirement system in the 50s through present, W4 became synonimous on how to pay your taxes accordingly. Uncle Sam also do not want you to overpay or to underpay your taxes. This is the reason why they make you decide on how many exemption you put in your W4. Finance can't input the number for you. In fact, Finance (through MyPay) allows you to change your exemption in your W4 anytime you want. It is up to you.

If you do not agree with what I am saying here, please print this email and show it to an accountant for verification. I can only lead you the way but you have to walk through it. You can continue to overpay Uncle Sam or Uncle GOVGUAM and wait for your money to come back to you 3 years down the road or you can get your money now and start using it TODAY. If you are uncertain on how to figure out how much taxes you have to pay and how many exemption you need for your W4, please talk the Finance folks or talk to me. Thanks...

 

[pyriel]

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Here is another I sent wrote to the Guam Army National Guard...

ALCON,
This information is for those who are interested in knowing more about TSP. If you feel that this message does not pertain to you, I apologize in advance. For those who wants to know more can email me back and I promise to send you more info about TSP on a later date.
Many people really don't understand how beneficial TSP is for our service members. For those who recently just started with the Guard, especially as an AGR, this is a great opportunity to build wealth which will help you when you are about to retire. Below is a question that I cut and pasted from the TSP website:
47) What is the percentage of contribution that I can elect?
The maximum contribution allowed from basic pay for pay periods beginning in:
2004 . . . . . 9%
2005 . . . . .10%
2006 and thereafter...TSP contributions limits eliminated
If you elect to contribute to basic pay, you may contribute from 1% to 100% of any incentive pay, special pay or bonus pay that you receive.
Internal Revenue Code section 402(g) and section 415(c) may limit your annual contributions. See the Summary of the Thrift Savings Plan for the Uniformed Services for more information about these statutory limitations.

Now, soldier member look at this and say "Well, I am now maxing my contribution to my TSP. I am good to go." However, many of them really don't grasp the idea of how significant year 2006 is for TSP contributor. Statement above says that "2006 and thereafter... TSP contributions limits eliminated" However, they put a little sign at the bottom telling service members to look at IRS 402(g) and section 415 (c). Now, what does this really mean?
Here is the shorter version.
<http://www.tsp.gov/uniserv/features/chapter16.html#sub1> <<http://www.tsp.gov/uniserv/features/chapter16.html>>

In essence, it is telling us that by year 2006, the limit for service members to contribute is $15,000.00. If service member is 50 years or older, he/she may contribute $5,000.00 more for a total of $20,000.00.

Some service members will say that there is no way, anyone can save $15,000.00 or $20,000.00 into TSP. In some essence, they are right. Service members will not be able to maximize contribution because they have alot of debts, which is really what it will boils down to. Many service members will have valid reasons and some will also have other reasons, But for those who have reasons because of the following: Nice cars, credit cards, nice vacations, nice gifts, nice parties, eating out alot, personal loans, etc. etc... they can still do something about it to get ready for year 2006. And the good thing about this is that the IRS will help the service member.

Planning for 2006 is a major task for many TSP members who are not very familiarized with the system. Although, we will be allowed to put in 15K (or 20K for 50 years or older), not too many people will be able to afford them if they are not ready NOW. 15K (if they want to max on contribution) divided 12 pay period is about $1,250.00 a month.
I went to publication 17 and looked at the tax table. An E5 with 10 years of experience will have an annual base pay of $28,068.00. For this example, I will assume that he is single. Earning $28,068.00 base pay for the year will require him to pay $3,861.00 of taxes. This is usually taken out on a monthly basis on the service members' LES. If this person contributes the maximum to TSP which is $15,000.00, his taxable income will go down to $13,068.00. This means that when he receives his W2 at the end of the year, it looks like he only earned $13,068.00. Service member will then be taxed only $1,611.00. If service members overpaid, he/she will receive a tax return or $2,250.00 ($3,861.00 - $1,611.00). Imagine gaining a 15% return on your $15,000.00 maximum contribution from Uncle Sam ($2,250.00 divided by $15,000.00). You will never get that from any bank or establishments out there. In actuality, your contribution out of your pocket is only $12,750.00. But in TSP, you have $15,000.00. If anyone would like to know more about this, please let me know and I will help them decipher the IRS codes for the TSP within their tax bracket. If anyone would like to verify this with any accountant, please print this email and give it to them.
Some service members will say that waiting until the end of the year to get the tax return is too hard, especially if a big chunk of their money is already going to TSP. There is good news. Service members do not have to wait until the end of the year to receive the $2,250.00. They can actually get them NOW. If anyone would like to know more about this, please let me know.
I offer my assistance for those who are willing to learn. Reading the tax code is one of my hobby. Service members that I spoken with seems to be afraid of the IRS. The truth is they have to play with the same rule that is being given to us: PUBLICATION 17.

 

[pyriel]

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Here is another one that involves social security. The attachments will show you the difference between taking the 80% vs. 100%. Never take the 100%...

ALCON,
I was going to write something about itemized deduction but a Service Member (SM) pointed a question to me whether it is more feasible for him to start drawing from his social security when he is 62 years old rather than when he turns 67 years old. He thinks that 62 years old is better but he is not sure why.
I informed him that our category as service members benefits more in drawing social security when we turn 62 years of age. SM who draws their social security will only receive 80% of the full benefit vs. 100% benefits if they wait until they turn 67 years of age.

Attached is an excel worksheet showing you why you should draw your social security when you turn 62 years old. Since I am not good in math, the dollar figure I used to formulate this worksheet is based on an SM that will be receiving $1000.00 if he/she decides to wait until 67 years of age to start withdrawing from social security. Yours is most likely going to be different.

As you can see, SM who starts withdrawing at age 62 years old will always be ahead from another SM who waited to draw social security at the age of 67. The first five years allows them to accumulate $48000.00 right off the bat. In fact, SM who waits until 67 years old to start drawing their social security will not be able to catch up with the SM who started drawing their social security at 62 years of age until THEY ARE 86 YEARS OLD. A total of 24 years. Good Lord!!!!

I don't know about you but I don't think I will be doing as much when I am 86 years old vs. when I am 62 years old. I would rather get my money while I am younger and able so that I can enjoy them. Social security along with TSP and Roth IRA and our retirement should be more than enough to get us through in our old days.

So for you NEW AGRs, please open up your eyes and start thinking of the future. It is unfortunate that our old timers, ooopppsss, I mean seasoned AGRs were provided these opportunities towards the end of their career. Although it will still work for them, these programs are really meant for a long haul. The farther you are from retiring, the better your chances of success. I am sure that our seasoned AGRs would have jumped on these opportunities if these programs were presented to them earlier.