Need help with tax plan - 250k family in Texas

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willqiao
Posts: 4
Joined: Sat May 06, 2017 6:07 am

Need help with tax plan - 250k family in Texas

Post by willqiao » Thu Jan 04, 2018 5:49 pm

Hi Bogleheads users,

I paid $8000 tax last year after tax return. I hate the feeling that i have to pay big amount of money without planning. In 2017 year, I did some changes, but still it seems i still owes $10,100 tax to federal...This is ridiculous. Is this common for any family with $250k income in Texas? Please help and suggest me what to do.

Both my wife and me work and live in Texas with 3 kids, below are approximate numbers for estimation purpose.
0. file as married joint
1. Both Income - $259,000 (both W2 are the only income)
2. Deductions - $18500 (standard with some other credit, mortgage interest $10,000, property tax $8500)
3. Max out 401k $36000
4. Max FSA dependent care $5000
5. FSA medical $2000
6. Taxable income - 197500
7. Total tax owed - 42,000
8. Total withhold federal tax - $31,900
9. I owe government - $10,100

I have already changed "Exemptions/Allowances" for both my wife and me to lowest "1" from our employers. I dont know what to do to avoid this situation that I have to pay a huge amount money every year. I hate surprises like this. Please help and advice. Thank you.

livesoft
Posts: 63084
Joined: Thu Mar 01, 2007 8:00 pm

Re: Need help with tax plan - 250k family in Texas

Post by livesoft » Thu Jan 04, 2018 5:51 pm

See this thread: viewtopic.php?t=79510

You need to bunch deductions and donate lots more to charity.
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wertdaman
Posts: 11
Joined: Fri May 01, 2015 11:17 am

Re: Need help with tax plan - 250k family in Texas

Post by wertdaman » Thu Jan 04, 2018 5:57 pm

You'd have to do the math, but you might want to consider the W4 option of "Married, but withhold at higher Single rate" to increase either or both of your federal tax withholding from your pay checks.

smithers
Posts: 18
Joined: Mon Sep 15, 2014 1:03 pm

Re: Need help with tax plan - 250k family in Texas

Post by smithers » Thu Jan 04, 2018 6:01 pm

wertdaman wrote:
Thu Jan 04, 2018 5:57 pm
you might want to consider the W4 option of "Married, but withhold at higher Single rate"
That is almost certainly the issue. When you select "Married", your withholding is calculated as though you are the only working spouse (and is therefore much lower).

Admittedly, the wording on the form is somewhat confusing and antiquated (in that it assumes if you're married, only one of you is working).

JStephens
Posts: 59
Joined: Sat Dec 01, 2012 3:48 pm

Re: Need help with tax plan - 250k family in Texas

Post by JStephens » Thu Jan 04, 2018 6:06 pm

Your withholding is too low. $40k income tax for that income is about right. Also the lowest number of allowances you can choose is 0, not 1.

H-Town
Posts: 1309
Joined: Sun Feb 26, 2017 2:08 pm

Re: Need help with tax plan - 250k family in Texas

Post by H-Town » Thu Jan 04, 2018 6:15 pm

willqiao wrote:
Thu Jan 04, 2018 5:49 pm
Hi Bogleheads users,

I paid $8000 tax last year after tax return. I hate the feeling that i have to pay big amount of money without planning. In 2017 year, I did some changes, but still it seems i still owes $10,100 tax to federal...This is ridiculous. Is this common for any family with $250k income in Texas? Please help and suggest me what to do.

Both my wife and me work and live in Texas with 3 kids, below are approximate numbers for estimation purpose.
0. file as married joint
1. Both Income - $259,000 (both W2 are the only income)
2. Deductions - $18500 (standard with some other credit, mortgage interest $10,000, property tax $8500)
3. Max out 401k $36000
4. Max FSA dependent care $5000
5. FSA medical $2000
6. Taxable income - 197500
7. Total tax owed - 42,000
8. Total withhold federal tax - $31,900
9. I owe government - $10,100

I have already changed "Exemptions/Allowances" for both my wife and me to lowest "1" from our employers. I dont know what to do to avoid this situation that I have to pay a huge amount money every year. I hate surprises like this. Please help and advice. Thank you.
Well, look at the bright side, the new tax law effectively eliminate "marriage penalty" for dual income couple. So it'll get a little better next year (might save you around $5k). Make more charitable contribution (give away shares that have high capital gain, donate used car, etc.). Then make sure you have your HR dept withhold enough tax. Have a budget that project your income and federal tax throughout the year and compare with you tax withholding YTD.

mervinj7
Posts: 731
Joined: Thu Mar 27, 2014 3:10 pm

Re: Need help with tax plan - 250k family in Texas

Post by mervinj7 » Thu Jan 04, 2018 6:32 pm

thangngo wrote:
Thu Jan 04, 2018 6:15 pm
Well, look at the bright side, the new tax law effectively eliminate "marriage penalty" for dual income couple.
For some, there's a still an marriage penalty due to the SALT deduction cap. The deduction is limited to $10k whether or not the filer is married or single. For those in the 24% tax bracket and high SALT (e.g. homeowner in CA), that's potentially a $2.4K marriage penalty.

JGoneRiding
Posts: 1242
Joined: Tue Jul 15, 2014 3:26 pm

Re: Need help with tax plan - 250k family in Texas

Post by JGoneRiding » Thu Jan 04, 2018 6:42 pm

You have three options.
1 if you check married but withhold at higher single rate

Both of you change exemptions to zero NOT 1.

One with old at married plus 1 exemption and second person go through work sheet o n page 2 of a w4 form which is going to be the most accurate. Only 1 of you should calculate per worksheet if both of you do it it will over withhold. You need the first incomefor the sheet where it says other job

riverguy
Posts: 447
Joined: Sun May 23, 2010 10:33 pm

Re: Need help with tax plan - 250k family in Texas

Post by riverguy » Thu Jan 04, 2018 7:06 pm

Do a mock tax return based on status quo. Figure out what you owe. Divide by pay periods left in the year. Add that amount to the withholding on your W4. Problem solved.

willqiao
Posts: 4
Joined: Sat May 06, 2017 6:07 am

Re: Need help with tax plan - 250k family in Texas

Post by willqiao » Thu Jan 04, 2018 8:00 pm

Thank you guys. You are the best.

Now i understand my withhold option is wrong for both my wife and myself. Should use 0 and Married but withhold at higher Single rate.

I'm writing an email to HR right now. Hope that I wont get this surprise again next year...

willqiao
Posts: 4
Joined: Sat May 06, 2017 6:07 am

Re: Need help with tax plan - 250k family in Texas

Post by willqiao » Thu Jan 04, 2018 8:01 pm

riverguy wrote:
Thu Jan 04, 2018 7:06 pm
Do a mock tax return based on status quo. Figure out what you owe. Divide by pay periods left in the year. Add that amount to the withholding on your W4. Problem solved.
I didnt know that i can set a specific number on w4. Can I do that? I will review W4 again much carefully. Thanks.

livesoft
Posts: 63084
Joined: Thu Mar 01, 2007 8:00 pm

Re: Need help with tax plan - 250k family in Texas

Post by livesoft » Thu Jan 04, 2018 8:04 pm

Line 6 on W-4 will allow an "additional" amount.

My spouse's company now has software where employees can see exactly how much will be withheld on their paychecks by what they enter on the HR web site. It does make it nice now to know how to get an absolutely exact amount withheld.
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Ace1
Posts: 216
Joined: Sun Dec 26, 2010 7:29 pm
Location: Twinsburg Ohio

Re: Need help with tax plan - 250k family in Texas

Post by Ace1 » Thu Jan 04, 2018 8:57 pm

Willqiao,
Let me throw out that its possible to get in this situation when the two incomes are
not fairly close together. When the incomes are similar amounts, the Married 0 plus a fixed additional amount
will get closer to curing your underpayment issue.
When the two incomes are far apart, the smaller income will never be withheld enough.
If this is the case in your situation, I’d bet if you multiply your marginal rate times the lower income and compare
that to what was withheld on that w2 you would get pretty close to the shortfall you are experiencing.
Ace
Last edited by Ace1 on Fri Jan 05, 2018 7:23 pm, edited 1 time in total.

OldSport
Posts: 312
Joined: Tue Jul 25, 2017 7:01 pm

Re: Need help with tax plan - 250k family in Texas

Post by OldSport » Fri Jan 05, 2018 3:20 am

willqiao wrote:
Thu Jan 04, 2018 5:49 pm
Hi Bogleheads users,

I paid $8000 tax last year after tax return. I hate the feeling that i have to pay big amount of money without planning. In 2017 year, I did some changes, but still it seems i still owes $10,100 tax to federal...This is ridiculous. Is this common for any family with $250k income in Texas? Please help and suggest me what to do.

Both my wife and me work and live in Texas with 3 kids, below are approximate numbers for estimation purpose.
0. file as married joint
1. Both Income - $259,000 (both W2 are the only income)
2. Deductions - $18500 (standard with some other credit, mortgage interest $10,000, property tax $8500)
3. Max out 401k $36000
4. Max FSA dependent care $5000
5. FSA medical $2000
6. Taxable income - 197500
7. Total tax owed - 42,000
8. Total withhold federal tax - $31,900
9. I owe government - $10,100

I have already changed "Exemptions/Allowances" for both my wife and me to lowest "1" from our employers. I dont know what to do to avoid this situation that I have to pay a huge amount money every year. I hate surprises like this. Please help and advice. Thank you.
That is the correct tax. You can deduct charity. In states with no income tax, you can deduct sales taxes.

When my spouse works, we had the same problem. I put "0" exemptions and my spouse put "0" exemptions and withholds at higher single rate on W4. Problem went away.

nolesrule
Posts: 838
Joined: Thu Feb 26, 2015 10:59 am

Re: Need help with tax plan - 250k family in Texas

Post by nolesrule » Fri Jan 05, 2018 1:26 pm

Similar to our numbers, except we have (had) a larger itemized deduction and an HSA instead of FSA. We both are set to Married 0 on the W-4 with and additional $110 coming out of my semi-monthly paychecks. Our incomes are close to even which makes a difference. However we're going to get a pretty good refund this year because of some large charitable contributions made at the end of the year.

Unfortunately we won't know how much to change the extra withholding for 2018 until payroll guidance comes out from the IRS. My wife's first paycheck was today and as expected it's still using the 2017 payroll guidance.

Katietsu
Posts: 1667
Joined: Sun Sep 22, 2013 1:48 am

Re: Need help with tax plan - 250k family in Texas

Post by Katietsu » Fri Jan 05, 2018 2:49 pm

Just a heads up. Sounds like OP may be in a position to be charged an underpayment penalty thus year. If so, the sooner you pay, the lower the penalty will be.

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