Tax saving strategies for DINKs

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adpd2008
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Tax saving strategies for DINKs

Post by adpd2008 » Wed Sep 27, 2017 7:08 pm

We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT. Our income next year will either be about the same or slightly less so that we are likely to stay in the same tax bracket. Charitable and State/local are our only substantial deductions.

Given our lifestyle choices (which don't make sense for us to change e.g. have a kid or buy a house), are there any tax strategies available to us that will help save a few extra dollars in taxes this year (i.e. between now and 12/31)?

Somethings we do: 1) Max pre-tax retirement savings; 2) Take full advantage of pre-tax employer programs for commuting and flex spending; 3) upped our charitable giving this year but not solely for tax reasons; 4) Hold emergency cash in short-term muni ETFs.

retiredjg
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Re: Tax saving strategies for DINKs

Post by retiredjg » Wed Sep 27, 2017 7:13 pm

adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
Somethings we do: 1) Max pre-tax retirement savings;
You know what this means, but we don't. Maybe you should spell this part out.

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Raymond
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Re: Tax saving strategies for DINKs

Post by Raymond » Wed Sep 27, 2017 7:15 pm

Do you have any stocks or mutual funds in taxable accounts you might tax-loss harvest?
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livesoft
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Re: Tax saving strategies for DINKs

Post by livesoft » Wed Sep 27, 2017 7:22 pm

Don't use any interest bearing savings accounts at all. That means that your Schedule B should have no items on the top half. Your income is high enough and your taxable accounts bloated enough that you don't need savings earning 1% to 2% and taxed at 50%.
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taguscove
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Re: Tax saving strategies for DINKs

Post by taguscove » Wed Sep 27, 2017 7:25 pm

I'm in a similar situation. A W-2 income is a very simple and easy target to tax. Due to the simplicity of the taxation, such income is highly taxed with few options to avoid taxes.

That said, you still have some options.

1. Buying a house with a mortgage is an impactful choice, but not in the time frame you're looking for.

2. I also found this article useful to understand the tax avoidance options:
https://investorjunkie.com/2898/tax-eff ... investing/

Iliketoridemybike
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Re: Tax saving strategies for DINKs

Post by Iliketoridemybike » Wed Sep 27, 2017 7:29 pm

Donate appreciated shares rather than cash. There are some charitable trusts like Fidelity’s Charitable Giving Account that make it easy. You get the benefit of the donation and it also reduces your future cap gain on that investment.

Gill
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Re: Tax saving strategies for DINKs

Post by Gill » Wed Sep 27, 2017 7:37 pm

At one time you would be advised to invest in oil drilling partnerships and other tax shelters designed for those with high incomes. Most of the shelters have now been plugged so there isn't much left other than to continue as you are and pay your taxes.
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Re: Tax saving strategies for DINKs

Post by avalpert » Wed Sep 27, 2017 8:33 pm

livesoft wrote:
Wed Sep 27, 2017 7:22 pm
Don't use any interest bearing savings accounts at all. That means that your Schedule B should have no items on the top half. Your income is high enough and your taxable accounts bloated enough that you don't need savings earning 1% to 2% and taxed at 50%.
This doesn't make much sense as a tax-saving strategy alone. You could say they shouldn't have any cash in their portfolio and manage liquidity out of investments only - but that depends on their own risk preferences and liquidity management preferences. If they want to have some cash around for either of those reasons then just because it is taxed at 50% doesn't mean they should avoid earning interest on it.

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FiveK
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Re: Tax saving strategies for DINKs

Post by FiveK » Wed Sep 27, 2017 8:37 pm

Do you have HSAs?

EddyB
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Re: Tax saving strategies for DINKs

Post by EddyB » Wed Sep 27, 2017 8:45 pm

adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT.
Is your local income tax rate about 20%? If not, are you sure you're facing a marginal rate close to 50%, if you're paying AMT? If you're fully phased out of the AMT exemption, and paying AMT, what's your marginal federal income tax rate?

adpd2008
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Re: Tax saving strategies for DINKs

Post by adpd2008 » Wed Sep 27, 2017 9:03 pm

Thanks for all the replies. I get the sense that W-2 people have little to no options for tax sheltering. The one interesting idea I had not considered was opening up 529 account even though we don't have kids yet. I will look into that.

Here are some replies to questions asked.

Eddy B: Our local rate is about 9%. I was just adding that to our top tax bracket of 39.6% plus medicare surtax but I guess your point is well taken.

Avalpert: We do not have HSAs. Unfortunately, they are not options available through our employers. We do have FSAs.

taguscove: buying a house doesn't make economic sense for us right now. We got into a rent controlled apartment 10 years ago in a downtown area. If we bought in the same area our housing cost would go up 250% and any tax benefit will not compensate for it.

retiredjg: we max out our 401ks.

EddyB
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Re: Tax saving strategies for DINKs

Post by EddyB » Wed Sep 27, 2017 9:15 pm

adpd2008 wrote:
Wed Sep 27, 2017 9:03 pm
Thanks for all the replies. I get the sense that W-2 people have little to no options for tax sheltering. The one interesting idea I had not considered was opening up 529 account even though we don't have kids yet. I will look into that.

Here are some replies to questions asked.

Eddy B: Our local rate is about 9%. I was just adding that to our top tax bracket of 39.6% plus medicare surtax but I guess your point is well taken.

Avalpert: We do not have HSAs. Unfortunately, they are not options available through our employers. We do have FSAs.

taguscove: buying a house doesn't make economic sense for us right now. We got into a rent controlled apartment 10 years ago in a downtown area. If we bought in the same area our housing cost would go up 250% and any tax benefit will not compensate for it.

retiredjg: we max out our 401ks.
I'm in much the same boat, a W-2 employee with a marginal (and basically effective) local rate of 9.9% and a small (4 figures) AMT bill, but if I popped out of AMT I'd be in the top bracket plus the surcharge, and subject to Pease limitations. I make 529 contributions (which I did start before we had kids), but that's only approximately $450 annual state tax savings for me---depending on your state's deduction, if you don't have a likely use for the 529, maybe it's not worth it---and the past few years have made it hard to find capital losses (I'm ok with that). I don't believe there's any magic benefit out there shy of giving up or donating income.

Grt2bOutdoors
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Re: Tax saving strategies for DINKs

Post by Grt2bOutdoors » Wed Sep 27, 2017 9:18 pm

Grin it and bear it. You earn it, you will pay it. Much happier and grateful to earn it than not.
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grabiner
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Re: Tax saving strategies for DINKs

Post by grabiner » Wed Sep 27, 2017 9:26 pm

adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT.
If you pay AMT, your marginal federal tax rate is only 28% (plus the ACA surtax), not 39.6%, but you lose your deduction for local income tax.

It's probably best to buy an AMT-free municipal bond fund from your state if Vanguard offers one, and hold that in your taxable account in preference to stock; you pay 23.8% federal tax, plus state tax, on your qualified dividends. If Vanguard doesn't offer such a fund, it is probably not worth using a non-Vanguard fund, as you'll pay more in extra expenses than you save in taxes with something like T. Rowe Price's MD fund (my usual example because I live in MD; I am not assuming that you live in Baltimore). You could also buy individual municipal bonds from your state.
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Iliketoridemybike
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Re: Tax saving strategies for DINKs

Post by Iliketoridemybike » Wed Sep 27, 2017 9:48 pm

grabiner wrote:
Wed Sep 27, 2017 9:26 pm
adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT.
If you pay AMT, your marginal federal tax rate is only 28% (plus the ACA surtax), not 39.6%...
You sure about this? I pay AMT and my rate is 33%.

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grabiner
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Re: Tax saving strategies for DINKs

Post by grabiner » Wed Sep 27, 2017 9:56 pm

Iliketoridemybike wrote:
Wed Sep 27, 2017 9:48 pm
grabiner wrote:
Wed Sep 27, 2017 9:26 pm
adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT.
If you pay AMT, your marginal federal tax rate is only 28% (plus the ACA surtax), not 39.6%...
You sure about this? I pay AMT and my rate is 33%.
The highest tax bracket for the AMT is 28%. If you are in the phase-out of AMT personal exemptions, your marginal AMT rate is 35%. But the OP, who is in the highest federal income tax bracket, is beyond that phase-out range and thus has a marginal AMT rate of 28%.
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ofckrupke
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Re: Tax saving strategies for DINKs

Post by ofckrupke » Wed Sep 27, 2017 10:11 pm

grabiner wrote:
Wed Sep 27, 2017 9:56 pm
Iliketoridemybike wrote:
Wed Sep 27, 2017 9:48 pm

You sure about this? I pay AMT and my rate is 33%.
The highest tax bracket for the AMT is 28%. If you are in the phase-out of AMT personal exemptions, your marginal AMT rate is 35%. But the OP, who is in the highest federal income tax bracket, is beyond that phase-out range and thus has a marginal AMT rate of 28%.
For the less familiar, this blog post by Michael Kitces illustrates fairly well the oddity of TMT marginal taxation in and above the exemption phaseout, for AMT-subject taxpayers.

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Re: Tax saving strategies for DINKs

Post by Iliketoridemybike » Wed Sep 27, 2017 10:19 pm

ofckrupke wrote:
Wed Sep 27, 2017 10:11 pm
grabiner wrote:
Wed Sep 27, 2017 9:56 pm
Iliketoridemybike wrote:
Wed Sep 27, 2017 9:48 pm

You sure about this? I pay AMT and my rate is 33%.
The highest tax bracket for the AMT is 28%. If you are in the phase-out of AMT personal exemptions, your marginal AMT rate is 35%. But the OP, who is in the highest federal income tax bracket, is beyond that phase-out range and thus has a marginal AMT rate of 28%.
For the less familiar, this blog post by Michael Kitces illustrates fairly well the oddity of TMT marginal taxation in and above the exemption phaseout, for AMT-subject taxpayers.
So the bump zone is at the 32.5% - 35% level.

JBTX
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Re: Tax saving strategies for DINKs

Post by JBTX » Wed Sep 27, 2017 10:23 pm

adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT. Our income next year will either be about the same or slightly less so that we are likely to stay in the same tax bracket. Charitable and State/local are our only substantial deductions.

Given our lifestyle choices (which don't make sense for us to change e.g. have a kid or buy a house), are there any tax strategies available to us that will help save a few extra dollars in taxes this year (i.e. between now and 12/31)?

Somethings we do: 1) Max pre-tax retirement savings; 2) Take full advantage of pre-tax employer programs for commuting and flex spending; 3) upped our charitable giving this year but not solely for tax reasons; 4) Hold emergency cash in short-term muni ETFs.
Do you do backdoor Roths, or Mega Backdoor Roths (if eligible)? If not, look them up in the wiki. They won't save you any fax money now, but all future cap gains, dividends and interest earnings would be tax free. Plus you can pull out contributions to Roths (not earnings) tax free in a pinch.

aristotelian
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Re: Tax saving strategies for DINKs

Post by aristotelian » Wed Sep 27, 2017 10:30 pm

If you do regular charitable contributions, you could "double up" and do your contribution for next year or beyond, while taking the standard deduction in other years. We put three years worth of contributions in a Donor Advised Fund this year and will take the standard deduction the next two years.

EddyB
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Re: Tax saving strategies for DINKs

Post by EddyB » Wed Sep 27, 2017 10:38 pm

aristotelian wrote:
Wed Sep 27, 2017 10:30 pm
If you do regular charitable contributions, you could "double up" and do your contribution for next year or beyond, while taking the standard deduction in other years. We put three years worth of contributions in a Donor Advised Fund this year and will take the standard deduction the next two years.
If the OP is an AMT payer, doesn't that just shift the same taxes into subsequent years (assuming no changes in the tax code), and reduce investments in the current year?

retiredjg
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Re: Tax saving strategies for DINKs

Post by retiredjg » Thu Sep 28, 2017 5:22 am

I bonds (see Wiki) are a tax-efficient way to hold bonds in a taxable account.

learning_head
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Re: Tax saving strategies for DINKs

Post by learning_head » Thu Sep 28, 2017 8:37 am

If you are married and your lowest earner brings in over $30-40k, I think the biggest savings you will get is from this strategy: get (legal) divorce

... and if your lowest earner brings in 100k+, two of you can enjoy a nice vacation for $10k+ every year with the tax savings, or get a new car every 2-3 years ... :-)
Last edited by learning_head on Thu Sep 28, 2017 12:41 pm, edited 2 times in total.

wrongfunds
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Re: Tax saving strategies for DINKs

Post by wrongfunds » Thu Sep 28, 2017 9:43 am

livesoft wrote:
Wed Sep 27, 2017 7:22 pm
Don't use any interest bearing savings accounts at all. That means that your Schedule B should have no items on the top half. Your income is high enough and your taxable accounts bloated enough that you don't need savings earning 1% to 2% and taxed at 50%.
Why? How does that hurt? Are you suggesting instead of savings account, have the money in CD? Or move the money under the mattress?

Seriously, he is *only* paying 50% tax! You would have a point if he was paying 110% in the taxes on that 1% or 2% interest!!

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Re: Tax saving strategies for DINKs

Post by livesoft » Thu Sep 28, 2017 10:16 am

^I'm suggesting that they act like I do: Never have any cash in a taxable account. When one is wealthy or has good cash flow like the OP, then cash is absolutely not necessary. For instance, I sold some VTI recently to pay some credit card bills.
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Phil DeMuth
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Re: Tax saving strategies for DINKs

Post by Phil DeMuth » Thu Sep 28, 2017 11:46 am

This is a tough situation. Make sure you only buy super tax-efficient funds in your taxable investment account.

Consider also: buying a couple of goldfish and claim them as your children? This can be very profitable unless/until you are audited....

John Laurens
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Re: Tax saving strategies for DINKs

Post by John Laurens » Thu Sep 28, 2017 11:47 am

Earn less income, give more to charity, vote for politicians who want significantly lower taxes.

Regards,
John

spammagnet
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Re: Tax saving strategies for DINKs

Post by spammagnet » Thu Sep 28, 2017 12:12 pm

livesoft wrote:
Thu Sep 28, 2017 10:16 am
^I'm suggesting that they act like I do: Never have any cash in a taxable account. When one is wealthy or has good cash flow like the OP, then cash is absolutely not necessary. For instance, I sold some VTI recently to pay some credit card bills.
Does that not create a risk of capital loss? The X% tax paid on a nominal amount of interest is better than a drop in the value of the investment, no?

No, I'm not suggesting leaving cash laying around but you're talking about known short term cash needs.

beehappy
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Re: Tax saving strategies for DINKs

Post by beehappy » Thu Sep 28, 2017 12:15 pm

avalpert wrote:
Wed Sep 27, 2017 8:33 pm
livesoft wrote:
Wed Sep 27, 2017 7:22 pm
Don't use any interest bearing savings accounts at all. That means that your Schedule B should have no items on the top half. Your income is high enough and your taxable accounts bloated enough that you don't need savings earning 1% to 2% and taxed at 50%.
This doesn't make much sense as a tax-saving strategy alone. You could say they shouldn't have any cash in their portfolio and manage liquidity out of investments only - but that depends on their own risk preferences and liquidity management preferences. If they want to have some cash around for either of those reasons then just because it is taxed at 50% doesn't mean they should avoid earning interest on it.
I'd modify livesoft's advice a bit, but conceptually, it makes total sense. We're in a similar situation as the OP (operating under AMT). We've substituted i-bonds as alternative to savings accounts. Once you plan for liquidity around the initial 11-12 month lock up period (e.g., using a ladder), it's basically as good as a savings account without the negative yearly tax implications. We only keep a month's expenses of cash on hand (which is kept in an account yielding 1.2%) and that's it.

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Re: Tax saving strategies for DINKs

Post by beehappy » Thu Sep 28, 2017 12:25 pm

grabiner wrote:
Wed Sep 27, 2017 9:56 pm
Iliketoridemybike wrote:
Wed Sep 27, 2017 9:48 pm
grabiner wrote:
Wed Sep 27, 2017 9:26 pm
adpd2008 wrote:
Wed Sep 27, 2017 7:08 pm
We are a DINKs who live in the downtown area of a major city. We are both W-2 employees. We rent.

We will be in the highest federal income tax bracket this year. When you add our high local income tax rate, our marginal rate will be fairly close to 50%. We will also pay AMT.
If you pay AMT, your marginal federal tax rate is only 28% (plus the ACA surtax), not 39.6%...
You sure about this? I pay AMT and my rate is 33%.
The highest tax bracket for the AMT is 28%. If you are in the phase-out of AMT personal exemptions, your marginal AMT rate is 35%. But the OP, who is in the highest federal income tax bracket, is beyond that phase-out range and thus has a marginal AMT rate of 28%.
If that's the case, then OP is actually in the AMT sweet spot, and should stay there, per Kitces.

https://www.kitces.com/blog/evaluating- ... -amt-bite/

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FiveK
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Re: Tax saving strategies for DINKs

Post by FiveK » Thu Sep 28, 2017 12:40 pm

beehappy wrote:
Thu Sep 28, 2017 12:25 pm
If that's the case, then OP is actually in the AMT sweet spot, and should stay there, per Kitces.

https://www.kitces.com/blog/evaluating- ... -amt-bite/
Could be.

Probably depends on the actual state/local tax rates, amounts of charitable contributions, etc.

Assuming one spouse making $240K/yr, MN state tax rates, and $24K charitable contributions, the marginal rate on the other spouse's income (based on Tools and calculators - Personal_finance_toolbox) is below.

Image

EddyB
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Re: Tax saving strategies for DINKs

Post by EddyB » Thu Sep 28, 2017 1:02 pm

FiveK wrote:
Thu Sep 28, 2017 12:40 pm
beehappy wrote:
Thu Sep 28, 2017 12:25 pm
If that's the case, then OP is actually in the AMT sweet spot, and should stay there, per Kitces.

https://www.kitces.com/blog/evaluating- ... -amt-bite/
Could be.

Probably depends on the actual state/local tax rates, amounts of charitable contributions, etc.

Assuming one spouse making $240K/yr, MN state tax rates, and $24K charitable contributions, the marginal rate on the other spouse's income (based on Tools and calculators - Personal_finance_toolbox) is below.

Image
Possibly (although I'd want to see how it was constructed), but this chart peters out before the start of (notional) 39.6% bracket, where the OP says s/he is, and on which some of us are basing the presumption that the OP is fully phased out of the reduction in the AMT exemption, and the OP already said they're "dual income," so they're already at least some way into completing (if not having completed) the social security payroll tax. Past that point, for so long as they're still AMT payers, won't they just be paying 28% AMT, the applicable payroll and supplemental Medicare taxes, and their state/local taxes? If you keep running your chart out, does it show the marginal rate dropping to something like 40.2% for federal/state/Medicare combined?

randomguy
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Re: Tax saving strategies for DINKs

Post by randomguy » Thu Sep 28, 2017 1:23 pm

learning_head wrote:
Thu Sep 28, 2017 8:37 am
If you are married and your lowest earner brings in over $30-40k, I think the biggest savings you will get is from this strategy: get (legal) divorce

... and if your lowest earner brings in 100k+, two of you can enjoy a nice vacation for $10k+ every year with the tax savings, or get a new car every 2-3 years ... :-)
This is probably the best financial way of going. Some how I doubt it will happen:)

As far ss the marginal rate lets call it 40%+: 28% federal + 2.35% medicare + 9% local that will go to 50%+ if you can get on the other side of the AMT hump (which they should be getting close to if they are in the highest bracket.). The difference doesn't really matter.

As it is I have never heard of any really useful tools to help here beyond the obvious ones of putting as much as possible into 401(k)/IRAs (back door roth if possible), HSAs and the like.

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Re: Tax saving strategies for DINKs

Post by randomguy » Thu Sep 28, 2017 1:28 pm

spammagnet wrote:
Thu Sep 28, 2017 12:12 pm
livesoft wrote:
Thu Sep 28, 2017 10:16 am
^I'm suggesting that they act like I do: Never have any cash in a taxable account. When one is wealthy or has good cash flow like the OP, then cash is absolutely not necessary. For instance, I sold some VTI recently to pay some credit card bills.
Does that not create a risk of capital loss? The X% tax paid on a nominal amount of interest is better than a drop in the value of the investment, no?

No, I'm not suggesting leaving cash laying around but you're talking about known short term cash needs.
You keep your AA the same by holding more cash in tax deferred. When you sell x amount of stock in taxable, you buy x amount of stock in tax deferred. You end up in the same place as holding x amount of cash in taxable but with better tax treatment.

That being said, the OP might be in the place where holding munis is the way to go.

livesoft
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Re: Tax saving strategies for DINKs

Post by livesoft » Thu Sep 28, 2017 1:33 pm

spammagnet wrote:
Thu Sep 28, 2017 12:12 pm
livesoft wrote:
Thu Sep 28, 2017 10:16 am
^I'm suggesting that they act like I do: Never have any cash in a taxable account. When one is wealthy or has good cash flow like the OP, then cash is absolutely not necessary. For instance, I sold some VTI recently to pay some credit card bills.
Does that not create a risk of capital loss? The X% tax paid on a nominal amount of interest is better than a drop in the value of the investment, no?

No, I'm not suggesting leaving cash laying around but you're talking about known short term cash needs.
We've covered this ground many times before. One cannot avoid losses when one is investing, but folks with high income (lots of cash flow) and plenty of assets basically should not worry about losses anyways. They should get over any fears of losses because unavoidable losses really don't matter in the long run. Plus with investing in tax-efficient equities in taxable, one could tax-loss harvest and save even more on taxes.

See also from 2008 Thank you Livesoft for opening up my eyes!
and also: https://www.bogleheads.org/wiki/Placing ... ed_account
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learning_head
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Re: Tax saving strategies for DINKs

Post by learning_head » Thu Sep 28, 2017 1:52 pm

randomguy wrote:
Thu Sep 28, 2017 1:23 pm
learning_head wrote:
Thu Sep 28, 2017 8:37 am
If you are married and your lowest earner brings in over $30-40k, I think the biggest savings you will get is from this strategy: get (legal) divorce

... and if your lowest earner brings in 100k+, two of you can enjoy a nice vacation for $10k+ every year with the tax savings, or get a new car every 2-3 years ... :-)
This is probably the best financial way of going. Some how I doubt it will happen:)
Who knows... if OP realizes that marriage license paper is costing them $10k+/year, after tax; might be good investment for the couple to ditch it... :moneybag

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FiveK
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Re: Tax saving strategies for DINKs

Post by FiveK » Thu Sep 28, 2017 2:46 pm

EddyB wrote:
Thu Sep 28, 2017 1:02 pm
FiveK wrote:
Thu Sep 28, 2017 12:40 pm
Assuming one spouse making $240K/yr, MN state tax rates, and $24K charitable contributions, the marginal rate on the other spouse's income (based on Tools and calculators - Personal_finance_toolbox) is below.
<snip>
Possibly (although I'd want to see how it was constructed), but this chart peters out before the start of (notional) 39.6% bracket, where the OP says s/he is, and on which some of us are basing the presumption that the OP is fully phased out of the reduction in the AMT exemption, and the OP already said they're "dual income," so they're already at least some way into completing (if not having completed) the social security payroll tax. Past that point, for so long as they're still AMT payers, won't they just be paying 28% AMT, the applicable payroll and supplemental Medicare taxes, and their state/local taxes? If you keep running your chart out, does it show the marginal rate dropping to something like 40.2% for federal/state/Medicare combined?
See the spreadsheet tool referenced in the link for details. Entries by cell on the 'Calculations' tab:
G2: 2
G3: 2
B3: 20000
G8: 35
H8: 35
I35: MN
B68: 2000
P64: 70
...and adjusted the chart input as described in cell 'Instructions'!B15, etc.

Note that the chart assumes one spouse's income of $240K, and this is the income of the other spouse, so together it puts them well into the federal 39.6% bracket.

randomguy
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Re: Tax saving strategies for DINKs

Post by randomguy » Thu Sep 28, 2017 2:47 pm

learning_head wrote:
Thu Sep 28, 2017 1:52 pm
randomguy wrote:
Thu Sep 28, 2017 1:23 pm
learning_head wrote:
Thu Sep 28, 2017 8:37 am
If you are married and your lowest earner brings in over $30-40k, I think the biggest savings you will get is from this strategy: get (legal) divorce

... and if your lowest earner brings in 100k+, two of you can enjoy a nice vacation for $10k+ every year with the tax savings, or get a new car every 2-3 years ... :-)
This is probably the best financial way of going. Some how I doubt it will happen:)
Who knows... if OP realizes that marriage license paper is costing them $10k+/year, after tax; might be good investment for the couple to ditch it... :moneybag

I have mentioned this to a half dozen couples at work that they would save 2-4k by not getting married (talking more 150-200k people so not quite the top brackets). I even suggested that they could get married when they retired. Not a single one postponed the wedding. :) And no I didn't take this advice either:)

learning_head
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Re: Tax saving strategies for DINKs

Post by learning_head » Thu Sep 28, 2017 3:00 pm

randomguy wrote:
Thu Sep 28, 2017 2:47 pm
learning_head wrote:
Thu Sep 28, 2017 1:52 pm
randomguy wrote:
Thu Sep 28, 2017 1:23 pm
learning_head wrote:
Thu Sep 28, 2017 8:37 am
If you are married and your lowest earner brings in over $30-40k, I think the biggest savings you will get is from this strategy: get (legal) divorce

... and if your lowest earner brings in 100k+, two of you can enjoy a nice vacation for $10k+ every year with the tax savings, or get a new car every 2-3 years ... :-)
This is probably the best financial way of going. Some how I doubt it will happen:)
Who knows... if OP realizes that marriage license paper is costing them $10k+/year, after tax; might be good investment for the couple to ditch it... :moneybag

I have mentioned this to a half dozen couples at work that they would save 2-4k by not getting married (talking more 150-200k people so not quite the top brackets). I even suggested that they could get married when they retired. Not a single one postponed the wedding. :) And no I didn't take this advice either:)
I am sure you are right, and most people do exactly what you said; but also, most of those people are probably not bogleheads... :-)

On a side note, having a wedding is unrelated to signing the paper ;-)... And some people in this situation may not want rest of the world to know whether they have the license or not...

EddyB
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Re: Tax saving strategies for DINKs

Post by EddyB » Thu Sep 28, 2017 4:22 pm

FiveK wrote:
Thu Sep 28, 2017 2:46 pm
Note that the chart assumes one spouse's income of $240K, and this is the income of the other spouse, so together it puts them well into the federal 39.6% bracket.
Thanks. I misunderstood that. So the flat spot at about 40% from somewhat below $300k to somewhat over $350k for the additional earner is the "sweet spot here." Neat tool.

adpd2008
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Re: Tax saving strategies for DINKs

Post by adpd2008 » Thu Sep 28, 2017 4:26 pm

Op here. Depressing...just did the math. If we get divorced prior to 12/31 and remarried after we will save roughly 15K in federal taxes. State will probably add a few more thousand.

I'm pretty sure DW will not be down for this and I'm guessing this is straight up tax fraud.

spammagnet
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Re: Tax saving strategies for DINKs

Post by spammagnet » Thu Sep 28, 2017 7:12 pm

livesoft wrote:
Thu Sep 28, 2017 1:33 pm
We've covered this ground many times before. ...
Sorry to have rehashed an old topic.

randomguy
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Re: Tax saving strategies for DINKs

Post by randomguy » Thu Sep 28, 2017 7:33 pm

adpd2008 wrote:
Thu Sep 28, 2017 4:26 pm
Op here. Depressing...just did the math. If we get divorced prior to 12/31 and remarried after we will save roughly 15K in federal taxes. State will probably add a few more thousand.

I'm pretty sure DW will not be down for this and I'm guessing this is straight up tax fraud.
The IRS will disallow multiple marriages/divorces like this. But you can get divorced and live in sin and that is a-ok:)

Engineer250
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Re: Tax saving strategies for DINKs

Post by Engineer250 » Thu Sep 28, 2017 10:35 pm

randomguy wrote:
Thu Sep 28, 2017 2:47 pm
I have mentioned this to a half dozen couples at work that they would save 2-4k by not getting married (talking more 150-200k people so not quite the top brackets). I even suggested that they could get married when they retired. Not a single one postponed the wedding. :) And no I didn't take this advice either:)
Not relevant to OP but I wouldn't recommend unmarried people buy a house together if they can help it. Know plenty of living in sin couples that broke up and their finances were a mess. Often whomever wants out the most ends up giving up all of their equity just to get out.

I'll be one half of a DINK next year, but not as high a bracket as OP. You do what you can. Reduce tax burden where you can, but don't lose sight of the forest for the trees. In a sane world no one's trying to reduce the money in their wallets just to have paid the tax man a little less, but some of the advice starts to veer that way sometimes.
Where the tides of fortune take us, no man can know.

Nearly A Moose
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Re: Tax saving strategies for DINKs

Post by Nearly A Moose » Thu Sep 28, 2017 11:17 pm

Not really much you can do. As others have mentioned, use a donor advised fund to flush out some capital gains and do your charitable giving through that. If either of you is planning on getting an advanced degree or if you think you might contribute toward a niece or nephew's education, you could open a 529 and fund it to the max for your state tax deduction, but you're giving that money away, so it's pretty drastic for a small tax savings.

If you're on either edge of the a amt (and from what others are posting it sounds like you're in the middle, you could try to tinker with your income so that you alternate years in and out of it. I've never had the necessary control over my income to make that viable so haven't looked into it much.

Longer term, if you're able to transition from employees to owners, my understanding is that creates more tax management opportunities. But that's no quick fix.

Fwiw, and I sense you were joking about this, kids are definitely a net cost, especially for dual high earners in a HCOL area. I think we will spend right around $100k on ours this year. I definitely miss the financial aspects of being dinks...
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

beehappy
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Re: Tax saving strategies for DINKs

Post by beehappy » Fri Sep 29, 2017 5:25 am

Nearly A Moose wrote:
Thu Sep 28, 2017 11:17 pm
Fwiw, and I sense you were joking about this, kids are definitely a net cost, especially for dual high earners in a HCOL area. I think we will spend right around $100k on ours this year. I definitely miss the financial aspects of being dinks...
+1 for this. I think we get only about $1200 childcare tax break on our 2 kids, out of a 6-figure tax liability. Personal exemptions are phased out, and we make too much for any of the child tax credits.

MikeG62
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Location: New Jersey

Re: Tax saving strategies for DINKs

Post by MikeG62 » Fri Sep 29, 2017 6:27 am

Don’t let the tax tail wag the dog. Was in a similar situation to you for a very long time and took the opportunity to save as much as I could each and every year in taxable brokerage account (after maxing pre-tax savings vehicles). A mix of low cost index ETF’s and Muni’s would be very tax efficient (even though not providing a current tax decuction). You both should also be maximizing Roth IRA contributions through back-door strategy each and every year too.

FWIW, my approach allowed DW and I to retire at 53 (with no pension). Our lifestyle is financed solely from our investments and we are living up to the level of our means. We travel extensively and are having the time of our lives.
Real Knowledge Comes Only From Experience

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Tamarind
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Re: Tax saving strategies for DINKs

Post by Tamarind » Fri Sep 29, 2017 7:01 am

I'd agree don't let the tax tail wag your dog.

After your 50% taxes, you are still bringing home at least 5x the take home of the average household. High taxes means you're doing it right and being successful. Trust me, the house and child deductions won't make much of a dent at your income anyway.

Sock lots away in taxable accounts and backdoor Roth now, and think of it as pre-paying the taxes for the rest of your life. After you retire early and have $0 W2 income you can convert everything into Roths in a few years and then never have taxable income again if that's what you want. :beer

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