Luckily for us, it wasn’t too much bad news. It was simply that we owe about $1,400 in taxes. The good news is that we may be able to avoid $1000 of this if I simply contribute $4000 to a traditional IRA for last year. I had already thought about contributing to a Roth for 2006 but had ruled it out for multiple reasons (see this post). The opportunity to avoid about $1000 of taxes changes the picture. Ideally we are using the majority of our savings right now to build an emergency fund. However, by contributing the majority of our savings to an online savings account we have been focusing a little too much on the short term given the historical yield of the stock market.

I have been hesitant to invest lump sum the market right now as it seems to be teetering near a peak. This however, has forced my hand as I am not about to send an extra $1000 to Uncle Sam when I have $4000 sitting in a savings account. Ideally this should be a no brain-er but I am still a little gun shy from my past investing experiences.

The next 30 years should tell me if this was a good investment or not.

The following year since I didn’t find Turbo Tax overly helpful I just did my taxes for 2005 with pencil and paper. For a single guy with no reason to itemize it was very straight forward. It did feel a little odd to be using paper after filing the prior years return on-line.

This year will be different. I will be having a “tax professional” preparing our joint tax return for 2006. There are two reasons for this:

1. The main reason is my wife and I will be filing a joint return this year since we were married at the end of 2006. My wife’s job enables us to use some deductions that I do not know very. To complicate this, in my wife’s quest to keep our tiny apartment clean she also tends to throw everything out. Because of this we do not have many receipts or records of a lot of the expenses that I think we will need. In an attempt to keep my sanity I will let a professional try to figure the mess out.
2. The second reason and just as important is that this year happens to be one of the busier years of my training. Attempting to read new sections of the tax code while being sleep deprived doesn’t strike me as a good idea.

Hopefully after this return is done and when my schedule returns to something resembling normal I will be able to do our 2007 return without any help.

As I skimmed the article something significant did catch my eye: My wife and I happen to fall near the lowest real tax rates on the chart.

I don’t know what to make of this information without the details but it is nice to know that I am not having all of my earnings being garnished in the form of some tax. This does bring up the question why does a 30y/o couple making around $50,000 a year have the lowest real tax. In fact if you look at the chart the lowest real tax rates fall in the 50,000-$100,000 range which would likely be considered the upper middle class.

If you happen to be someone who champions help for those who are worse off than we are then it really gives you some ammo to work with. Without better details however these are only generalizations. These differences probably result from different consumption taxes like “sin taxes” which tend to affect the lower class population more than the upper classes.

Like everything in life nowdays… the devil is in the details