Reducing tax burden in Arizona

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ArizonaMom7
Posts: 1
Joined: Mon Jun 22, 2015 5:22 pm

Reducing tax burden in Arizona

Postby ArizonaMom7 » Mon Jun 22, 2015 5:33 pm

My parents live in Arizona, and are seeking to reduce their tax burden.

They currently have one child in the house (she won't hit college for another 7 years or so) and one other child in a university. My mother runs the home, and my father is a physician. His annual income is somewhere around $400k per year. They own the home they live in (with mortgage) and have a second rental property on the east coast (rent nearly covers mortgage.)

Their accountant recommended purchasing a second home in Arizona to relieve their tax burden, but the figures don't add up. Also, they've had a few up and down years and still need to pay off some debt as well as save money for the last child's college education.

They currently max out their 401k but don't have much savings. Any advice would be appreciated.

toto238
Posts: 1877
Joined: Wed Feb 05, 2014 2:39 am

Re: Reducing tax burden in Arizona

Postby toto238 » Mon Jun 22, 2015 10:56 pm

They could possibly do a backdoor Roth IRA, they could also do a 529 for their kids. If I remember correctly, Arizona offers some kind of tax benefit for putting money in a 529.

For taxable investments they should stick to index funds with low turnover to minimize taxable events. Any bonds held in taxable should be munis to avoid high tax rates.

Arizona has a state tax exemption for certain charitable organizations where you can get a 100% tax credit for up to I think $600 for a married couple. So for example, you donate $100 to a charity, and Arizona gives you back $100 when you file your state taxes. But that $100 can also be taken as a deduction on your federal taxes. It's not huge but it's a little something that could help.

Unfortunately there's only so much that can be done to avoid taxes. Uncle Sam is gonna get his money eventually.

toto238
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Joined: Wed Feb 05, 2014 2:39 am

Re: Reducing tax burden in Arizona

Postby toto238 » Mon Jun 22, 2015 11:01 pm

To note is its not usually a good idea to let the "tax tail" wag the "investment dog". Meaning what's most tax efficient shouldn't be your first question. It's only one of many factors to determine the right investments for you.

If the goal is simply to minimize taxes no matter what, then they should stop earning income, stop collecting rent from their tenants, and don't buy anything either (sales tax!). This simply isn't practical. Tax reduction isn't a goal by itself.

The question we need to be asking is how can I reduce my tax burden while still maintaining a reasonable path towards my investment goals?

Realistically you may find there's not a lot that can be done to reduce taxes without making large sacrifices somewhere else.

Carefreeap
Posts: 1757
Joined: Tue Jan 13, 2015 7:36 pm
Location: SF Bay Area

Re: Reducing tax burden in Arizona

Postby Carefreeap » Wed Jun 24, 2015 12:10 am

toto238 wrote:To note is its not usually a good idea to let the "tax tail" wag the "investment dog". Meaning what's most tax efficient shouldn't be your first question. It's only one of many factors to determine the right investments for you.

If the goal is simply to minimize taxes no matter what, then they should stop earning income, stop collecting rent from their tenants, and don't buy anything either (sales tax!). This simply isn't practical. Tax reduction isn't a goal by itself.

The question we need to be asking is how can I reduce my tax burden while still maintaining a reasonable path towards my investment goals?

Realistically you may find there's not a lot that can be done to reduce taxes without making large sacrifices somewhere else.


+1

Often it's cheaper and easier to just pay the taxes!

To the OP if your parents are in the Phoenix area I understand why a second home would have appeal. But you don't buy a second home for tax reasons. Owning and maintaining two homes is a lot of work and money. Ask me how I know. :wink:

heyyou
Posts: 2603
Joined: Tue Feb 20, 2007 4:58 pm

Re: Reducing tax burden in Arizona

Postby heyyou » Thu Jun 25, 2015 12:46 am

Tax shelters were common until the laws were changed in the early 1980s. The running joke was that some doctors were paying $1.50 for a dollar of tax relief.

A long term path is to retire early by spending less to save more, thus working at the the higher income for fewer years. Millions of people are living happy lives on smaller incomes, so live like they do in order to save more.

2 Tasty
Posts: 38
Joined: Tue Jul 28, 2015 9:36 am

Re: Reducing tax burden in Arizona

Postby 2 Tasty » Sun Mar 19, 2017 7:13 pm

toto238 wrote:Arizona has a state tax exemption for certain charitable organizations where you can get a 100% tax credit for up to I think $600 for a married couple. So for example, you donate $100 to a charity, and Arizona gives you back $100 when you file your state taxes. But that $100 can also be taken as a deduction on your federal taxes. It's not huge but it's a little something that could help.


I've been thinking about ways to reduce my tax burden in Arizona, and came across this thread. I'm familiar with the strategy to get the state tax credit (and then the federal deduction on top) for charitable contributions up to several thousand dollars ($400 public schools, $2173 private schools, and more). Additionally, Arizona doesn't have a medical expenses threshold for itemized deductions, unlike the federal government's 10% of AGI.

Any other ideas for saving money on taxes in Arizona?

Sandtrap
Posts: 1174
Joined: Sat Nov 26, 2016 6:32 pm

Re: Reducing tax burden in Arizona

Postby Sandtrap » Sun Mar 19, 2017 8:52 pm

where in arizona?

2 Tasty
Posts: 38
Joined: Tue Jul 28, 2015 9:36 am

Re: Reducing tax burden in Arizona

Postby 2 Tasty » Mon Mar 20, 2017 12:14 pm

Sandtrap wrote:where in arizona?


I'm in Yuma County.


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