Taxes are killing me

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gypsydogg
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Taxes are killing me

Post by gypsydogg »

Every year since we got rid of our properties, we have owed Federal taxes. We even claim 0 deductions and we still owe in Federal taxes. I guess we just make too much money, so it's time to re-think our strategy.
I just thought of something. If we claim tax exempt or maximum deductions, and use the money that would have been withheld for taxes to invest it into a business or real estate, will that work out financially. My first guess is no because we would still owe 33% for our income, but what would be the best way to use what was supposed to be tax witholding for real estate/business purchase.
dad2000
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Re: Taxes are killing me

Post by dad2000 »

Are you fully utilizing the easiest methods for deferring taxes like 401k, IRA, HSA, etc.?
Grt2bOutdoors
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Re: Taxes are killing me

Post by Grt2bOutdoors »

Not enough information to provide a reasonable response to your "vent". If it's any consolation, join the crowd. Given the alternative, I will gladly pay taxes for earned income.
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Bgl_Hd
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Re: Taxes are killing me

Post by Bgl_Hd »

I would check out the withholding calculator at irs.gov to assist in completing a new Form W-4. Since it sounds as though you and your spouse both work, you may wish to update your W-4 to reflect that you are married but wish to have payroll withhold at the higher single rate.
Last edited by Bgl_Hd on Fri Apr 24, 2015 10:06 pm, edited 1 time in total.
livesoft
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Re: Taxes are killing me

Post by livesoft »

See where you stand with respect to others paying taxes by looking at this poll on tax rate: https://bogleheads.org/forum/viewtopic.php?f=2&t=163748

Are you paying more than your fellow taxpayers?
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mhalley
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Re: Taxes are killing me

Post by mhalley »

First world/good problem to have.
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obgyn65
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Re: Taxes are killing me

Post by obgyn65 »

I also pay a lot of taxes. Never got any payment back from the IRS in my whole life. Do I like it ? No, but I am happy to retire this year, at age 50.
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cadreamer2015
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Re: Taxes are killing me

Post by cadreamer2015 »

Sounds like you need to make estimated tax payments. Join the club.
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The Wizard
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Re: Taxes are killing me

Post by The Wizard »

gypsydogg wrote: I just thought of something. If we claim tax exempt or maximum deductions, and use the money that would have been withheld for taxes to invest it into a business or real estate, will that work out financially...
Where do you get the idea that this scheme would be remotely legal?
You can invest your money wherever you want, but you still have to pay your income taxes on an as you go basis, at least quarterly.
Owning a rental property does allow you to claim some depreciation, possibly reducing taxes depending on rent received, etc.
Methinks you should sit down with your CPA and discuss your options...
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gd
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Re: Taxes are killing me

Post by gd »

gypsydogg wrote: We even claim 0 deductions and we still owe in Federal taxes.
This suggests you might want to adjust your cash flow to make it less stressful. When your circumstances make W2 withholding inadequate, you are required to make estimated payments up to what you think your tax liability will be. That also eliminates the psychologically stressful situation of writing a big check in April. My estimated quarterly payments have been larger than my withholding for maybe 15 years; it's a good problem to have. And I've never even come close to the tax rate I paid to foreign countries while living overseas-- my comparative experience is that it's mostly good value for the money. And the things you don't approve of your neighbor considers essential, and vice versa. When everyone is equally disgruntled, it's about right.
dhodson
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Re: Taxes are killing me

Post by dhodson »

My radar goes up when a first time poster talks about tax avoidance.
The Wizard
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Re: Taxes are killing me

Post by The Wizard »

dhodson wrote:My radar goes up when a first time poster talks about tax avoidance.
OK, but in this case it SEEMS to be naivete, to me anyhow...
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tomd37
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Re: Taxes are killing me

Post by tomd37 »

You cannot claim "tax exempt" on your W-4. You are not exempt from federal tax. :oops:
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wander
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Re: Taxes are killing me

Post by wander »

You can always instruct payroll to withdraw more each paycheck for Federal & State taxes. Very simple.
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Kosmo
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Re: Taxes are killing me

Post by Kosmo »

If you post actual numbers it would be more helpful than asking about abstract concepts. There are a lot of people here who know tax strategies and implications very well (I'm not one). For starters, project your income, tax liability, and tax withholding for 2015. Make W-4 adjustments to increase your withholding as close to your liability as possible. If you're still significantly under withholding, then you'll have to make estimated payments (or come back here with more details and ask more concrete questions).
JW-Retired
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Re: Taxes are killing me

Post by JW-Retired »

gypsydogg wrote: Every year since we got rid of our properties, we have owed Federal taxes. We even claim 0 deductions and we still owe in Federal taxes. I guess we just make too much money, so it's time to re-think our strategy.
I think your complaint is just you are under withholding so you still owe tax when you file your 1040. So withhold more. Line 6 of your W-4 form allows to add an additional $ amount you want withheld from each paycheck.
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LadyGeek
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Re: Taxes are killing me

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (taxes).
gypsydogg wrote:... I just thought of something. If we claim tax exempt or maximum deductions, and use the money that would have been withheld for taxes to invest it into a business or real estate, will that work out financially. My first guess is no because we would still owe 33% for our income, but what would be the best way to use what was supposed to be tax witholding for real estate/business purchase.
gypsydogg - Welcome! There are two points of distinction that need to be made very clear.

The first one is called tax avoidance, meaning to figure out how to pay the minimum amount of taxes. Tax-deferred accounts, such as IRAs and 401(k)s are good examples. We spend quite a bit of time on this one.

The second one is called tax evasion, meaning your actions are illegal. Bypassing IRS regulations to avoid paying taxes is tax evasion. We have zero tolerance for this.

However, if someone doesn't understand IRS regulations and wishes to know how to do things correctly, we will teach them the proper way to do so.

The answer to your question is No. You can't reduce your withholding because the IRS is a pay-as-you-go system. Here's the IRS discussion: Topic 306 - Penalty for Underpayment of Estimated Tax
The United States income tax is a pay-as-you-go tax, which means that you must pay tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you do not pay your tax or you pay an insufficient amount of tax through withholding, you might also have to pay estimated taxes.
You've been given a few suggestions on how to adjust your withholding. Do they make sense to you? If not, please say so and we'll try again.
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JonnyDVM
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Re: Taxes are killing me

Post by JonnyDVM »

cadreamer2015 wrote:Sounds like you need to make estimated tax payments. Join the club.
Second that. Many on this forum pay a lot of taxes. Maximize tax advantaged space. Focus on tax avoidance. After that pay your fair share.
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lhl12
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Re: Taxes are killing me

Post by lhl12 »

JonnyDVM wrote:
cadreamer2015 wrote:Sounds like you need to make estimated tax payments. Join the club.
Second that. Many on this forum pay a lot of taxes. Maximize tax advantaged space. Focus on tax avoidance. After that pay your fair share.
Third that.

"Rightful taxation is the price of social order. In other words, it is that portion of the citizen’s property which he yields up to the government in order to provide for the protection of all the rest. It is not to be wantonly levied on the citizen, nor levied at all except in return for benefits conferred." - Committee report to the State Senate of Ohio, 1852
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TomatoTomahto
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Re: Taxes are killing me

Post by TomatoTomahto »

I have told this story before, but I think it's appropriate here. With apologies to those who've read it before.

My father was an immigrant who came to the US at 50, not speaking much English, with kids and a wife. He mopped stairs at night in order to get a rent reduction, and he worked during the day as a clerk. He improved his financial position through the years, and he retired not rich, but having put kids through college full-pay and having a comfortable retirement.

He wasn't a fool, and he didn't want to pay any more in taxes than he had to. One year, he came to me and very proudly told me that he had paid more in taxes that year than he had made, total, the previous year. He was forever grateful that this country had given him a second chance and he never begrudged paying his fair share.
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sawhorse
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Re: Taxes are killing me

Post by sawhorse »

I second the idea of increasing your withholdings.

You can also make quarterly estimated payments, but that is more work. However, if the amount you would need to increase your withholdings would prevent you from having enough to contribute the maximum to your employer retirement account, then go with quarterly payments.

There are a lot of details and information we would need to know to assess your possible plan. The best idea is to go to a good CPA or tax attorney.
yosh99
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Re: Taxes are killing me

Post by yosh99 »

Ex-Minnesota Twin Kirby Puckett once said, "If I'm paying so much in taxes, I must be doing pretty well."

Paying taxes isn't "killing you". There are worse maladies.
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