Get your taxes done for free and claim a refund!

Our tax system is difficult and challenging.  Many people get confused when they try to fill out their own taxes.  Going to a public service, such as H&R Block, Jackson Hewitt or Liberty Tax Service can cost $200-$300 or more.  While I am convinced that most of the times, these services earn every dollar.  On the other hand, some people just cannot afford this kind of expense.

Many people in the lowest of the income brackets, who may not be required to file their taxes because their income is too low, do not.  Or they do, but fail to take advantage of one of the best income tax breaks available, especially for lower income families raising children:  the earned income tax credit.

Fortunately, there are several ways that our lower income friends and neighbors can get their income taxes done for free!  The federal government has cobbled together a collection of volunteer agencies who will do your income taxes for free if your adjusted gross income is below a certain limit.  The program is called Volunteer Income Tax Assistance.

The income limit for this free program varies by agency but it (typically about $50,000.  These tax preparers are trained to fill out your income taxes the right way, and their work is double-checked by other trained experts.  The group that I volunteer with is called Tax Help Colorado, and they have helped lower income Coloradans get well over $150 million in income tax refunds back.  Their leadership report that the earned income tax credit is the single biggest credit that they see.

The earned income tax credit (EITC for short) is a credit on the income taxes for lower class tax filers with earned income.  Since it is a “credit” (not a “deduction”) this means that you can get money back from the government even if you do not owe taxes.  In other words, you might find that the government owes you money instead of the other way around.  It is especially designed for families with children, but it also applies to single individuals and married couples. The table below is used to determine eligibility and maximum credit you can claim.

Earned Income Tax Credit Limits

As you can see, the tax credit can be quite large, $6,557 for a family with three children.  For families scraping to make ends meet, this can make quite a difference.

It is very important that the documentation for the earned income tax credit be correctly filled out.  For example, you cannot claim a child that is also claimed by someone else, the child’s social security number must be correct, and so forth.  If you do not file this claim properly, not only will you be denied, but you must also file even more paperwork (IRS Form 8332) if you want to claim the credit in future year.  This is all the more reason to have a trained expert prepare the paperwork for you.

The VITA website can direct you to tax preparation volunteer organizations in your area.  Contact these organizations to find out where to get your taxes prepared for free.  Or if you wish, you can volunteer using this website as well.

When you go to a income tax preparation site, be sure to bring:

•        All relevant income tax forms (W-2s, 1099-R, SSA-1099, etc.).
•        Any notifications from the IRS, such as a notification of identify theft.
•        A copy of your social security card or letter from the social security administration proving your number.  (These volunteers will also do taxes for resident aliens with ITIN numbers instead of social security numbers.)
•       The name, ages, birthdates, relationships and social security numbers (or ITIN numbers) for all persons living in the same house as you.
•       A driver’s license or state identification card for identification purposes.
•       A copy of a cancelled check or other bank routing and account number information if you want your refund electronically deposited into your account.

The tax preparation process has three steps.

The first step is intake.  Here, you will fill out a questionnaire, together with the information provided above, and a tax volunteer will go over this information with you.  This review process makes sure that the information is complete and that the income tax site can handle your tax returns.  Even if they can handle your return, there may be some aspects of your taxes that are more advanced.  The intake coordinator can help ensure that your taxes are handled by a person trained and certified to meet your tax preparations need.  Some of the more complicated returns can be beyond the scope of the volunteer organization. 

The second step is the actual tax preparation.  You will sit down with a trained and certified income tax volunteer who will do your taxes for you.  Usually, you will sit side by side near a large computer monitor, so you can see what he or she is doing.  You should watch what he does.  Even though the preparer has been certified, it does not mean he makes no mistakes!

The third and final step is the quality review.  Here the work of the first preparer is checked by a second preparer to ensure that no mistakes were made.  The quality reviewer will also go over your income taxes to make sure that you understand what has been entered and why.  The tax forms are then printed as a record for you to keep.  If you choose to mail in your taxes, you will get a copy with mailing instructions.  If you choose direct deposit, a volunteer will e-file them for you, after you sign a few simple forms.

The large majority of those who use charities associated with VITA to do their taxes get large refunds.  The personnel who prepare the taxes are IRS certified.  The process is free and easy, only requiring you to collect your documents and visit a nearby school or church or charity for an hour or two.  It’s a great deal and I highly recommend it for those who qualify (as noted earlier, income must be no more than $50-$55K, typically).

When Should You Take Social Security?

In today’s article, we will discuss when to take Social Security.  We will start by discussing the options people have.

There are three important dates for Social Security:  your early retirement age, your retirement age, and your late retirement age.  Your early retirement age (for Social Security purposes) is 62.  The longer you delay taking benefits, the more they will grow.  Age 70 is your late retirement age, after which benefits stop growing.  In between these dates is something called your “full retirement age”.  Full retirement age depends upon when you were born, as seen in the table below:

Year of Birth	Full Retirement Age
1943 - 1954	66
1955	66 years and 2 months
1956	66 years and 4 months
1957	66 years and 6 months
1958	66 years and 8 months
1959	66 years and 10 months
1960 and later	67 years

There are unfavorable rules if you start collecting Social Security before your full retirement age. First, you are penalized if you choose to continue working or go back to work.  In 2019, those that are collecting Social Security before full retirement age lose $1 of Social Security benefit for every two dollars earned over $17,640 per year.  It gets a little better in the year of your full retirement, where you lose $1 of Social Security benefit for every three dollars earned over $46,920, up to but not counting your birth month.

Some readers may have heard that Social Security is going bankrupt, and that people should retire early in order to get their money while it is still available.  That is not exactly true, although it is running out of money.  If our elected leaders do nothing to change the situation, Social Security will reduce benefits to 80% of earned benefits starting in 2035.  This is still a long time away.  As we get closer to that date, more and more pressure will be applied to Congress to reach a solution.  Perhaps I’m naïve, but I believe that eventually Congress will act.  My recommendation would be not to make a decision on when to take Social Security based on an event still 15 years away and unlikely to occur. 

There are a lot of complicated rules and formulas for Social Security, but in this article I will try to keep them simple.  Your basic Social Security benefit amount will depend upon your work history.  The rules are written so that you have to get at least 40 credits over your lifetime to qualify, you can earn at most 4 credits per year.  The amount you get depends upon how much “qualified income” you made during your work record.  For 2020, the maximum benefit possible is $3,790 per month.  The minimum benefit possible is $41 per month but almost nobody gets that little.  $1,500 per month is typical.  Social security is indexed for inflation, so the benefit goes up as the Consumer Price Index goes up.  (Again, the subject of another article.)  Benefits are reduced by 6.67% for each of the three years before full retirement age, and 5% per year after that.  So, if you start collecting social security at age 62, and your full retirement age is 66, your benefit is reduced by 25%, for the rest of your life.  On the other hand, if you defer taking social security, your benefit grows by 8% for each year that you wait.

Social security is essentially a promise by the government to pay you.  With other government bonds and bills earning 2% interest or less, getting guaranteed 8% on your money seems like a great deal.  If you are in good health and can afford to wait, you should definitely hold off on claiming your social security benefit.

You can find out what your amount is at full retirement by going to the Social Security website and registering on their web page at https://www.ssa.gov/myaccount/.

But back to today’s question:  when should I claim my benefit?  The answer is (of course), it depends. 

First, how desperate are you for the money?  If you are poor and desperate, it might be worth it to take the money now, especially if it means food on the table and/or a roof over your head.  However, if you are in that situation, you can also look into welfare options instead (the topic of a future article).

Second, how is your health?  Social security is designed so that, more or less, your benefits are roughly equal in value no matter which option you choose.  As we said earlier, if you are in good health and expect to live longer than most, you should delay taking your Social Security.  On the other hand, if you are in poor health or have a chronic or fatal condition, consider taking it earlier.

The table shows average life expectancy, based on current age:

Current Age (Male)	Average Life Expectancy	Current Age (Female)	Average Life Expectancy
60	23 years	60	23 years
65	19 years	65	19 years
70	15.2 years	70	15.2 years

Do you think you will live longer than average, or less than average?  For most people, it’s better to play it safe and assume you will live longer than average.  Hence it's better to hold off on starting your social security for as long as possible.

Nobody really knows quite what their life expectancy is, but here are a few websites that can help.  Take their quizzes, and get feedback on what your life expectancy is and how you can live longer.

https://media.nmfn.com/tnetwork/lifespan/#13

http://www.blueprintincome.com/

https://www.johnhancockinsurance.com/life-expectancy-calculator.html#

In my case, my wife and I are in good health so far, and not desperate for the extra income Social Security provides just yet.  We’ll wait.

About Ant Investors

Welcome to antinvestors, a safe place for smaller investors to save their investments and live off of profits. 

Why do I call it antinvestors?  I was fascinated to read that there are only two animals known to farm.  One, obviously, is humans.  The second is leafcutter ants.  Apparently, leafcutter ants will gather and cut up leaves and take them back to their colony.  There, they don’t eat the leaves.  Instead, they eat the fungus that grows on the leaves.  To me, the analogy to living off of the interest that grows from your investments was obvious.

Now please don’t write me and tell me “well, actually, the spider monkey does this or the giraffe does that”, or even “the leafcutter ant really doesn’t do what you say”.  To me, the story of how the leafcutter ant lives off of the interest from his savings was too good to pass up.

Here at antinvestors.com, we are always on the lookout for predators.  And for those of us trying to save and invest enough for a comfortable retirement, there are a lot of predators lurking out there.

First, there are the anteaters, which can ravage entire investment colonies of ants like us.  Anteaters do not have our interest in mind at all.  They will offer “special” investment packages “only to special clients”.  Special suckers, that is.  This is because what they are really doing is unloading bad investments on you.  Anteaters are convinced that small investors are “dumb money” that should be eaten for lunch.  You are only a snack to him.  Anteaters stay at the top of the Fortune 500 lists by having lots of snacks, er, I mean investors, as clients.

Next are the Wasps.  A wasp will come in, sting you and fly away.  He is the one with the special “once in a lifetime” opportunity to make 10% (or 15% or 20% or 25%) back on your money, all “guaranteed”.  He just needs a large advance payment and then the money will start rolling in.  Bernie Madoff was one of the world’s best wasps, but there are plenty of others out there.  Consider the salesman whose investments require a 10% purchase charge. 

Next are the parasites.  Parasites don’t really want to kill you, they just want to “take their fair share” of whatever you earn.  Parasites may tell you “2% is not very much for helping you manage your money”.  But when interest rates are 2% or lower, it can be a lot.  As the parasites just keep getting fatter and fatter, and you wonder why you aren’t getting fatter too.  It’s because your “excess” is being skimmed off by the parasite.

Anteaters, wasps and parasites are absolutely not welcome at this blog.

This blog is for all of us ants.  And it’s not just for the big, rich ants.  It’s for all of us ants, big and small.  For example, we will discuss how to get free income taxes prepared and free medicare advice for those in need.  We will also discuss the benefits of low income earners filing taxes versus choosing to skip them.

What kind of help do we want to offer here at antinvestors.com?  We want to help everyone, paraphrasing Mr. Spock, “live long and prosper”. 

This includes not only investment advice, but advice on all kinds of insurance, including life insurance, long term care insurance, and health insurance.  Insurance is usually a poor investment, but that does not mean you should not buy it.  Don’t almost all of us have car insurance, for example?  In this blog, we want to discuss under what conditions one should buy insurance, and how much to buy.  And no, I do not work for an insurance agency (I’m one of the ants, remember?) so don’t try to buy insurance from me.

It also includes getting through the ins and outs of Medicare.  Initial Medicare enrollment is unreasonable complicated, and if you discover too late that you did not enroll correctly, you could be stuck with inadequate coverage or extra premiums for a year, or even your whole life!

Social security is another topic we will cover here.  In this blog we will explore some well known, and less-well known, ways to get the most out of Social Security.  And cover what you should do before, when (and if) the program runs out of money.

We want to help people minimize their income taxes, not just for the current tax year, but over their lifetime.  Part of this includes a discussion of Roth IRA conversions.  It also includes some common tax breaks that are not often taken.  We also discuss how some of us can get their taxes done for free.

And much, much more.  We want to help put together financial plans and invest for the future. Lack of planning is probably the primary root cause of most people’s financial difficulties. 

We want to help people find the right mix for their investments so that they do not run out of money if the (economic) weather turns bad suddenly.  We will also address different asset classes, such as precious metals, bitcoins, stocks, bonds, mutual funds, electronically traded funds (ETFs), private equity, housing and collectibles.  We will also discuss less common asset classes as well, such as puts and calls, leveraged investments and preferred stocks.  Many people have insufficiently diversified portfolios.  This places your investment stockpile at risk, and one unexpected downturn could wipe you out.

We will even include advice on nutrition and health.  After all, what good is having enough money if you do not live long enough to use it?  Also, understanding how long you may live can have an important effect on your decisions today.

That’s a very big pile of leaves.  Is it too much?  I don’t think so.  How can we get through them all?  Just like the leafcutter, one leaf at a time.