5 Things Your Taxes Bought for the Pentagon in October

Arlington, Virginia. An aerial view of the Pentagon.After the storm comes the calm.

As the clock ticked down toward the end of the Pentagon’s fiscal year on Sept. 30, Defense Department acquisitions specialists rushed to shovel money out the door, awarding contracts left and right in the final days of September. By the time all the dust settled, $34.76 billion in contracts had been awarded.

The month of October, by contrast, was relatively calm. “Only” $17.1 billion in contracts were handed out by the Pentagon last month. And thanks to the Defense Department’s open books policy, and its commitment to publishing all contracts of substantial size on the day they’re awarded, for public review, we know how much each of these contracts was worth, who won them, and what they bought for taxpayers.

Today, we’re going to review a few of the most interesting things that your tax dollars bought for the Pentagon last month, beginning with…

Zen and the Art of Drone Maintenance

In America and around the world, militaries are spending billions of dollarsannually to acquire unmanned aerial vehicles — “drones,” in the popular parlance. But buying a drone is just the first step. Once it’s bought, you need to keep the device tuned up and well maintained so it will work as expected. As it turns out, that’s pretty lucrative work in its own right.

In October, the U.S. Air Force awarded drone-maker Northrop Grumman (NOC) $204 million to perform maintenance and support, and to run logistics supply chains for its fleet of Global Hawk drones.

Holy Rollers

Unarmed drones such as the Global Hawk can be useful for spotting artillery strikes, advising Army artillerists on how to adjust their fire to hit their targets. Of course, you still need to buy the artillery in the first place. Last month, the U.S. Army awarded British defense giant BAE Systems a $245 million contract to supply it with 30 M109A7 “Paladin” self-propelled howitzers, and also 30 M992A3 tracked ammunition carriers to keep the Paladins well supplied.

Lebanese Fighters

Like it or not, arms sales are an international business. One contract that illustrates just how international the arms trade has become is a $172 million contract awarded to private U.S. defense contractor Sierra Nevada Corporation. In a contract spanning at least three countries, SNC will build six A-29 Super Tucano fighter planes in cooperation with Brazilian aerospace giant Embraer (ERJ). The U.S. Pentagon will then broker a sale of these fighters to the Lebanese military in what the government refers to as a “foreign military sales” contract.

Missiles From Heaven

Yet another aerospace giant, this time America’s own Lockheed Martin (LMT) landed a $305 million contract in October. The funds will be used to purchase an unspecified number of Lockheed’s new Joint Air-to-Surface Standoff Missiles for the U.S. Air Force. Armed with 2,000-pound conventional warheads, these missiles are designed to be launched from U.S. B-1, B-2, and B-52 strategic bombers, and from tactical fighter jets such as the F-15, F-16, and the new F-35 stealth fighter jet.

And Bombers From Boeing

Lockheed Martin’s archrival in the U.S. is aerospace giant Boeing (BA). Best known for its Boeing 737, 747 and 787 commercial jetliners, Boeing is also a big name in the defense world. Last month, Boeing landed a monster $898 million award to supply the U.S. Navy with 15 EA-18G Growler electronic warfare aircraft “and associated airborne electronic attack kits.” Designed to knock out enemy radar and anti-aircraft defenses before an attack, the Growler is a derivation of Boeing’s vaunted F/A-18 Hornet. Together, these two aircraft make up the bulk of naval aviation aircraft flying for the Navy today.

Of course, these awards represent only a small sampling of the hundreds of contracts your tax dollars funded last month. To see the rest, check out the U.S.Department of Defense contracts website.

Which States Tax Social Security Retirement Benefits?

Portrait of senior man in front of homeBuild a sizable nest egg? Check. Purchase a new set of golf clubs? Check. Plan for taxes on your retirement income? Chhhh … Wait a minute. Plan for what?

Lots of retirees are surprised by the big bite that taxes can take out of their savings . And depending on where you live, the tax hit can be especially painful. In fact, some states even tax Social Security benefits , the most important source of income for many retirees.

The 13 states that tax Social Security are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

But just because a state taxes Social Security doesn’t mean it’s a bad place to retire. Overall, Colorado and West Virginia are actually tax-friendly places to live in retirement despite the tax on Social Security. Weigh a state’s entire tax picture — from income tax to sales tax to property tax — to better understand how your money will be taxed and how you can budget for those costs.

Kiplinger’s tax maps can help. Check out the most tax-friendly states for retireesand the least tax-friendly states for retirees to identify your best place for retirement.

Wireless Bills Falling, but You Still Pay More for This

woman shocked at reading her credit card bill / bank statementYour wireless bill may have fallen in recent years, but costs are increasing in one area.
The taxes and fees tacked onto wireless bills have increased in all but one state this year — and increased to a record high average, the Tax Foundation reports.

Federal, state and local fees now amount to nearly 18 percent of the average U.S. wireless customer’s bill, an increase of about 1 percent from last year and “almost two and one half times higher than the general sales tax rate imposed on most other taxable goods and services,” the foundation reports.

The nonprofit research and educational group explains in a blog post:

Wireless industry competition has led to significant reductions in average monthly bills, even as consumers get new and expanded wireless plans. However, the consumer benefits of lower wireless prices have been partially offset by increases in government taxes and fees.

From 2008 to 2015, for example, the average monthly wireless bill decreased from just under $49.94 to $46.64, or nearly 7 percent.

But going back to 2003, the combined federal, state and local burden increased from an average 15.27 percent to 17.96 percent.

The only state that didn’t increase its wireless taxes this year is Florida. The governor and Legislature opted to reduce Florida’s Communications Services Tax to 7.44 percent from 9.17 percent, which the Tax Foundation reports will provide more than $100 million in tax relief for wireless customers and businesses in the Sunshine State.

Partially as a result of that decrease, Florida is no longer among the five states with the highest wireless taxes, but it remains among the top 10 states:

  1. Washington – 25.15 percent
  2. Nebraska – 24.99 percent
  3. New York – 24.36 percent
  4. Illinois – 23.92 percent
  5. Missouri – 21.25 percent
  6. Rhode Island – 21.16 percent
  7. Florida – 21.12 percent
  8. Arkansas – 20.77 percent
  9. Pennsylvania – 20.60 percent
  10. Kansas – 19.99 percent

You’re Running Out of Time for Your 2015 Tax Planning

Person filling tax returns before deadlineA few months ago, we suggested getting your tax strategy together before it was time to panic.

Well, it’s time to panic.

We’re less than a month to the end of 2015 and any plans you have to lessen your tax hit by the end of the year should probably be implemented now. Rebecca Pavese, a certified public accountant, financial planner and portfolio manager with Palisades Hudson Financial Group’s office in Atlanta says that, at the very least, you should be calculating your income, tax payments and deductions to date, and estimating your totals for 2015.

“You need this baseline information before making any moves,” she says.

Once you’ve done that, the easiest way to save is by reducing your taxable income. Bankrate’s (RATE) Kay Bell notes that boosting your retirement savings can be particularly helpful. If you haven’t made your maximum $18,000 contribution 401(k) ($24,000 for people age 50 or older) or $5,500 contribution for an IRA ($6,500 for people age 50-plus), now is the time.

“If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford.

“If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford,” says Bill Ringham, vice president and senior wealth strategist at RBC Wealth Management. “You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Your earnings also grow on a tax-deferred basis.”

Ringham also notes that 529 plan contributions are tax deductible in several states, so contributing to your kid’s college fund will allow your earnings grow tax-free, provided they are used for qualified higher education expenses. Just make sure it’s going toward college, however, as distributions not used for qualified expenses may be subject to income tax and a 10 percent penalty. Meanwhile, it’s also time to take inventory of your other investments in 2015 … and root for the losers.”Tax-loss selling can minimize or eliminate capital gains on one asset by realizing a loss to offset it,” Pavese says. “There’s dollar-to-dollar offset. If for instance you’ve had $5,000 of capital gains, you can offset them completely with $5,000 of capital losses.”

The best part is that you can carry those tax losses forward indefinitely. If you don’t need those losses to offset capital gains right away, you can use the excess loss to offset gains in a future year. That’s particularly helpful since net capital losses (capital losses minus capital gains) can only be deducted up to a maximum of $3,000 in a given tax year. Any losses beyond $3,000 must be carried over, which also makes it worth your while to consider putting off selling some of your “winners” until next year.”

“Capital gains can increase your adjusted gross income — and, consequently, your tax bill,” Ringham says. “So if you are considering selling an asset that has increased in value, such as a stock, you may want to wait until January so the gain will be realized next year.”

If you’re in a really desperate situation, there’s also a chance you can just give some of those investments away. Highly appreciated stocks or mutual funds you’ve owned for more than one year can go directly to a charity, so if you’ve purchased shares for $1,000 and they are now worth $10,000, giving those share to a qualified charity would give someone in the 28 percent tax bracket a $2,800 tax deduction, based on the current market value of the donated shares.

“You benefit three ways,” Pavese says. “First, you’re doing good. Second, you won’t pay the capital gains tax you’d owe if you sold the security instead. And third, you’ll get a deduction if you itemize.”

Once all of that is complete, you’ll want to consider doing some housekeeping.

Bankrate’s Bell suggests homeowners submit January mortgage payment and property taxes by Dec. 31 so they can deduct the interest for 2015. Also, if you haven’t taken advantage of your flexible spending account for health care, now is a great time to schedule doctor’s appointments or buy eligible supplies ranging from glasses to knee braces to cold medicine. Pavese, meanwhile, suggests filing a new W-4 form with your employer and adjusting your December tax withholding just to keep from running afoul of penalties and interest. However, just about anything you can do to lower your adjusted gross income is helpful.

“Lowering your income has many potential benefits,” she says. “If you can lower your taxable income to below $74,900 for a married couple filing jointly or $37,450 for a single filer, you will pay zero percent federal tax on sales of assets you’ve held longer than one year and zero percent on dividends. Even if you can’t get your taxable income quite so low, you may be able to lower it enough to step down to the next lowest capital gains tax rate.”

Lowering income can also lower deduction hurdles that are calculated as a percentage of that income. For example, unreimbursed medical expenses can only be deducted if they exceed 10 percent of adjusted gross income, and investment expenses must exceed 2 percent. However, if you can’t adjust to a desirable level for 2015, now is the time to start banking deductions for 2016. Pavese suggests that, instead of paying your estimated quarterly state income tax by Dec. 31 and deducting it on your 2015 return, you can pay it Jan. 1-15 and get a 2016 deduction. Also, if an additional deduction would trigger alternative minimum tax, pay your fourth-quarter state income tax and real estate tax installment in January.

“If your bracket will go up next year, consider deferring certain deductions, such as state taxes and real estate taxes, so you can claim them on your 2016 return,” Pavese says. “The higher your bracket, the more the same deduction can save you.”