Friday’s Frugal Five, Tax Edition: Five Ways We Minimized Our Tax Bill

I filed our taxes this week!  Yes, I’m a super nerd who enjoys plotting and scheming and figuring out my deductions.  And we usually get our taxes done early so we can sock away our tax refund.

In the personal finance community, there is a lot of this:

“You don’t want a tax refund!  Don’t give an interest-free loan to the government!”

I get that.  It’s a logical argument.  But I’m firmly in the “I enjoy getting a refund” camp, for a couple of reasons.

  1. The money that I’m getting in my refund probably wouldn’t have been invested anyway; it would have been squirreled away to my emergency fund, which is a high-interest savings account.  I’m not exactly earning lots of dollar bills on that.
  2. There is a psychological boost that comes with getting a small chunk of ‘extra’ money.  It’s a way to put a significant dent in a loan, set aside funds for a house improvement or family vacation, or replenish an emergency fund.  (We don’t spend our refunds frivolously; for someone who would be tempted to do so, a refund might not be the greatest idea.)

Here are five ways we minimized our tax bill for 2017:

  1. We contributed to tax-advantaged retirement accounts.
    • The hubby and I both contribute to 401(k)s at work.  We didn’t max them out in 2017, but we definitely contributed more than either of us ever had in the past.  (My goal is to max mine out this year!)  This money was all contributed pre-tax.
    • If you have a 401(k) at work, you can still deduct a contribution to a traditional IRA if you meet certain income limits. I wasn’t sure exactly where our modified adjusted gross income (MAGI) would land in 2017, so I waited until tax time to do the analysis.  I ended up making a partial contribution for the 2017 tax year, and funded it as I filed my taxes.  I’ll use the refund money to replenish the funds I put in the IRA.  Plus, the IRA contribution reduced our taxable income even more, leading to a bigger refund!
  2. We used FSA and HSA accounts.
    • Since I had our daughter last year I knew that I would have to pay quite a bit of out of pocket expenses against our medical plan, so I maxed out my flexible spending account (FSA) at work.  FSA contributions are free from Medicare/Social Security, federal, and state taxes!  The caveat is that FSA money is “use it or lose it” – so you have to be certain you will use up the funds in the year you contribute them (there is also a small grace period to use up FSA money the following year).
    • I don’t have a Health Savings Account (HSA) at work, but my husband does.  HSAs are used in conjunction with high deductible health plans.  This money is also pre-tax and the best thing about an HSA is that the money is portable.  You can take it with you if you leave!
  3. I contributed to a Dependent Care FSA.
    • If your employer offers it, you can fund a dependent care FSA up to $5,000 a year.  Dependent care FSA contributions are also free from Medicare/Social Security, federal, and state taxes.  When you factor in our marginal tax rates, this income would otherwise be taxed at nearly 39% – so this is a ton of tax savings.  You need every little bit when you pay as much for daycare as we do!
    • If your employer doesn’t offer a DCFSA, you may be able to claim the dependent care tax deduction.  You can’t double dip on this with the FSA, but if you have more than one child you may be able to claim costs that are above the $5,000 DCFSA limit.
  4. We itemized our deductions.
    • We used some of the common deductions – property taxes, mortgage interest, and charitable contributions – to itemize rather than take the standard deduction.  The larger the deduction, the smaller the taxable income, which means a smaller tax bill.  With the tax reform changes, 2017 is probably the last year for the foreseeable future that we’ll be able to itemize.
  5. We received the child tax credit.
    • Really there isn’t anything to do to claim this credit other than have a kid.  But there is an income limit on it, so by utilizing some of the options listed above, we reduced our MAGI enough to ensure that we got the full $1,000 credit.  The best thing is that a tax CREDIT is a dollar for dollar reduction to your tax bill.  (FYI: the income limits for the child tax credit have increased significantly for 2018 with the tax reform, so more earners with kids will be eligible for this credit.)

Do you enjoy or dread doing taxes?  What did you do in 2017 to reduce your tax liability?

12 Items in 2018

Buy nothing pledges are ubiquitous in the personal finance/minimalist blogosphere.  Britt at Tiny Ambitions is doing a 2018 shopping ban.  So is the Happy Philosopher.  The only clothing item Mrs. Frugalwoods has bought in the past 4 years is a pair of muck boots – she didn’t even buy maternity clothes for her two pregnancies!  Tread Lightly Retire Early is starting her second year of a clothes buying ban.

I’m not ready to make a pledge to ban all clothing purchases for myself for a year.  (I do enjoy being able to add a new thing to my wardrobe on occasion!) But I do want to be a conscious consumer.  So I’m doing a 12 Items in 2018 challenge.  I plan to buy 12 (OR LESS!) clothing related items this year.

Why?

  • I already have plenty of nice clothes.
  • I wear the same clothes over and over again anyway.
  • To encourage me to mend that small pile of clothes sitting in my closet and take good care of the clothes I already own.
  • To be more intentional in my purchases.
  • To lessen my environmental impact.
  • And of course, minimizing shopping helps the wallet, too.

What gets counted?

  • Shirts, sweaters
  • Pants, jeans, skirts, shorts
  • Dresses, skirts
  • Accessories (scarves, hats, belts, etc.)
  • Outerwear/coats
  • Shoes
  • Jewelry
  • Handbags, wallets
  • Loungewear
  • Workout gear

What I’m not counting in the total:  underwear, socks, free t-shirts from any races I complete this year.

Since I did the Uber Frugal Month Challenge in January, my current total for the year is ZERO clothing items purchased.

Who wants to join me?  What is your WHY for limiting your purchases in 2018?

What I Learned from the Uber Frugal Month Challenge

In January I decided to partake in the Frugalwoods Uber Frugal Month Challenge as this was the last opportunity before it goes on hiatus.

I really didn’t know what to expect; I went in with an open mind to see what I could learn.  Now that the month is complete, here are my biggest takeaways:

My basic frugality skills are solid.

As I read each daily e-mail, I realized that I’ve already done a lot of work to get back to a frugal mindset in the past year or so.  I have cut back on clothing/shoes purchases, pack lunch for work 4’ish days a week, actively shop the ads at our grocery store, think before purchasing things impulsively.  Since we have a toddler, our travel and entertainment budget is pretty minimal (we don’t go out much).  We even hosted a frugal birthday party for our daughter, which was both inexpensive and low stress.

I also used the challenge as an opportunity to “go without” some small luxuries for a month as a reset.  For example, I didn’t buy anything on Amazon or Target and didn’t purchase any coffee away from home.  (How did I manage to go a whole month without setting foot in Target?)

Could I have cut my discretionary expenses even more during the challenge?  Definitely.  But overall I feel we have a solid foundation in frugality.

 

We have a lot of ‘big rocks’ in our spending

These are our 3 big rocks:  Mortgage, Daycare, and Retirement Savings.  I just added up in my head what these three line items amount to, and it’s pretty ridiculous.  In fact, January was a 5-week daycare month so that expense was nearly as much as our mortgage!  We also had an unexpected plumbing expense in the middle of the month.

When so much of your monthly budget is consumed by a few big things, it can be discouraging; why even bother cutting back on the $5 lattes or $10 lunches? But these are the only changes that will make an impact for us in the short term.

You can’t force frugality upon someone else.

I started the month trying to rope my husband into this challenge, thinking it would be fun to do it together.  One of the first UFM e-mail topics related to goals.  I set out to have a conversation with the hubs about our frugality and future life plans.

Well…I kind of forgot that my husband hates goal setting and thinking about the future and really anything that constrains his behaviors artificially.   (We are very different souls.)  I kept pushing on it and we both felt miserable at the end of the discussion.  So I took a step back and remembered I can only manage my own behaviors.

“You cannot effectively shove ANY philosophy, world view, religion, or way of life down someone else’s throat. The best you can do is live out the shining example of your financial certainty. People will notice.”  -Mrs. Frugalwoods

Do I wish my husband would spend less money going out to lunch during the week?  Yes.  Is that a hill I want to die on?  NOPE.  So I’ll carry on by eating leftover black bean soup three days in a row.  You know why?  Because I CHOOSE to do it, and it doesn’t feel like a sacrifice.  (That was some damn good soup if I do say so myself.)

My husband is generally open to listening to my points about frugality when I make non-judgmental remarks in passing conversation, so I’m going to continue using this approach.

 

There is a season for saving and a season for spending.

January is the perfect month to focus on frugality.  Everyone is burned out from the holidays and trying to get back into a regular routine.  However, it can be really easy to get in a NO FUN RUT where you never let yourself splurge on anything.

This path to financial independence?  It is not a short one, at least not for us.  Some fun things need to be sprinkled in there to keep up the morale.  The key is to find a balance and spend money on things that you value.  I’m loosening up the purse strings just a little in February.

“There are seasons for blowing money like a dope, and seasons for saving like a coupon-clipping maniac. Finding your balance is key.”  –Abandoned Cubicle

Who should do the UFM Challenge?

I was a surprised to discover I didn’t learn much new information from the daily e-mails.  Maybe that’s because I’ve been reading the Frugalwoods blog for a while now and am already familiar with many of the great tips offered through the challenge.

I think the ideal target for the UFM challenge would be:

  1. Someone who is early in their frugality journey and still building their skills (this would be a great Frugality 101 class);
  2. Someone who likes/needs group accountability (there was a lot of discussion on the Facebook group, though I didn’t participate personally);
  3. Someone looking to do a frugality “cleanse” – a previously frugal person, who has encountered some lifestyle inflation and is wanting to reset habits

Have you done the UFM challenge?  What did you learn about yourself?  How do you talk frugality with your significant other?

Friday’s Frugal Five

It’s Frugal Friday y’all!

Some frugal things for this week:

  1. Used my Discover card when I bought a tank of gas.  Gas is one of the 5% cash back categories this quarter!  That was like an extra DOLLAR of cash back, people. 🙂
  2. Those extra dollars add up to…more gift cards I can buy.  I get $50 Chipotle gift cards for $45 in cash back.  I used one of those cards yesterday to have a “free” lunch with my friend.
  3. The other 4 days this week I packed lunch.
  4. For coffee at work I usually fill up a reusable K-cup canister from the bag of coffee I have stashed beneath the team Keurig.  However, yesterday I went to our Starbucks cafe at work with my friend as a treat (and to stave off sleepiness from my restless child’s lack of sleep the night before).  Instead of buying a latte, I bought an Americano and added a little cream.  This hack usually saves at least $1.50.  Also? Because it’s an infrequent splurge, I REALLY enjoyed it.
  5. Last year I bought small Christmas gifts for our daughter’s daycare teachers.  Each teacher got a favorite drink and snack along with a Target gift card.  Well, one of those teachers was on maternity leave at Christmas and decided not to come back to work.  I’ve been holding on to the gift and now realized that I can reuse that Target gift card.  Looks like I’ll be buying some “free” paper towels and Kleenex this weekend!

I’m also very happy to report there were no outrageous unanticipated household expenses this week so I feel really good about the week’s spending.

How was your week?

Friday’s Frugal Five (or FAIL?)

AHHHHHH Friday.

This week’s recap feels like more of a Frugal Fail than a Frugal Five.  But here’s how it went:

  1. The big frugal fail was an unplanned house expense.  My husband started off doing something very frugal: he tried to fix our leaky shower head.  (He’s actually pretty handy around the house.)  Unfortunately things went awry and then the main water valve shutoff to our house BROKE.  Yup, not a whole lot you can do there that doesn’t involve calling a plumber.  That was an unexpected 4-figure expense.  Sometimes that’s the reality of being a homeowner, but it was still frustrating.  Luckily we have a healthy emergency fund for just this purpose, should we need to tap into it.
  2. Everyone in our house was sick at some point this past week!   My husband was actually at home from work Monday when the whole plumbing debacle happened, and I felt terrible because he had taken the day as a sick day to get more rest from the cold/flu he had over the weekend.  Right about the time the plumber left I showed up at home, as I had received a call from the daycare to pick up our sick child.  Luckily, the family sickness didn’t derail our spending much.  When I was home with the baby Tuesday I ate leftovers for lunch, and when my husband was home with her on Wednesday he made a box of mac and cheese that we had in the pantry.  AND, I had a banana that was past it’s prime that was perfect for putting in a smoothie that I made for our feverish little one.  Sick babies are soooo sad!  Luckily everyone is on their way back to 100% health now.
  3. Stocked up on snack provisions at work to avoid visiting the vending machine or running to the work cafe for a snack or treat.   (See photo)
  4. We received two gift deposits to our daughter’s 529 account this month for her birthday.  Yay for family members who are willing to support our financial and lifestyle goals!  Our daughter definitely didn’t need any more “stuff” so the 529 gifts were perfect.
  5. We had fajitas a couple nights ago for dinner.  There was just a smidge left over that I stashed in the frig for lunch today, saving me from having to buy lunch out.

It feels defeating to be writing about such SMALL WINS, like eating leftover fajitas rather than spending $5-10 on a lunch from the work cafe, in a week where we had such a LARGE unexpected expense.  But I have been reminding myself this week that small savings daily, on important categories of our lifestyle, lead to large savings over time.

How was your week?  Has your household been battling sickness this season too?

Friday’s Frugal Five

Tread Lightly, Retire Early has been one of my inspirations for doing the Friday Frugal Five.  I’ve been at a bit of a loss for inspiration on what to write about next, so recapping my money wins for the week is a quick way for me to stay engaged with both the blog and my financial accountability.

  1. Mrs. Groovy pointed out in a post this week that she gets excited when the library notifies her that a new book is checked out and waiting for her.  I am the same way!  My library has a great selection of e-books, so I just put a few on hold at a time, then patiently wait until one is available to check out.  Typically a new one will be available by the time I’m done reading my current book.  I finally got a book this week that had been on my holds list for a couple months.
  2. I gave away almost all of my maternity clothes to a friend last year, but I kept one black sweater.  I’m actually wearing it today!  It doesn’t look like a maternity sweater at all, which is why I kept it.  Also, I don’t thrift shop very often, but I did buy a few things that way when I was pregnant.  This sweater was purchased secondhand for $8.
  3. I only went out to lunch one day this week and it was a pre-planned lunch with a work friend I don’t catch up with enough.  The other four days I packed lunch from home.  I had the same meal THREE times – a leftover black bean soup that I made on Sunday.  Luckily it was delicious, and I also mixed it up by bringing a few different snacks/sides to go with the soup.
  4. That black bean soup I just mentioned?  It was made with a $1.29 bag of dry black beans, an onion, and some carrots/celery/spices I already had at home.  Cheap, filling, and nutritious.
  5. The cold snap we had this week made me realize the parts of my wardrobe that are lacking.  A specific example would be my lack of thick, warm socks.  Since I’m doing the Uber Frugal Month Challenge, I did not immediately go buy new socks.  I made do by doubling up on my thin socks.

What financial wins did you have this week, small or large?

Life Lessons from my Toddler’s First Birthday

My baby turned one last week!  I’ve been trying to call her a toddler, because she really isn’t a baby any more, but it’s quite an adjustment.  It is amazing how much a tiny human changes in 12 months.

The ‘Party’

When it came time to think about her first birthday party, I knew I wanted to keep it low-key, especially since it falls so soon after the holidays.  The Frugalwoods party for Babywoods’ first birthday was an inspiration and validated that yes, it really is okay to have a simple celebration for your one-year-old.  For me taking this approach was  mostly about simplifying life and not creating unnecessary stress to put on an event that our child won’t even remember.  (Saving $$ was a bonus!)

Our siblings and my mother-in-law do not live close to us, so the guest list consisted of me, my husband, my daughter, my father-in-law, and my mom.  Unfortunately, my mom was sick, but we finally figured out Skype and she was able to join us virtually!

Our party agenda consisted of lunch, opening presents from Grandpa, and of course eating CAKE!  Because first birthdays are all about the cake smash, right?  I made the cake myself…and it was actually kind of fun.  It turned out like a strawberry shortcake since I put fruit on top and made a whipped cream icing.

Parenting and Relationships

A moment from last weekend really made me reflect on how our relationships with our parents have grown during our child’s first year.

My father-in-law is not a man of many words, but I have loved watching his face light up when he interacts with our daughter.  For her birthday, his gifts consisted of some classic books that belonged to my husband as a child, including Raggedy Ann, Raggedy Andy, and The Little Engine That Could.  The titles also included a book of poems.  He commented that he enjoys poetry and hopes it will be something she enjoys, too.  My heart melted a little when he said that.  Not only were his gifts frugal and useful, but they were incredibly heartfelt.

I already had a good relationship with my mom, but this past year I have valued her even more.  My mom was truly meant to be a grandma.  She is a nurturing, caring person by nature and also by career – she works in public health and deals with kids all the time.  Though my mom does not have the financial means to spoil our daughter the way I’m sure she would like to, there is ZERO need from our perspective for her to do so. The best gift she can provide is her time and attention.  Though she lives 2 1/2 hours away, we have focused on making sure we spend as much time with her as possible so that she can see her granddaughter grow and develop.

Fellow parents – what unexpected lessons did you learn from your child/children’s first year?

Friday’s Frugal Five – New Years Edition

5 ways I’ve worked my frugality muscles this past week:

  1.  We are participating in the Uber Frugal Month Challenge!  I use the term “we” loosely…it’s really me, trying to sprinkle a few ideas over to my husband.  It has been an interesting exercise so far, as he operates a lot differently than I do.  There may be more to say on this later in the month as we see how the challenge plays out.  Stay tuned!
  2. Related to #1, we are focusing on reducing our food spend outside the house this month, so we each have a set budget.  I brought leftovers to work for lunch Tuesday, Wednesday, and Thursday.
  3. I work in finance for a publicly traded company.  Once a quarter, when lots of people are super busy doing the accounting close for the quarter, they do a free lunch for the organization.  It’s not great food (our work cafeteria caters it), but it’s not terrible either.  Free food tastes better, right?
  4. Pork shoulder was on sale last weekend at the store so we did a pork shoulder in the slow cooker.  We had it for two different meals already (nachos and pulled pork sandwiches), still have leftovers in the frig, AND I froze some for a future meal.  Winning!
  5. With the cold snap we’ve been experiencing it’s been more noticeable how different the temperature is on different floors of our house.  The upstairs may be toasty, while the downstairs (where the man cave resides) can be a little frigid.  My hubs asked last weekend about buying a space heater.  Guess what?  I already own one, from before we got married!  I dug it out of the garage and he happily started using it.

How have you started off the year?

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