Taxes owed 2016 as % of AGI?

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ERMD
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Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 3:55 pm

Just preliminarily crunched the numbers for 2016, and our total tax is 155k (125k Federal, 30k State) on 450k income, or 35% of our AGI. This is a massive jump for us, as our salary was significantly lower in 2015 (paid 60k total tax on 260k income, or 23% of AGI). We maximize contributions to 403b, 457, 529, backdoor Roth. Not sure what else we could be doing to lower our tax burden.

Anyone else in a similar tax bracket care to share their total tax as % of AGI (%tAGI)? I would love to feel like we're not doing something majorly wrong here. I know we're in the 35% tax bracket, but my assumption was always that, since this is on the margins, your %tAGI should be significantly lower.
between scotch and nothing, i'll take scotch. -- faulkner

livesoft
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Re: Taxes owed 2016 as % of AGI?

Post by livesoft » Thu Jan 19, 2017 3:57 pm

There is a poll from a couple years ago with delightful numbers:
viewtopic.php?t=163748
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ERMD
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Re: Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 4:06 pm

Interesting poll. Using the "Adjusted Livesoft Income" instead of the AGI, we would be at ~29%. Still probably among the top 10% of all people taking that poll, and maybe higher. Not terribly reassuring, as perhaps was your intention. :oops:
between scotch and nothing, i'll take scotch. -- faulkner

livesoft
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Re: Taxes owed 2016 as % of AGI?

Post by livesoft » Thu Jan 19, 2017 4:09 pm

C'mon, you make a lot of money, what did you expect? :) You paid more taxes in 2016 than the sum of our taxable incomes for 2015 and 2016. :)
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Re: Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 4:12 pm

No, of course, we're not taking anything for granted. I was more interested in whether or not our total tax was a standard deviation (or two) above the mean for our AGI, even though I'm fairly certain we haven't missed any obvious deductions/deferments/contributions.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: Taxes owed 2016 as % of AGI?

Post by livesoft » Thu Jan 19, 2017 4:19 pm

Deductions are pretty straightforward with some record keeping to get ALL one's charitable contributions.

Foreign tax credit?

You should probably always have a net $3,000 loss showing for your Schedule D result with a carryover to next year.
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ERMD
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Re: Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 4:26 pm

livesoft wrote:Deductions are pretty straightforward with some record keeping to get ALL one's charitable contributions.

Foreign tax credit?

You should probably always have a net $3,000 loss showing for your Schedule D result with a carryover to next year.
No FTC, and all investment income is in tax-deferred or tax-free accounts. As you say, deductions are pretty straightforward, so I would assume most with a similar AGI to us should have a similar %tAGI. But I want to trust and verify. :happy
between scotch and nothing, i'll take scotch. -- faulkner

NotWhoYouThink
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Re: Taxes owed 2016 as % of AGI?

Post by NotWhoYouThink » Thu Jan 19, 2017 4:31 pm

You paid more taxes in 2016 than the sum of our taxable incomes for 2015 and 2016.
ERMD, the response above may be in reference to this other helpful thread.

viewtopic.php?t=87471#p1255482

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Re: Taxes owed 2016 as % of AGI?

Post by White Coat Investor » Thu Jan 19, 2017 4:39 pm

ERMD wrote:No, of course, we're not taking anything for granted. I was more interested in whether or not our total tax was a standard deviation (or two) above the mean for our AGI, even though I'm fairly certain we haven't missed any obvious deductions/deferments/contributions.
You seem to be operating under the assumption that your tax bill is determined by how you prepare your taxes rather than how you live your life. That is not the case. There is very little you can do when it comes time to prepare your taxes that will lower your tax bill. You probably aren't missing anything big. The way people with similar incomes to yours lower their tax bill is by living their financial lives differently.

All of these things, for example, may lower your tax bill, although you may not want to do any of them:

Work less.
Get paid less for your work.
Get married.
Have your spouse quit.
Start a business.
Have children.
Contribute more to retirement accounts.
Give money and things to charity.
Get a bigger mortgage.
Use an HSA/HDHP
Send a kid to college.
Move to a state without an income tax.
Incorporate your practice.
Lose money on your taxable investments.

I haven't crunched my numbers for this year yet, but I expect to pay under 30% as an effective tax rate on something like twice your income. But I likely have a very different financial life from yours despite sharing the same profession.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Boglegrappler
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Re: Taxes owed 2016 as % of AGI?

Post by Boglegrappler » Thu Jan 19, 2017 4:52 pm

I haven't crunched my numbers for this year yet, but I expect to pay under 30% as an effective tax rate on something like twice your income. But I likely have a very different financial life from yours despite sharing the same profession.
That will be a pretty good trick if it happens, but I'm not sure how those numbers would work out. The current marginal rates in those income regions make it pretty hard to hold your average/effective tax rate below 30% if you are in the high six figures of income.

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Re: Taxes owed 2016 as % of AGI?

Post by Ethelred » Thu Jan 19, 2017 4:55 pm

ERMD wrote:Just preliminarily crunched the numbers for 2016, and our total tax is 155k (125k Federal, 30k State) on 450k income, or 35% of our AGI. This is a massive jump for us, as our salary was significantly lower in 2015 (paid 60k total tax on 260k income, or 23% of AGI). We maximize contributions to 403b, 457, 529, backdoor Roth. Not sure what else we could be doing to lower our tax burden.

Anyone else in a similar tax bracket care to share their total tax as % of AGI (%tAGI)? I would love to feel like we're not doing something majorly wrong here. I know we're in the 35% tax bracket, but my assumption was always that, since this is on the margins, your %tAGI should be significantly lower.
Our AGI is a little bit lower than that, and that percentage seems high to me, but not hugely high.

I see two reasons:
1. Those state taxes. In Texas, we have property tax and sales tax, but not income tax, so I don't have experiences to directly compare to.
2. You're close to the very worst point for AMT, just below where the top end of the exemption phase-out. As a result, a large part of your income is subject to an effective 35% marginal federal rate. More info is here, and plenty of other places.
http://www.forbes.com/sites/feeonlyplan ... 5e78e576d9

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Ethelred
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Re: Taxes owed 2016 as % of AGI?

Post by Ethelred » Thu Jan 19, 2017 4:57 pm

White Coat Investor wrote:
ERMD wrote:No, of course, we're not taking anything for granted. I was more interested in whether or not our total tax was a standard deviation (or two) above the mean for our AGI, even though I'm fairly certain we haven't missed any obvious deductions/deferments/contributions.
You seem to be operating under the assumption that your tax bill is determined by how you prepare your taxes rather than how you live your life. That is not the case. There is very little you can do when it comes time to prepare your taxes that will lower your tax bill. You probably aren't missing anything big. The way people with similar incomes to yours lower their tax bill is by living their financial lives differently.

All of these things, for example, may lower your tax bill, although you may not want to do any of them:

Work less.
Get paid less for your work.
Get married.
Have your spouse quit.
Start a business.
Have children.
Contribute more to retirement accounts.
Give money and things to charity.
Get a bigger mortgage.
Use an HSA/HDHP
Send a kid to college.
Move to a state without an income tax.
Incorporate your practice.
Lose money on your taxable investments.

I haven't crunched my numbers for this year yet, but I expect to pay under 30% as an effective tax rate on something like twice your income. But I likely have a very different financial life from yours despite sharing the same profession.
That's a good reply, but it's worth pointing out that a few of those deductions aren't available under AMT.

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White Coat Investor
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Re: Taxes owed 2016 as % of AGI?

Post by White Coat Investor » Thu Jan 19, 2017 5:05 pm

Boglegrappler wrote:
I haven't crunched my numbers for this year yet, but I expect to pay under 30% as an effective tax rate on something like twice your income. But I likely have a very different financial life from yours despite sharing the same profession.
That will be a pretty good trick if it happens, but I'm not sure how those numbers would work out. The current marginal rates in those income regions make it pretty hard to hold your average/effective tax rate below 30% if you are in the high six figures of income.
I usually write a post about it. Last year it was 25%, but we made more this year.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

LateStarter1975
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Re: Taxes owed 2016 as % of AGI?

Post by LateStarter1975 » Thu Jan 19, 2017 5:34 pm

White Coat Investor wrote:
ERMD wrote:No, of course, we're not taking anything for granted. I was more interested in whether or not our total tax was a standard deviation (or two) above the mean for our AGI, even though I'm fairly certain we haven't missed any obvious deductions/deferments/contributions.
You seem to be operating under the assumption that your tax bill is determined by how you prepare your taxes rather than how you live your life. That is not the case. There is very little you can do when it comes time to prepare your taxes that will lower your tax bill. You probably aren't missing anything big. The way people with similar incomes to yours lower their tax bill is by living their financial lives differently.

All of these things, for example, may lower your tax bill, although you may not want to do any of them:

Work less.
Get paid less for your work.
Get married.
Have your spouse quit.
Start a business.
Have children.
Contribute more to retirement accounts.
Give money and things to charity.
Get a bigger mortgage.
Use an HSA/HDHP
Send a kid to college.
Move to a state without an income tax.
Incorporate your practice.
Lose money on your taxable investments.

I haven't crunched my numbers for this year yet, but I expect to pay under 30% as an effective tax rate on something like twice your income. But I likely have a very different financial life from yours despite sharing the same profession.
Very poignant!
Debt is dangerous...simple is beautiful

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ERMD
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Re: Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 5:38 pm

Ethelred wrote:Those state taxes.
Yes, that's a killer. Without the state taxes, we're down to 27%. We actually live quite frugally otherwise and have an infinitesimally small mortgage compared to our AGI.
between scotch and nothing, i'll take scotch. -- faulkner

bdpb
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Re: Taxes owed 2016 as % of AGI?

Post by bdpb » Thu Jan 19, 2017 6:01 pm

ERMD wrote:Just preliminarily crunched the numbers for 2016, and our total tax is 155k (125k Federal, 30k State) on 450k income, or 35% of our AGI. This is a massive jump for us, as our salary was significantly lower in 2015 (paid 60k total tax on 260k income, or 23% of AGI). We maximize contributions to 403b, 457, 529, backdoor Roth. Not sure what else we could be doing to lower our tax burden.

Anyone else in a similar tax bracket care to share their total tax as % of AGI (%tAGI)? I would love to feel like we're not doing something majorly wrong here. I know we're in the 35% tax bracket, but my assumption was always that, since this is on the margins, your %tAGI should be significantly lower.
The 35% number in your first sentence is the sum of state and federal tax. The 35% number in your last sentence is fed marginal tax rate. Comparing apples and oranges. The fed number for %tAGI is 125k/450k = 28%.

Backdoor Roth has no impact on taxes. 529 has no federal impact.

Are you sure you've reported the correct numbers for 2015? What was the breakdown between fed and state?

It seems (can't tell without fed/state breakdown) as if you were federally taxed at about 35% on the margin. Roughly, 450k - 260k = 190k additional income, 125k - 60k (???) = 65k additional federal tax, 65k/190k = 34%.

SCV_Lawyer
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Re: Taxes owed 2016 as % of AGI?

Post by SCV_Lawyer » Thu Jan 19, 2017 6:04 pm

On gross of $800K, and AGI of $670K, we paid $215K in federal (fed + FICA + Medicare) plus $55K in state (CA). So based on a percent of gross, total was 34% (40% of AGI). Reductions from gross to AGI include 401K/KEOGH/Cash Balance Plan, medical/dental insurance, capital losses and 50% of SE tax. Main deductions are state taxes, property taxes, interest on mortgage and charitable (but we lose some of that through AMT).

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ERMD
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Re: Taxes owed 2016 as % of AGI?

Post by ERMD » Thu Jan 19, 2017 6:53 pm

SCV_Lawyer wrote:On gross of $800K, and AGI of $670K, we paid $215K in federal (fed + FICA + Medicare) plus $55K in state (CA). So based on a percent of gross, total was 34% (40% of AGI). Reductions from gross to AGI include 401K/KEOGH/Cash Balance Plan, medical/dental insurance, capital losses and 50% of SE tax. Main deductions are state taxes, property taxes, interest on mortgage and charitable (but we lose some of that through AMT).
You're subject to AMT on an AGI of 670k??
between scotch and nothing, i'll take scotch. -- faulkner

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Re: Taxes owed 2016 as % of AGI?

Post by SCV_Lawyer » Thu Jan 19, 2017 7:16 pm

ERMD, yes, but barely. I think the difference was about $1k between regular and AMT. High CA state taxes and property taxes on high CA valuations kicked us in. Last year was a little unusual because we owned two houses for about 8 months as we were trying to sell the house we left. So mortgage and property taxes were double for that period.

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