Tuesday, April 24, 2012

Writing Thank You Notes

I learned to write thank you notes at an early age (not quite as early as in this photo, but still early). My mother considered it an essential skill, so writing them was mandatory in our house. When there's a rule that you can't play with any of your Christmas presents until the thank you notes are finished, you learn to get them done first thing. I think that's a good policy; it's better to do them and get the job over with than to have it hanging over you for weeks while your mother nags.

There are still books on how to write notes, such as The Art of Thank You and 101 Ways to Say Thank You, and there were rules that I was told about as a child. The one that made the least sense to me was "Don't start a thank you note with the words 'thank you'." That just seems silly to me; both parties know that I'm thanking the giver for the gift. The biggest challenge I've found in thank you notes is the occasional difficulty of identifying the gift. As you can tell from the look on my face in the photo, I had no clue what that present was. (Actually, I still don't know. Overalls, perhaps?)

These days, when I'm sending gifts to my sisters' children, I'm happy to get any acknowledgement. Thank you notes now serve as a receipt, so I consider "Dear Aunt Lisa, Thank you for the card and the money…" to be a perfectly good note. I know they got their birthday presents, and I know that my sisters are passing on our family's rules to the next generation. I hope when the time comes for me to be sending birthday presents to my great-nieces and nephews that I'll still get notes–or at least e-mails.

Tuesday, April 17, 2012

Gambling Taxes: When You Win, You Still Lose

"Gambling losses can be deducted on your tax return.” The preceding statement is true, but…
  • You can't deduct more than the amount you won.
  • You must have documentation of all losses.
  • Losses are deductible only on Schedule A – Itemized Deductions

What this means is that gambling winnings go on the front of Form 1040, under "Other Income" and the losses may not be deductible at all. You can't just say, "I won $4,000, but I lost $10,000, so I don't have any real winnings." You have $4,000 in winnings, and you may have $4,000 in deductions.

The reason I say "may" is that if you take the standard deduction ($5,800 for a single person in 2011), you can't deduct the $4,000 at all.

If you have enough other Schedule A items (medical expenses, taxes, mortgage interest, etc.) that the additional $4,000 gives you more than the standard deduction, then the part that’s greater than the standard deduction is an additional deduction.

The only way the entire $4,000 is deductible is if you already have enough Schedule A items that you would be itemizing anyway. Even then, there's still one catch. The winnings are part of your AGI (Adjusted Gross Income), which is used to figure limitations on other items on your tax return, including your medical expenses deduction, so the deduction doesn’t quite cancel out the income, even if you take all of it.

So to the old advice "Don't bet more than you can afford to lose," I would add, "Don't win more than you can pay taxes on." And have the casino deduct income tax from your winnings. Come tax season, you'll be glad you did.

Tuesday, April 10, 2012

Unemployment, Taxes, and the 1940 Census

Unemployment has been a subject much on my mind lately, especially as I prepare tax returns for people who have been receiving unemployment compensation. The release of the 1940 census has brought the issue more sharply into my consciousness.

The only time I collected unemployment, it was something one got for a month or two between jobs, because it didn't take all that long to find a new job. Obviously, this experience was not recent. Because the period of unemployment was brief and ended with new employment, it didn't matter if you had taxes withheld from your check or not; by the time the tax bill came due, there would be money to pay it. But now, in my volunteer work, I'm seeing people who received unemployment compensation for quite a while and owe a significant amount of tax on it (and when you don't have income, it doesn't take a large amount of tax to be considered quite significant). If I were getting unemployment compensation today, I would definitely have Federal Income Tax withheld from it. (In California, unemployment compensation is not taxable, so at least it's not a problem on state income tax returns.)

Then last week the 1940 US Census was released. Each census has some questions that are unique to it, and in 1940 there was an entire section on employment status–as opposed to the earlier ones, which just asked for a person's profession. Here's what was asked in 1940:
21. Was this person AT WORK for pay or profit in private or non-emergency Govt. work during week of March 24-30?
22. If not, was he at work on, or assigned to, public EMERGENCY WORK (WPA, NYA, CCC, etc.) during week of March 24-30?
If neither at work nor assigned to public emergency work
23. Was this person SEEKING WORK?
24. If not seeking work, did he HAVE A JOB, business, etc.?
25. Indicate whether engaged in home housework (H), in school (S), unable to work (U) or other (Ot)
If at private or non-emergency Government work ("Yes" in Col. 21)
26. Number of hours worked during week of March 24-30, 1940
If seeking work or assigned to public emergency work ("Yes" in Col. 22 or 23)
27. Duration of unemployment up to March 30, 1940 – in weeks

I wonder how similar the answers to question 27 would be if we changed "1940″ to "2012." I also think it's a shame that we don't have something like the WPA now. WPA projects included the highway I drove to graduate school (four nights a week after work), several of the libraries I've used, a building that is now one of my favorite restaurants in San Francisco, and the Griffith Observatory in Los Angeles. We could use projects like that again.