Advertising
Advertising

You Don’t Have to Worry: Tax Answers from Jeff Schnepper

You Don’t Have to Worry: Tax Answers from Jeff Schnepper

912553_33728777

    No matter how prepared you are for tax season, you probably worry at least a little whenever April 15th is getting close. We’ve covered your last-minute tax options in the past, but no matter how close that deadline is getting, we want to reduce your worry. Jeff Schnepper, MSN’s tax expert, agreed to answer a few questions for us, and offered a little reassurance.

    Advertising

    Tax Misconceptions — and Problems

    One of the major reasons that our taxes keep us up at night, according to Jeff, is that there are so many myths and misconceptions about taxes: topics like who you can claim as a dependent and what you can take as a deduction involve as many urban legends as a bad horror movie. And it doesn’t stop there. Jeff says: “The most common misconception people have about taxes is that everybody else is cheating and getting away with something….giving them the “right” to fudge. Cheating is wrong and I’ve found that the taxpayers I work with understand, and want to do the right thing. The problem is that the law changes every year, and sometimes three and four times in a single year. The professionals are overwhelmed and the average taxpayer completely lost. It’s not that people are cheating – they’re making errors because they don’t know the rules.”

    The past few months have shown the truth of that statement. If you consider just the appointments that President Obama has made (or attempted to make), it becomes obvious very quickly that even politicians who can afford the best tax preparers in the country can’t get their taxes done correctly.

    Advertising

    What We Can Do to Reduce the Worry

    Just because the tax system is complicated doesn’t mean that the average taxpayer needs to spend the time between now and April 15th cringing, however. Even the biggest tax bogeyman of them all — an audit by the IRS — isn’t something you should spend too much time worrying about. While you can minimize your overall chances of being audited by following the rules as closely as you can, and by having the right documentation, there’s a certain element of chance.

    “You can’t avoid an audit. Returns are selected randomly as well as based on the IRS DIF computer program,” says Jeff. If there’s nothing left that you can do to make sure that your tax return is filled out accurately, you can stop worrying. If the computer picks your number, you may have to sit down with an auditor, but there’s nothing else you can do to affect the process.

    Advertising

    A Few Last Minute Options

    Even though you’ll get the best results for preparing your tax return by starting as early as possible, Jeff was able to point out a few last minute deductions that you can pick up after December 31st: “Do you qualify for a deductible IRA or would a Roth be better. Can you contribute to a SEP?” He suggests looking into your IRA options if you’re still searching for deductions.

    Jeff also notes that there are a few extra things to consider this year, if you’ve been affected by the current economic situation. Jeff says, “Sit down with a tax pro if you may lose your house. Congress passed a law that wipes out any taxes on debt discharge income on a principal home. But, you have to do it right and file the appropriate forms.” He also pointed out that if you’ve refinanced your mortgage, you can deduct any points you pay over the life of the refinance. You can even deduct any unamortized points on your original refinance if you refinance a second time.

    Advertising

    “The laws are in flux and are changing as you read this. For example, now the first $2,400 received in unemployment benefits escapes tax. You can get a $1,000 deduction for real estate taxes even if you take the standard deduction. For 2009, you can deduct sales tax on a new car even if you don’t itemize. If you don’t know the rules, you’re going to have a hard time playing the game,” says Jeff. He makes it clear that if you aren’t staying up to date on the changes in tax laws, you’re going to have a hard figuring out your taxes.

    Getting Ready for Next Year

    You can make your 2009 tax return easier by starting now. The secret to making tax season simple is setting up a system to document both your income and your deductible expenses throughout the year and keep it up to date. Jeff described one system his clients have been known to use: “For substantiation, I have clients who throw all their checks and receipts in a box. Once every month or so they sit down and put those checks and receipts into envelopes with tax classification. So, there’d be an envelope for contributions, investment expenses etc. At the end of the year, they add them up, don’t double count, and put the number outside the envelope. Those are the numbers they give me for their tax returns. And, they never have to fear an audit. An audit can only ask them to substantiate the numbers on the return. They already have the backup available in each envelope!” It doesn’t matter exactly what system you use, though, as long as you have one in place — and you keep it up to date throughout the year.

    If you have a question about your taxes, Jeff Schnepper is MSN.com’s Tax Expert. You can find him at money.msn.com, where he answers questions every day. In addition to his MSN columns, Jeff is the author of How to Pay Zero Taxes, which is now in its 16th edition, as well as several other finance and tax-related books.

    More by this author

    50 Businesses You Can Start In Your Spare Time 8 Replacements for Google Notebook 5 Sites Where You Can Sell Your Photos 7 Tools to Find Someone Online 19 Entrepreneurship Websites Worth Checking Out

    Trending in Featured

    1 The Science of Setting Goals (And How It Affects Your Brain) 2 How to Stay Motivated and Reach Your Big Goals in Life 3 How to Take Notes Effectively: Powerful Note-Taking Techniques 4 How to Stop Procrastinating: 11 Practical Ways for Procrastinators 5 50 Businesses You Can Start In Your Spare Time

    Read Next

    Advertising
    Advertising
    Advertising

    Last Updated on July 17, 2019

    The Science of Setting Goals (And How It Affects Your Brain)

    The Science of Setting Goals (And How It Affects Your Brain)

    What happens in our heads when we set goals?

    Apparently a lot more than you’d think.

    Goal setting isn’t quite so simple as deciding on the things you’d like to accomplish and working towards them.

    According to the research of psychologists, neurologists, and other scientists, setting a goal invests ourselves into the target as if we’d already accomplished it. That is, by setting something as a goal, however small or large, however near or far in the future, a part of our brain believes that desired outcome is an essential part of who we are – setting up the conditions that drive us to work towards the goals to fulfill the brain’s self-image.

    Apparently, the brain cannot distinguish between things we want and things we have. Neurologically, then, our brains treat the failure to achieve our goal the same way as it treats the loss of a valued possession. And up until the moment, the goal is achieved, we have failed to achieve it, setting up a constant tension that the brain seeks to resolve.

    Advertising

    Ideally, this tension is resolved by driving us towards accomplishment. In many cases, though, the brain simply responds to the loss, causing us to feel fear, anxiety, even anguish, depending on the value of the as-yet-unattained goal.

    Love, Loss, Dopamine, and Our Dreams

    The brains functions are carried out by a stew of chemicals called neurotransmitters. You’ve probably heard of serotonin, which plays a key role in our emotional life – most of the effective anti-depressant medications on the market are serotonin reuptake inhibitors, meaning they regulate serotonin levels in the brain leading to more stable moods.

    Somewhat less well-known is another neurotransmitter, dopamine. Among other things, dopamine acts as a motivator, creating a sensation of pleasure when the brain is stimulated by achievement. Dopamine is also involved in maintaining attention – some forms of ADHD are linked to irregular responses to dopamine.[1]

    So dopamine plays a key role in keeping us focused on our goals and motivating us to attain them, rewarding our attention and achievement by elevating our mood. That is, we feel good when we work towards our goals.

    Dopamine is related to wanting – to desire. The attainment of the object of our desire releases dopamine into our brains and we feel good. Conversely, the frustration of our desires starves us of dopamine, causing anxiety and fear.

    Advertising

    One of the greatest desires is romantic love – the long-lasting, “till death do us part” kind. It’s no surprise, then, that romantic love is sustained, at least in part, through the constant flow of dopamine released in the presence – real or imagined – of our true love. Loss of romantic love cuts off that supply of dopamine, which is why it feels like you’re dying – your brain responds by triggering all sorts of anxiety-related responses.

    Herein lies obsession, as we go to ever-increasing lengths in search of that dopamine reward. Stalking specialists warn against any kind of contact with a stalker, positive or negative, because any response at all triggers that reward mechanism. If you let the phone ring 50 times and finally pick up on the 51st ring to tell your stalker off, your stalker gets his or her reward, and learns that all s/he has to do is wait for the phone to ring 51 times.

    Romantic love isn’t the only kind of desire that can create this kind of dopamine addiction, though – as Captain Ahab (from Moby Dick) knew well, any suitably important goal can become an obsession once the mind has established ownership.

    The Neurology of Ownership

    Ownership turns out to be about a lot more than just legal rights. When we own something, we invest a part of ourselves into it – it becomes an extension of ourselves.

    In a famous experiment at Cornell University, researchers gave students school logo coffee mugs, and then offered to trade them chocolate bars for the mugs. Very few were willing to make the trade, no matter how much they professed to like chocolate. Big deal, right? Maybe they just really liked those mugs![2]

    Advertising

    But when they reversed the experiment, handing out chocolate and then offering to trade mugs for the candy, they found that now, few students were all that interested in the mugs. Apparently the key thing about the mugs or the chocolate wasn’t whether students valued whatever they had in their possession, but simply that they had it in their possession.

    This phenomenon is called the “endowment effect”. In a nutshell, the endowment effect occurs when we take ownership of an object (or idea, or person); in becoming “ours” it becomes integrated with our sense of identity, making us reluctant to part with it (losing it is seen as a loss, which triggers that dopamine shut-off I discussed above).

    Interestingly, researchers have found that the endowment effect doesn’t require actual ownership or even possession to come into play. In fact, it’s enough to have a reasonable expectation of future possession for us to start thinking of something as a part of us – as jilted lovers, gambling losers, and 7-year olds denied a toy at the store have all experienced.

    The Upshot for Goal-Setters

    So what does all this mean for would-be achievers?

    On one hand, it’s a warning against setting unreasonable goals. The bigger the potential for positive growth a goal has, the more anxiety and stress your brain is going to create around it’s non-achievement.

    Advertising

    It also suggests that the common wisdom to limit your goals to a small number of reasonable, attainable objectives is good advice. The more goals you have, the more ends your brain thinks it “owns” and therefore the more grief and fear the absence of those ends is going to cause you.

    On a more positive note, the fact that the brain rewards our attentiveness by releasing dopamine means that our brain is working with us to direct us to achievement. Paying attention to your goals feels good, encouraging us to spend more time doing it. This may be why outcome visualization — a favorite technique of self-help gurus involving imagining yourself having completed your objectives — has such a poor track record in clinical studies. It effectively tricks our brain into rewarding us for achieving our goals even though we haven’t done it yet!

    But ultimately, our brain wants us to achieve our goals, so that it’s a sense of who we are that can be fulfilled. And that’s pretty good news!

    More About Goals Setting

    Featured photo credit: Alexa Williams via unsplash.com

    Reference

    Read Next