DINK 200K household income - ways to reduce taxable income?

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a010z
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DINK 200K household income - ways to reduce taxable income?

Post by a010z » Sun Sep 14, 2014 1:05 pm

Hi Folks,
Seeking for some advice.
We have a 200K household income, no-kids, no house, no debt.
Currently maxing out 401K with 17.5K each, and maxing out HSA.

Are there any other ways to reduce our taxable income?
We are paying a lot in taxes and we live in a HCOL area.

retiredjg
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Re: DINK 200K household income - ways to reduce taxable inco

Post by retiredjg » Sun Sep 14, 2014 1:21 pm

This won't reduce your taxes, but would be an improvement over not putting money into Roth IRA.

http://thefinancebuff.com/the-backdoor- ... ow-to.html



This won't help much, but whatever you have in a taxable account needs to be "tax-efficient". You accomplish this by picking what you put in that account wisely - usually tax-efficient index funds like a total stock index or a total international stock index. And avoiding bonds in a taxable account. If you have bonds in taxable, they should probably be tax-exempt.

Give to charity. Have some kids, get a house. You can also save quite a lot and just don't worry about paying a lot in taxes.

livesoft
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Re: DINK 200K household income - ways to reduce taxable inco

Post by livesoft » Sun Sep 14, 2014 1:27 pm

Get some kids. Here is the $200,000 and low taxes thread for your consideration:
http://www.bogleheads.org/forum/viewtopic.php?t=79510
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LongerPrimer
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Re: DINK 200K household income - ways to reduce taxable inco

Post by LongerPrimer » Sun Sep 14, 2014 1:30 pm

HSA, LTCi, deferred comp plan, discounted company stock purchase.

G-Force
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Re: DINK 200K household income - ways to reduce taxable inco

Post by G-Force » Sun Sep 14, 2014 2:00 pm

livesoft wrote:Get some kids. Here is the $200,000 and low taxes thread for your consideration:
http://www.bogleheads.org/forum/viewtopic.php?t=79510
The expense of children would offset any tax benefit you get from them.

DualIncomeNoDebt
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Re: DINK 200K household income - ways to reduce taxable inco

Post by DualIncomeNoDebt » Sun Sep 14, 2014 3:27 pm

G-Force wrote:The expense of children would offset any tax benefit you get from them.
This. If you don't want children, don't have them. If you do, think long and hard about it. Another dink here, my colleagues right now are going through the high school stages and college is on the horizon; the costs are staggering. No way will a deduction offset the outrageous costs. And this paradigm is getting worse, not better, as population continues to explode.

For investments in your taxable account, look to municipal bonds. Vanguard's muni bond funds are pretty good. Especially if you are near or in the highest tax bracket. The tax-equivalent yield makes them attractive for people just like you (us).

livesoft
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Re: DINK 200K household income - ways to reduce taxable inco

Post by livesoft » Sun Sep 14, 2014 3:31 pm

Alright, I have to put in my standard retort that the cost of kids is highly exaggerated by many people. One doesn't have to spend much money on their kids if they don't want to.
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staythecourse
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Re: DINK 200K household income - ways to reduce taxable inco

Post by staythecourse » Sun Sep 14, 2014 3:47 pm

livesoft wrote:Alright, I have to put in my standard retort that the cost of kids is highly exaggerated by many people. One doesn't have to spend much money on their kids if they don't want to.
Not sure if I agree. the cost of toys and clothes are optional. For two workers the cost of child care is real. It can easily run >20k per year for at least 0-5 years until public education kicks in. That is 100k+ in potential costs over 5 years which I would considered large.

Good luck.
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livesoft
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Re: DINK 200K household income - ways to reduce taxable inco

Post by livesoft » Sun Sep 14, 2014 3:59 pm

That's the kind of exaggeration that I was writing about. :) Sure, daycare can cost >$20K per year, but it can easily be much, much less.
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letsgobobby
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Re: DINK 200K household income - ways to reduce taxable inco

Post by letsgobobby » Sun Sep 14, 2014 4:00 pm

I bonds.

dgdevil
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Re: DINK 200K household income - ways to reduce taxable inco

Post by dgdevil » Sun Sep 14, 2014 4:11 pm

Work less? The partner who hates their job more can quit or scale back hours. Maybe you already have enough saved in retirement accounts to give you a comfortable retirement?

Buy a house? Not as an investment or tax dodge, obviously. And maybe property taxes are killer (and completely inane for DINKs). But the mortgage relief could be helpful.

If you end up with insane amounts of money and are feeling really annoyed about it, there's a whole crazy world out there of foreign trusts, dual citizenships and US citizenship revocations.

Greekgirl
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Greekgirl » Sun Sep 14, 2014 4:19 pm

Get Some Kids


I will gladly pay the taxes I owe if this is the only other option. :D

My husband and I are DINKS also, and while we have lived in HCOL areas (DC), we now live in a somewhat LCOL area. I long ago gave up on the tax deduction battle. We do the normals: mortgage, 401K's, etc. Unless the US government stops promoting and encouraging child bearing, it's just going to be the cross we CF'ers have to bear. But the money we save is still nothing compared to taxes we pay. :happy

dhodson
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Re: DINK 200K household income - ways to reduce taxable inco

Post by dhodson » Sun Sep 14, 2014 4:32 pm

Focusing on taxes alone will result in being sold a bad investment option.

dognose
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Re: DINK 200K household income - ways to reduce taxable inco

Post by dognose » Sun Sep 14, 2014 4:41 pm

As others have noted, if you're trying to reduce taxable income, go with a healthy dollop of municipal bonds. Like many others on this forum, I personally favor Vanguard Intermediate Term Tax-Exempt, which offers low expenses, solid long-term returns, outstanding diversification, and a highly professional management team.

retiredjg
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Re: DINK 200K household income - ways to reduce taxable inco

Post by retiredjg » Sun Sep 14, 2014 4:54 pm

Using muni bonds when you have the opportunity to put stocks in taxable is not necessarily the best solution long term. If you "push" stocks into a 401k or IRA, the earnings from those stocks will be taxed at a higher rate than if the stocks were in a taxable account.

Of course, if bonds must be in a taxable account or if there is some reason an investor wants them there, tax-exempt muni bonds is the right choice for a higher income situation.

Bob's not my name
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Bob's not my name » Sun Sep 14, 2014 4:57 pm

You can make direct Roth IRA contributions. You're way below the phaseout.

mhalley
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Re: DINK 200K household income - ways to reduce taxable inco

Post by mhalley » Sun Sep 14, 2014 5:50 pm

The most obvious way to reduce taxes is charitable giving. If you start a business then you could do an individual 401k, or if you bought an investment property then you could do depreciation etc. Do you have a cause that you believe in? If so, be sure to check out the charity at one of the websites that ensures that most of the money goes to the actual cause.
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clacy
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Re: DINK 200K household income - ways to reduce taxable inco

Post by clacy » Sun Sep 14, 2014 6:22 pm

Kids cost money, period. I have 3 of them. They pay it back 100 fold, in ways that can't be quantified, but they certainly cost a fair amount of money.

Now with that said, $200k is more than enough to have a couple of kids and not seriously derail your lifestyle or plans, IMO.

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Cut-Throat
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Cut-Throat » Sun Sep 14, 2014 6:42 pm

Greekgirl wrote:
Get Some Kids


I will gladly pay the taxes I owe if this is the only other option. :D

My husband and I are DINKS also, and while we have lived in HCOL areas (DC), we now live in a somewhat LCOL area. I long ago gave up on the tax deduction battle. We do the normals: mortgage, 401K's, etc. Unless the US government stops promoting and encouraging child bearing, it's just going to be the cross we CF'ers have to bear. But the money we save is still nothing compared to taxes we pay. :happy
+1 .... I would pay twice as much in taxes if this is the only option..... Kids are not a 'Financial Decision' -- If you want them fine, but realize that they are a commitment, and in the grand scheme of things, you don't save money having kids.

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Rainier
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Rainier » Sun Sep 14, 2014 7:57 pm

Have kids
Donate more
Work less
Take a pay cut
Retire early

island
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Re: DINK 200K household income - ways to reduce taxable inco

Post by island » Sun Sep 14, 2014 8:09 pm

Rainier wrote:Have kids
Donate more
Work less
Take a pay cut
Retire early
Yup that pretty much sums it up. Were in the same boat and it's not a bad place to be. Don't dwell on the taxes; it is what it is.

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VictoriaF
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Re: DINK 200K household income - ways to reduce taxable inco

Post by VictoriaF » Sun Sep 14, 2014 8:20 pm

DualIncomeNoDebt wrote:
G-Force wrote:The expense of children would offset any tax benefit you get from them.
This. If you don't want children, don't have them. If you do, think long and hard about it. Another dink here, my colleagues right now are going through the high school stages and college is on the horizon; the costs are staggering. No way will a deduction offset the outrageous costs.
You can keep children for tax deduction until they become teenagers, and then give them up for adoption. Even better, you can create a kids ladder so that as one matures, another one is in the pipeline.

Victoria
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surfer1
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Re: DINK 200K household income - ways to reduce taxable inco

Post by surfer1 » Sun Sep 14, 2014 9:10 pm

If your rent is comparable with a monthly house payment, you could save by buying a house and claiming the deduction in property taxes. Assuming you pay $1500/mo in rent, with no deduction. You buy a house at $1500/mo, $500 of which are taxes, gives you back $1500/yr, in the 25% marginal tax bracket. (The deduction for mortgage interest doesn't count)

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ram
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Re: DINK 200K household income - ways to reduce taxable inco

Post by ram » Sun Sep 14, 2014 9:21 pm

livesoft wrote:Alright, I have to put in my standard retort that the cost of kids is highly exaggerated by many people. One doesn't have to spend much money on their kids if they don't want to.
Agree with above based on the experience of raising 2 kids now in college. At one time our family of 4 (two kids) survived with me as the sole earner earning at 1.5 times the hourly minimum wage and working 80 hrs a week (as trainee physician).
Now we are a 2 physician family and I have stopped stressing over the taxes. I am simply thankful that we have the income that necessitates the high tax rate.
Ram

Ron Ronnerson
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Ron Ronnerson » Sun Sep 14, 2014 10:44 pm

A Limited Expense Flexible Spending Account for vision and dental costs may be worth looking into if you have expenses in those categories and if your employer offers such a plan.

If you're planning on buying a home down the road, take the tax savings into consideration to determine affordability. In HCOL areas especially, the tax deduction on mortgage interest and property taxes can add up. Keep in mind that you would only realize tax savings on the itemized amount that exceeds the standard deduction.

I earn a fair amount more than my wife so, in our case, we decided to just have her reduce her hours. After accounting for taxes and costs such as commuting, the financial hit has been relatively small while the increased quality of life is noticeable. My wife's employer provides health benefits for our family (the two of us and one child) so she works just enough to keep those benefits. Depending on your circumstances, reducing how much one or both of you work might be worth examining. While it is surely great to have a lot of money, having ample time to enjoy your life and reduce stress is also incredible.

All the best,
Ron

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Re: DINK 200K household income - ways to reduce taxable inco

Post by Grt2bOutdoors » Mon Sep 15, 2014 7:22 pm

Stop working, then you won't have to pay any taxes. Of course, you won't be saving what you don't earn either.

Face it, it's just one of the necessary evils of working in this wonderful country. You think you pay alot here, go overseas where the burden is even higher! Buying a home may not necessarily "save" you anything, in fact, it might push you in to AMT la-la-land. Having a child? what one giveth in the form of a deduction up top, one taketh in the form of higher taxes especially if you fall into AMT la-la-land. :twisted:

Max out your 401k.

Don't keep too much money in a taxable savings account.

Think about using I bonds to keep your "need it after 1 year" money and want it super principal safe. I say "need it after 1 year" because the minimum holding period is 1 year from the date of purchase before you can cash out.

Use a FSA (flex spending account)?

Use an intermediate tax-exempt fund for fixed income monies not needed over the next 5 years, otherwise if rates rise you may take a 5% drop in NAV with a corresponding increase in yields to be earned and reinvested over the duration of the fund. However, if you cash out in year 3 after a rate bump upwards, you will take a real loss.

Good Luck! Alot (and I mean alot) of folks would love to be in your position - the economy is tough right now.
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ERISA Stone
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Re: DINK 200K household income - ways to reduce taxable inco

Post by ERISA Stone » Mon Sep 15, 2014 11:06 pm

livesoft wrote:Alright, I have to put in my standard retort that the cost of kids is highly exaggerated by many people.
This is one of the first things I found out when we had our first child.

TheEternalVortex
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Re: DINK 200K household income - ways to reduce taxable inco

Post by TheEternalVortex » Tue Sep 16, 2014 6:46 am

livesoft wrote:That's the kind of exaggeration that I was writing about. :) Sure, daycare can cost >$20K per year, but it can easily be much, much less.
Well, it depends on where you live. Some day cares around here are ~$1500-2000/month per child. It's actually hard to get into one at all, because there is not enough supply, so many people have to pay even more for a nanny.

livesoft
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Re: DINK 200K household income - ways to reduce taxable inco

Post by livesoft » Tue Sep 16, 2014 6:52 am

Sounds like a business opportunity awaits the right person.

BTW, we were DINKs until our late-30's. When the kids came along, we both continued to work. We used many different options over those early years for child care including a shared nanny, daycare, relatives. We even lived in a high COLA near NYC. And I didn't say that kids did not cost money. I said that the cost was exaggerated by many people.

But no worries, one doesn't have to get some kids to save on taxes. Some other ways, such as quitting your job, have been suggested as well. Here is my old list that answers this perennial question: http://www.bogleheads.org/forum/viewtop ... 8#p2064068

And from that list:
My bottom line is that most tax-saving schemes cost you more money than the taxes that you would save.
Last edited by livesoft on Tue Sep 16, 2014 7:02 am, edited 3 times in total.
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camptalcott
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Re: DINK 200K household income - ways to reduce taxable inco

Post by camptalcott » Tue Sep 16, 2014 6:54 am

G-Force wrote:
livesoft wrote:Get some kids. Here is the $200,000 and low taxes thread for your consideration:
http://www.bogleheads.org/forum/viewtopic.php?t=79510
The expense of children would offset any tax benefit you get from them.
LOL. not to mention the price on your sanity. :mrgreen:
"He who dies with the most toys is still, nonetheless dead"

camptalcott
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Re: DINK 200K household income - ways to reduce taxable inco

Post by camptalcott » Tue Sep 16, 2014 7:01 am

ram wrote:
livesoft wrote:Alright, I have to put in my standard retort that the cost of kids is highly exaggerated by many people. One doesn't have to spend much money on their kids if they don't want to.
Agree with above based on the experience of raising 2 kids now in college. At one time our family of 4 (two kids) survived with me as the sole earner earning at 1.5 times the hourly minimum wage and working 80 hrs a week (as trainee physician).
Now we are a 2 physician family and I have stopped stressing over the taxes. I am simply thankful that we have the income that necessitates the high tax rate.

see for me there is a difference between surviving and living. I do not want to "survive" yes if I lost my job and was forced to I could but do I want that as a way of life? uhmm, no I do not.

I find that sort of sentiment pretty ironic on a board that is supposedly geared to people who do not want to mainly survive. especially in retirement. Could some one survive solely on social security? sure, many folks are. Is it the type of life that I would want? No. would I have children knowing I could only survive? again no.

I too am greatful for being financially stable but my two kids cost an arm and two legs.
Daycare 2K a month, after school activities, hundreds of dollars. College currently running me 40 grand a year and that's with scholarships.

Yes daycare could be less but do I want my kids in the hood with gun shots ringing out? No. Philadelphias school are notoriously horrible, on 3rd world level. so yeah I could slap them in there for nothing but once again being cheap usually ends up costing some other way.

Kids are expensive
"He who dies with the most toys is still, nonetheless dead"

Mike Scott
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Re: DINK 200K household income - ways to reduce taxable inco

Post by Mike Scott » Tue Sep 16, 2014 8:44 am

"My bottom line is that most tax-saving schemes cost you more money than the taxes that you would save."

Minimize what you owe by any legal means but then pay the taxes and be happy that you have that much income; there are a lot of people who would love to have your problem.

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