Family Finances: Making the most of Tax Day

Here’s how Amanda Gibson and her family save so much on taxes. It is nothing short of inspiring.

April 18, 2016; 11:53 AM • by Amanda Gibson

Photo by: Thomas Hawk

April is so nice. Trees and flowers start blooming. The days are longer. The sun shines. And…there is also that other thing…you know it…IT’S TAX SEASON, BABY!

I’m not an accountant, so I’m not sure if accountants actually get excited about tax season. I’m coming at tax season as just your average person who happens to be obsessed with personal finance. You might not be surprised to learn that I really love doing my own taxes. It is my chance to come up with official numbers from the previous year. Our family has multiple variable incomes, so this is our first look at what we actually made. I also take the time to add up what we spent in certain areas for purposes described below. And Turbo Tax–with its cheeky little questions and responses–it’s just the best.

In this month’s column I am celebrating tax day by sharing my all-time favorite deductions. Lucky for us our family seems to be exactly the people that American taxpayers think should get all the deductions. Thank you, other peoples, for paying the taxes that run the country. Our family paid an effective tax rate of just under 7% last year. (Your effective tax rate is the percentage of your federally adjusted income you pay in taxes, as opposed to your actual tax rate, which you figure based on your taxable income after all those glorious deductions.) Yep, you read that right, 7%. It’s completely legit. If you don’t like it, tell your Congressman.

How do we do it?

Well, we…

…have a mortgage. The interest is fully deductible, and because we are still on the front end, most of our payment goes to interest, not principle. We’re able to deduct all the interest we pay from the amount of income on which we are taxed.

…and kids. Our three sweet little angels mean that my husband and I take FIVE personal deductions out of our taxable income. I’ve got to be honest, sometimes I envy you non-parents with your sleeping all night and your getting to eat entire cookies without having to share, but when tax time rolls around I tot up the tots with glee!

…give some of our income. The mortgage interest and other deductions make it worth it for us to itemize. Not only do I get to itemize our church giving, but I also deduct all the receipts from all those Goodwill runs that keep our house from exploding with stuff.

…spend an obscene amount of money on health to be healthy people. We’re able to deduct our health insurance premiums, prescriptions, co-pays at doctor’s offices, etc. Every couple of years for the last six we have welcomed a baby, so we pay for delivery and associated expenses. Plus our family seems to endlessly go to the doctor for check ups and dental appointments and eye exams.

…run two businesses. Our bread and butter is a graphic design business, which means that from our gross income we deduct printer cartridges, business lunches, computer software, and ten percent of our utilities because we run the business from our home. We also short-term rent our home when we are not there. Before we pay taxes on that income, out comes the fees we pay our cleaning lady to prepare the house for guests and the expense of the coffee I leave for them to drink.

…have our kids in daycare. Daycare and health expenses combined actually eat about a third of our total, before tax income. But you won’t find this one complaining. I like my children healthy and well cared for. And if all of that spending happens to be deductible and tax creditable, well, that’s just icing on the cake. What is tax creditable? I’m not sure that “tax creditable” is technically a term, but I promise you it’s a good thing. Health care expenses are deductible from your taxes, meaning, when you spend a dollar on health care you don’t have to pay taxes on that dollar. It is deducted from your taxable income. But daycare expenses are extra special. When you spend a dollar on day care you subtract that dollar from the actual taxes you have to pay. How much you can deduct is based on your income. So if Uncle Sam allows you to take a $1000 credit in daycare expense and you are required to pay $1000 in taxes, your tax bill is $0. Not a bad tax bill to have.

It all does make me wonder if my husband and I are the American voter’s dream citizens. We are married, have three children who are cared for outside of the home, run businesses, and have a mortgage. American voters, by giving us a break on our taxes for doing all these things, must want to incentivize us to do these things. If you made our same income but had no children or mortgage, you would be “penalized” in significantly higher taxes. I’m not quite sure what to make of that, but rest assured I will take financial advantage of my privileged status.

Have you done your taxes yet? If not, GET ON THAT, DUDE! Today is tax day and late penalties are even worse than taxes. If you haven’t filed yet, don’t forget to sniff out all the deductions that Uncle Sam allows. And if you don’t have kids or a mortgage, thank you again for financing the country.

April 18, 2016 11:53 AM 0