Strategies for my simple tax situation

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sergio
Posts: 136
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Strategies for my simple tax situation

Post by sergio » Sun Feb 04, 2018 12:46 pm

Hey Guys,

Up until the end of 2017, I've been pretty much just blindly following TurboTax for my tax returns, not really caring that much about specifics since I was single and comfortable. Now that I married and we have a child on the way, I am really hoping to get a second opinion on my taxes. My wife doesn't currently work fwiw.
106,000 Gross Income
- 6,900 HSA Contributions
- 7,800 Health Insurance Premiums
----------
91,300 (SS/Medicare Wages)


- 9,540 401k Contributions
----------
81,760 Adjusted Gross Income


- 24,000 Standard Deduction
----------
57,760 Taxable Income
For federal taxes, this puts 19,050 @ 10% and 38,710 @12%, for a total tax of $6,550. With the child tax credit, this would go down to $4,550. Seems pretty low: 4,550/106,000, about 4.2% of gross income going towards federal! I paid a crapton more last year at the old rates as a single guy with no kids.

Any strategies in this situation? Should I be looking at plowing money into a traditional IRA for myself/my wife? Or would a Roth be better for myself, traditional for my wife?

Any other deductions, credits, tricks etc. that I am overlooking? I live in MN fwiw but I'm trying to get my federal tax straightened out first.



Thanks!

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FrugalProfessor
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Re: Strategies for my simple tax situation

Post by FrugalProfessor » Sun Feb 04, 2018 2:25 pm

Looks pretty accurate to me. You properly accounted for the $2k CTC.

If I were you, the only remaining option I'd entertain is shove money into Roths (including your 401k if Roth 401k is an option). In this manner, you lock in the 12% bucket now and are hedged against future increases in taxes. You are unlikely to have a marginal rate of much less than 12% in the future, which tells you to lock in that rate now with the Roth.
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jwkde
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Re: Strategies for my simple tax situation

Post by jwkde » Sun Feb 04, 2018 6:04 pm

You are talking about 2018 or 2017?

livesoft
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Re: Strategies for my simple tax situation

Post by livesoft » Sun Feb 04, 2018 6:18 pm

Clearly, you could have $0 taxable income if you had put $7,760 more into the 401(k) plan. You could then contribute to two Roth IRAs for you and your spouse of $5500 each or $11,000 total. That's 0% tax going in and 0% tax coming out.

2017 tax season is not over yet, so you can probably contribute to IRAs for 2017.

Anyways, more info in the ZERO taxes thread: viewtopic.php?t=87471

Many families (at least 40% of families) do not pay federal income tax. Your family should be one of them.
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sergio
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Re: Strategies for my simple tax situation

Post by sergio » Sun Feb 04, 2018 6:24 pm

jwkde wrote:
Sun Feb 04, 2018 6:04 pm
You are talking about 2018 or 2017?
This will be for 2018.

sergio
Posts: 136
Joined: Sat Jun 20, 2015 6:52 pm

Re: Strategies for my simple tax situation

Post by sergio » Sun Feb 04, 2018 7:44 pm

livesoft wrote:
Sun Feb 04, 2018 6:18 pm
Clearly, you could have $0 taxable income if you had put $7,760 more into the 401(k) plan. You could then contribute to two Roth IRAs for you and your spouse of $5500 each or $11,000 total. That's 0% tax going in and 0% tax coming out.

2017 tax season is not over yet, so you can probably contribute to IRAs for 2017.

Anyways, more info in the ZERO taxes thread: viewtopic.php?t=87471

Many families (at least 40% of families) do not pay federal income tax. Your family should be one of them.
I already maxed out my 2017 Roth IRA contribution.

I'm intrigued how I would pay ZERO taxes on $50,000 of taxable income... I'll definitely give that thread a read-through.

sergio
Posts: 136
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Re: Strategies for my simple tax situation

Post by sergio » Sun Feb 04, 2018 7:45 pm

FrugalProfessor wrote:
Sun Feb 04, 2018 2:25 pm
Looks pretty accurate to me. You properly accounted for the $2k CTC.

If I were you, the only remaining option I'd entertain is shove money into Roths (including your 401k if Roth 401k is an option). In this manner, you lock in the 12% bucket now and are hedged against future increases in taxes. You are unlikely to have a marginal rate of much less than 12% in the future, which tells you to lock in that rate now with the Roth.
Thanks - I figured 12% would put me in the Roth (over traditional) category.

livesoft
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Re: Strategies for my simple tax situation

Post by livesoft » Sun Feb 04, 2018 7:47 pm

sergio wrote:
Sun Feb 04, 2018 7:44 pm
I already maxed out my 2017 Roth IRA contribution.
And your spouse's 2017 IRA?

You will pay tax on $50K of taxable income.
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sergio
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Re: Strategies for my simple tax situation

Post by sergio » Sun Feb 04, 2018 8:09 pm

livesoft wrote:
Sun Feb 04, 2018 7:47 pm
sergio wrote:
Sun Feb 04, 2018 7:44 pm
I already maxed out my 2017 Roth IRA contribution.
And your spouse's 2017 IRA?

You will pay tax on $50K of taxable income.
We married in Jan 2018, so I'm filing single for 2017. I don't have the funds to put money in her Roth at the present time, although I would do it for traditional since j owe the IRS $1800 due to a botched calculation. Also, my wife will not have an ssn until well after April since she her green card is currently being processed ...

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FiveK
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Re: Strategies for my simple tax situation

Post by FiveK » Mon Feb 05, 2018 1:06 am

sergio wrote:
Sun Feb 04, 2018 8:09 pm
We married in Jan 2018, so I'm filing single for 2017. I don't have the funds to put money in her Roth at the present time, although I would do it for traditional since j owe the IRS $1800 due to a botched calculation.
Yes, traditional 401k was likely a good choice for 2017: with that income, filing single, you saved 25% federal tax. You would be over the deductibility limit for a 2017 tIRA as a single filer, so Roth is your only reasonable 2017 IRA option.

Your best course for 2018 is less clear, because it depends both on what you want to happen and what will happen in the future.

Case for Roth: 12% is a relatively low marginal rate. If you expect to be subject to higher marginal rates later in your career, and will then contribute enough to traditional accounts that in retirement you will have a traditional balance of ~$1 million* (or a lower balance and other income), Roth makes sense.

Case for traditional: A bird in the hand.... If you expect to retire early with relatively low expenses, you may always pay less than 12% marginal in retirement. In that case, traditional makes sense.

*$1 million, at a 4% withdrawal rate for a couple MFJ, provides just enough income to reach the 12% bracket.

rivercityrivercity
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Re: Strategies for my simple tax situation

Post by rivercityrivercity » Mon Mar 12, 2018 8:46 pm

sergio wrote:
Sun Feb 04, 2018 7:44 pm
livesoft wrote:
Sun Feb 04, 2018 6:18 pm
Clearly, you could have $0 taxable income if you had put $7,760 more into the 401(k) plan. You could then contribute to two Roth IRAs for you and your spouse of $5500 each or $11,000 total. That's 0% tax going in and 0% tax coming out.

2017 tax season is not over yet, so you can probably contribute to IRAs for 2017.

Anyways, more info in the ZERO taxes thread: viewtopic.php?t=87471

Many families (at least 40% of families) do not pay federal income tax. Your family should be one of them.
I already maxed out my 2017 Roth IRA contribution.

I'm intrigued how I would pay ZERO taxes on $50,000 of taxable income... I'll definitely give that thread a read-through.
I read the thread and I am not following how an additional $7,760 more in 401k contribution, which would take his taxable income to $50k, would result in zero taxes due? Can some explain this to me?

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FiveK
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Re: Strategies for my simple tax situation

Post by FiveK » Mon Mar 12, 2018 9:16 pm

rivercityrivercity wrote:
Mon Mar 12, 2018 8:46 pm
I read the thread and I am not following how an additional $7,760 more in 401k contribution, which would take his taxable income to $50k, would result in zero taxes due? Can some explain this to me?
Just a mistake. They happen. Corrected in a subsequent post: "You will pay tax on $50K of taxable income."

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