Anything I can do to reduce my taxes for 2016 or future?

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jeffsasao
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Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Thu Dec 29, 2016 1:24 pm

Hi.

Long-time lurker, first-time poster.

I would greatly appreciate your input on how I can reduce my taxes, either for 2016 or future. I ran my 2016 tax numbers and:

Federal Tax Due: $12,500
CA Refund: $3,650 (I received a refund for 2015 as well)

. Married filing jointly. My wife is a homemaker.
. Maxed out all retirement contributions.
. I don't have any investments in taxable.I have a capital loss carryover of ($11,500) and is included in the estimate.
. I'm itemizing my deductions of approx. $28,500.


Thanks in advance!

Jeff

jpelder
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jpelder » Thu Dec 29, 2016 1:37 pm

You probably should increase your withholding from your paychecks (or pay more in quarterly estimated taxes if self-employed/living on investment income) by about $1000 per month. I know this wouldn't actually reduce your tax liability, but it would reduce the shock of owing $12000 at the end of the year.

Has the $12,000ish owed been consistent for the past few years, or is this unusually high?

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FelixTheCat
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by FelixTheCat » Thu Dec 29, 2016 1:56 pm

Charitable giving.
Felix is a wonderful, wonderful cat.

livesoft
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by livesoft » Thu Dec 29, 2016 1:58 pm

Have you read the other threads on how to reduce taxes?

Here are a couple:
viewtopic.php?t=79510
viewtopic.php?t=87471
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DSInvestor
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by DSInvestor » Thu Dec 29, 2016 2:02 pm

Did your wife contribute to IRA? Spousal IRA contributions are permitted based on your compensation since you file MFJ. Does your AGI/MAGI qualify her for tax deductible Traditional IRA contributions? If you were covered by an employer plan at work, she has a much higher MAGI phase out than you. See IRS page on IRA deduction limits:
https://www.irs.gov/retirement-plans/ir ... ion-limits

Do you have an HSA compatible high deductible health plan? If so, max out HSA.

Please let us know what kind of retirement plan contributions you make to 401k, 403b, 457b, SEP-IRA, S0lo 401k, SIMPLE-IRA, Traditional IRA, Roth IRA. If you're contributing to Roth 401k, you could switch to Traditional 401k contributions to reduce your Fed and State tax income tax. If you're age 50+, you can contribute an extra 6K to 401k.
Last edited by DSInvestor on Thu Dec 29, 2016 2:07 pm, edited 2 times in total.
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Mlm
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by Mlm » Thu Dec 29, 2016 2:05 pm

Next year I won't be able to itemize so I just paid the portion of my property taxes that are due in January 2017 today. I also made a donation that I normally make in the spring today.

livesoft
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by livesoft » Thu Dec 29, 2016 2:06 pm

We also bunch deductions into every other year, so that we itemize one year and take the standard deduction the next year. That saves more than a thousand dollars.
livesoft wrote:From an old locked thread:
livesoft wrote:Y'all aren't trying hard to reduce your taxes. I"ve posted this list of things you can do to reduce your taxes several times before:

1. Earn less money or quit your job. Lower income means lower taxes.
2. Lose big time in the stock market. We all now know that we can deduct some losses against ordinary income.
3. Get married and have lots of kids. You get more exemptions and maybe even the child tax credit.
4. Get the biggest house and biggest mortgage you possibly can. You can deduct the interest payments on Schedule A.
5. That big house should come with huge property taxes which can be deducted on Schedule A.
6. Give away your money to charity (you got this one right).
7. Pay an accountant to do your tax return for you, but you have to pay them alot because only the amount above 2% of AGI is deductible. Same goes for an investment advisor.
8. Don't have any interest-bearing accounts in your taxable side of things. You don't want to get any taxable interest that would drive your taxes up!
9. Get really sick and pay for your treatment yourself. You can deduct any medical expenses above 7.5% of your AGI.
10. Poke your eyes out. If you are blind, you get an extra exemption. You will probably need medical attention (see #9).
11. Grow old. If you are over 65, you get an extra exemption.
12. Move to a high tax state like NY or CA. You can deduct state income taxes (I'm not sure about sales taxes in 2008 anymore).
13. Contribute pre-tax the max allowed to your retirement plans. You can't even hold some money back for expenses if you really want to reduce your taxes.
A couple more:

14. Rental real estate that loses lots of money.
15. Participate in a Deferred compensation plan.

#8 above is another way of saying don't have any income on the top half of Schedule B. If you look at your tax return, get rid of accounts that give you income on the top half of Schedule B and try to have only qualified dividends which go on the bottom half of Schedule B or no dividends and no interest at all.

My bottom line is that most tax-saving schemes cost you more money than the taxes that you would save.
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celia
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by celia » Thu Dec 29, 2016 2:16 pm

jeffsasao wrote:I don't have any investments in taxable.
Do you have an Emergency Fund or bank CDs? Do you just spend or give the rest of your taxable away?

You might be saving too much for retirement, especially if it is going into tax-deferred. By "saving too much", I mean the RMDs when you retire might be so large that they alone push you into higher tax brackets than what you are assuming you will be in, especially when combined with SS and pensions. Although it doesn't answer your question, it is worth some serious thought.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Thu Dec 29, 2016 2:29 pm

jpelder wrote:You probably should increase your withholding from your paychecks (or pay more in quarterly estimated taxes if self-employed/living on investment income) by about $1000 per month.
Will do.
jpelder wrote:Has the $12,000ish owed been consistent for the past few years, or is this unusually high?
I owed about $5000 in 2015. This year, I have one dependent. I'm not claiming my elder son as a dependent because he's trying to get his Utah residency for college tuition (reduction) purposes. This will be the case going forward.

Jeff

jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Thu Dec 29, 2016 2:30 pm

livesoft wrote:Have you read the other threads on how to reduce taxes?

Here are a couple:
viewtopic.php?t=79510
viewtopic.php?t=87471
I'm on it. Thanks a bunch for the links, livesoft.

jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Thu Dec 29, 2016 2:37 pm

DSInvestor wrote:Did your wife contribute to IRA? Spousal IRA contributions are permitted based on your compensation since you file MFJ. Does your AGI/MAGI qualify her for tax deductible Traditional IRA contributions? If you were covered by an employer plan at work, she has a much higher MAGI phase out than you. See IRS page on IRA deduction limits:
https://www.irs.gov/retirement-plans/ir ... ion-limits
My wife is a homemaker. The only IRA contribution she makes is $5,500 in Non-Deductible IRA.
DSInvestor wrote: Do you have an HSA compatible high deductible health plan? If so, max out HSA.
I enrolled in HSA only now, starting in 2017.
DSInvestor wrote:Please let us know what kind of retirement plan contributions you make to 401k, 403b, 457b, SEP-IRA, S0lo 401k, SIMPLE-IRA, Traditional IRA, Roth IRA.
I max out pre-tax 401k ($18,000). And contribute $5,500 to Non-Deductible IRA. That is it.

carolinaman
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by carolinaman » Thu Dec 29, 2016 3:05 pm

livesoft wrote:We also bunch deductions into every other year, so that we itemize one year and take the standard deduction the next year. That saves more than a thousand dollars.
I just paid all my 2017 charitable contributions in 2016. This will save me $1,374 over 2 years, or 2.45% of total taxes paid. Not a huge savings but helpful provided you have the cash to pay in advance and the discipline to replenish your savings in 2017.

JGoneRiding
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by JGoneRiding » Thu Dec 29, 2016 3:47 pm

So you owe 12k? You are going to have a penalty most likely too

DSInvestor
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by DSInvestor » Thu Dec 29, 2016 3:49 pm

What happened this year to cause you to be so far off on your tax withholdings? Did you have a big capital gain or something from a sale of a house? Was there a mix up in your payroll that under withheld? Did you have some side income where you did not withhold taxes? If you had some side income, you may be able to defer some of it using a self employed retirement plan.
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Phineas J. Whoopee
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by Phineas J. Whoopee » Thu Dec 29, 2016 6:04 pm

Switch to a lower-paying occupation.

While I agree taking completely-legal steps to reduce one's current tax burden makes sense, minimizing taxes is not a rational objective. Maximizing after-tax income is.

PJW

jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Fri Dec 30, 2016 12:41 am

DSInvestor wrote:What happened this year to cause you to be so far off on your tax withholdings? Did you have a big capital gain or something from a sale of a house? Was there a mix up in your payroll that under withheld? Did you have some side income where you did not withhold taxes? If you had some side income, you may be able to defer some of it using a self employed retirement plan.
A couple of things. One less dependent (and hence allowance) and a bit more RSUs vested and sold.

jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Fri Dec 30, 2016 12:44 am

JGoneRiding wrote:So you owe 12k? You are going to have a penalty most likely too
Yes, I owe $12k :( How do I avoid paying a penalty on the $12k? Can I make a payment of the $12k (post-marked this year) to avoid paying a penalty?

I used TT (online) to run through my 2016 taxes. Does TT show the penalty I'd have to pay somewhere?


Best wishes,

Jeff

MPAndy222
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by MPAndy222 » Fri Dec 30, 2016 5:42 am

Did your income level change? If not, make sure to pay 100% of the taxes you paid last year (or 110% if you make more than 150k - look up the "safe-harbor" requirement). Go through form 1040 ES to see what estimated payments you owe. Q4 estimated payments are due 1/17/17. You will be penalized for the first 3 quarters but can avoid Q4 penalty if you pay the federal and state estimated tax by then. Form 2210 is used to calculate the penalties

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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by niceguy7376 » Fri Dec 30, 2016 9:20 am

It would be lot easier if the OP posts more info relevant to income and deductions in one single instance than provide bits and pieces.
Also OP mentioned about non deductible trad ira contributions for both themselves and spouse. Hope they are in separate accounts than the deductible trad iras (if they had any).

Contributing to non deductible trad ira is in many cases worse than an efficient taxable.

livesoft
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by livesoft » Fri Dec 30, 2016 9:35 am

jeffsasao wrote:
JGoneRiding wrote:So you owe 12k? You are going to have a penalty most likely too
Yes, I owe $12k :( How do I avoid paying a penalty on the $12k? Can I make a payment of the $12k (post-marked this year) to avoid paying a penalty?

I used TT (online) to run through my 2016 taxes. Does TT show the penalty I'd have to pay somewhere?


Best wishes,

Jeff
There are many ways to avoid a penalty. Look up "tax safe harbors" and read. Also one can pay quarterly estimated taxes at least 3 different ways:
EFTPS
DIrect-Pay
Form 1040-ES by mail.

I would prefer Direct-Pay since it is easiest.

Read, fill-out, and understand Form 2210 to learn more about avoiding a penalty. And get serious about tax planning and use desktop software instead of online tax software.
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bberris
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by bberris » Fri Dec 30, 2016 10:02 am

A non-deductible IRA seems like a bad idea vs a taxable account, unless you plan to convert it to a roth.
Dividends and capital gains in an IRA are taxed as ordinary income. Capital gains and dividends have favored tax treatment. You can choose investments that pay small or no dividends and postpone realizing capital gains in the taxable account.

DSInvestor
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by DSInvestor » Fri Dec 30, 2016 12:13 pm

niceguy7376 wrote: Also OP mentioned about non deductible trad ira contributions for both themselves and spouse. Hope they are in separate accounts than the deductible trad iras (if they had any).

Contributing to non deductible trad ira is in many cases worse than an efficient taxable.
Non-deductible IRA contributions (IRA basis) is co-mingled even if contributions are made to separate accounts. IRS form 8606 treats all Traditional IRA, Rollover IRA, SEP-IRA, SIMPLE-IRA accounts per SSN as a big Traditional IRA and the IRA basis applies to all those accounts. Any partial withdrawal or conversion from any of the accounts will prorate the IRA basis.

OP should make sure that they each have all the 8606 forms to track the IRA basis and then consider steps to isolate that basis and convert it to Roth IRA tax free.
1. Check with employer plan(s) to see if they will accept inbound rollover from IRAs.
2. Check 8606 to determine exact amount of IRA basis. Convert an amount equal to your IRA basis.
3. Rollover all remaining assets in TIRA, Rollover IRA, SEP-IRA, SIMPLE-IRA to the employer plan. This leaves a zero balance in the IRAs which isolates the IRA basis allowing the conversion to be non-taxable.
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jeffsasao
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by jeffsasao » Tue Jan 03, 2017 1:10 am

Hi Livesoft,
livesoft wrote: And get serious about tax planning and use desktop software instead of online tax software.
May I ask why desktop software (as opposed to online)?

noraz123
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by noraz123 » Wed Jan 04, 2017 1:55 am

livesoft wrote:Have you read the other threads on how to reduce taxes?

Here are a couple:
viewtopic.php?t=79510
viewtopic.php?t=87471
These are two of my all time favorite posts on Bogleheads. I have the first one bookmarked.

If only I lived in a state with no income tax! :happy

livesoft
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Re: Anything I can do to reduce my taxes for 2016 or future?

Post by livesoft » Wed Jan 04, 2017 8:27 am

jeffsasao wrote:Hi Livesoft,
livesoft wrote: And get serious about tax planning and use desktop software instead of online tax software.
May I ask why desktop software (as opposed to online)?
Easy to save to multiple new "What if?" scenario with specific names. How many saved tax returns can you have online? 10? 12? 20?

How many can you print out whenever you want? How many can you have side-by-side simultaneously? How many can you have without "messing up" your real return that you will file?
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