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The library isn’t free

November 5, 2014

One of many things I was reminded of as part of becoming a home (mortgage) owner:  The public library is not free!  In fact, it is the 2nd largest line item on my property tax bill, beat out only by school programs!  The monthly cost is 3x the cost of Netflix!  (Of course, while public library is probably not the best value for ME personally, it benefits a lot of people.  But it isn’t free.)

Also not free:  The parks, firemen, paramedics, mosquito control ($2 year), and some other line items that appear to have been voted on by various measures over the years.

——

This year, I actually did some tax planning.  The past few years, we’ve each just claimed 0 exemptions and crossed our fingers that we’d get a refund.  This has failed two years in a row, so I decided that maybe it was a bad strategy.   I’m a bit late to the game, but it was a weird year and any early calculations would have just been wrong anyway, so better late than never?

Here’s what I learned:

  • Hey, we are due a federal refund.  Wooo!
  • For the first time ever… we will itemize!
  • Aside from itemizing, our tax bill should be straightforward.  No out of state pay, no confusing grad student stipend that doesn’t always align with tuition pay, nothing odd.  We’ll see though.
  • We’re saving in the ballpark of $5k due to itemizing, some of that due to paying property taxes and mortgage interest.  But we actually would itemize this year anyway based on state taxes alone.
  • On that note… WE ARE PAYING CALIFORNIA SO MUCH MONEY this year.
  • We will definitely owe California money.
  • Our net bill (federal & state) is likely about $4k, but I’m not sure.
  • I’m not sure because my bonus amount has not been revealed, and I’m not 100% sure how they withhold taxes.  Likely they withhold 40%, but we’ll see.
  • We are probably going to owe the AMT this year.  This was a surprise, as I kind of forgot the AMT existed.  The impact will be $1k or so.  Also, scratch that previous statement about simple taxes.

I also did some 2015 planning, because next year is more predictable.  Here’s what I learned there.

  • Owning a home will save us on the order of $11k.  I get that this is because we are paying taxes and mortgage interest, but it makes a big difference when you are calculation the cost of ownership vs. the cost of renting.
  • State taxes alone should no longer be enough to make us itemize.  But we’ll itemize.
  • I don’t think we’ll be hit with the AMT again.
  • We’re definitely going to have our withholdings properly set up in 2015.  We have avoided owing a penalty on our tax bill in the past due to the “is this more than you’ve owed in taxes, ever?” exception.  I don’t think that will be available to us after 2014’s tax bills.

I feel a lot better knowing what is coming, and having the ability to plan for it.  I’ll set aside the tax money next month.  At that point, we can rest assured… knowing that all we have left is to  spend an entire weekend struggling with the official tax forms, and sending  the state of California a boatload of money.

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7 Comments leave one →
  1. Jane permalink
    November 6, 2014 12:49 am

    Bonus tax rates can be tricky, but figure a minimum of 38% and possibly 50% will be taken in California. 25% of that is Fed, 10% is state, 6.2% is Social Security if not above ~110k for the year. If your Fed marginal tax rate is higher than 25%, you are underwithholding and will owe more federal tax on your bonus at the end of the year. You might be getting close to AMT territory at your income level.

    I also meant to comment on your previous post, but prepaying your mortgage before you max out tax-sheltered retirement vehicles made me cringe. You can alway prepay mortgage in a lump sum later. You can never regain tax-advantaged status for saving in a year if you don’t contribute the max. Also look into the loophole of converting after-tax 401k (if your employer allows) an traditional after-tax IRA contributions into Roth IRA accounts.

    If mortgage is under 6%, prepayment would be my very last priority. It’s the least liquid asset you have, and you seem concerned about having adequate liquid emergency funds. I would put that money in savings, and pay in lump sum once a year to the mortgage if you determined there were no other priorities or better investments.

    • November 6, 2014 7:48 am

      Yes, for 2014 only, we will most likely owe AMT. We’re only underwitholding for state (not purposely, we just didn’t do the math), so I’m guessing my bonus will actually reduce what we own since withholdings tend to be high. Either way, I’ll be sure to re-calculate as soon as I can.

      In general, I agree with the logic of maxing out retirement before mortgage prepayment. Between my husband and I, we have at least ~$60k of room to contribute to pretax retirement, possibly up to nearly $80k. This is unnecessary and unaffordable to max out. He also has a growing pension, and I have an old frozen one. We have a really solid foundation there.

      On the other hand, our house is unfortunately quite expensive (due to houses here just being expensive, not because it is anything fancy). In the first few years at least, I’m just a lot more comfortable bringing the balance down. It could also improve our cash flow for future years if we refinance. Mathematically, I agree we’re better off investing in the stock market (outside of retirement accounts even). But I’d like to manage the risk.

  2. November 6, 2014 3:56 am

    Quite right – when customers tell us they are happy about the free services at the library where I work, we remind them that their taxes are paying for it.

    Our situation is so different in Canada where we don’t get any tax deduction for mortgage interest or property taxes, and we have universal health care.

    • November 6, 2014 7:50 am

      Not free, but I’m paying for it either way, so I may as well use it! 🙂

      I actually just got my card last weekend after living here 11 months. My library has a tool loan program, where you can check out power tools for pretty small fees. Very cool!

  3. November 6, 2014 10:32 am

    Ah tax planning! Your 2015 savings planning has inspired me into figuring out what mine looks like and what balance I can pay the mortgage down to by the end of 2015.

    I just checked my property taxes and this year, $0.00 from them went to the library! I am so sad about that – I love the library! Mine even have books with no return by date, which is pretty sweet.

    I think I might actually get a small refund when I get around to filing my income taxes for 2014. My goal is always to get a refund of under $1,000 and I should succeed in that goal! I’ve been helping my boyfriend with his tax planning too 🙂 Eeeeee he’s moving in officially soon (by the end of the year :D)!!

    • November 6, 2014 7:13 pm

      Yay for 2015 planning! It is honestly very calming and exciting, as we’ve had pretty unpredictable years in both 2013 – 2014 (maybe 2012?) as T transitioned from his training to his full career. We’re now moved, both started new jobs, and likely will stay planted for quite some time. yay!

  4. November 11, 2014 10:58 am

    The library isn’t free and neither is anything else. People don’t realize how taxes work or how important it is for everyone to pay them, home owners and none home owners. It’s what keeps the services we need to function going! Congrats on the house purchase and good job getting started on taxes!

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