Home > No Penalties due to Safe Harbor

No Penalties due to Safe Harbor

March 14th, 2010 at 07:22 am

We went to our CPA today to have our taxes done. 2009 was an unusual year in that dh worked full-time and also received his pension for 6 months as part of a faculty early retirement program. I also worked part-time as a consultant and for the university. So the visit confirmed we owe a BIG chunk to both IRS and the Franchise Tax Board. We were not able to use any of the rentals as a write off due to income limits.

Because of safe harbor tax rules, we are exempt from an underpayment penalty because we withheld more than 110% than in 2008. Phew! In 2010, our income will drop but we still need to increase our withholding according to our CPA. I am learning that we will have very little we can itemize now that we're retired: property taxes, mortgage interest, charitable donations... and that's about it.

In 2010, we increased charitable contributions to include a large donation to a Guatemala school to be used for scholarships. But just as we thought, the CPA says it is not deductible because the school in Guatemala is not affiliated with a US charity. Back in January, we decided to donate to the school even though it might not be deductible, but it sure would have been nice.

7 Responses to “No Penalties due to Safe Harbor”

  1. patientsaver Says:

    I have often wondered what my bottom line will look like once i retire. It will be strange not to have all those deductions.

  2. Homebody Says:

    What am I missing. What do you mean you can't deduct rentals? And what am I missing, that's about all we deduct.

  3. monkeymama Says:

    I keep telling everyone that my retirees' taxes are absurd. No more deductions. I think I commented specifically to you, and you probably weren't terribly shocked. Hopefully I warned you a bit! (This week? A little old lady with about $30k income who paid more taxes than I did on about triple the income).

    Homebody - if you make above a certain income, rentals are not deductible. Also, no IRA or 401k deductions when you no longer work. (plus, most people have grown children and paid off mortgages, once they retire. So they can't itemize unless they are VERY charitable! & all the exemptions/child tax credits go away, etc. Presuming your child are grown when you retire).

  4. patientsaver Says:

    So for most people, the main deduction will be property taxes paid, right? And in my state, car taxes.

  5. Analise Says:

    patientsaver - Yes, for many folks property taxes would be the main deduction (assuming they have no mortgage). If I am correct, I think the feds allow property taxes to be added to one's standard deduction if you do not itemize. I know we include car taxes when we itemize, but don't know what happens if we don't, but I bet monkeymama] knows how that gets worked in.

  6. Analise Says:

    Note: I corrected my post to read "mortgage interest" instead of "mortgage insurance" (which I had written by mistake) in discussing write-offs for retirees.

  7. Joan.of.the.Arch Says:

    Our situation is very similar--early retirement w/pension, almost hit the penalty for not enough taxes withheld, consultant work, charitable contributions that are not 501-3c. Have to take care for 2010 to send in enough, as we also will be losing our dependent exemption. However, this is the first year we've ever been able to itemize. Our insurance and medical expenses went over the crest, and from here on out we will be able to itemize.

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