[Looking for ways to reduce taxes and keep more of my income]

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thangngo
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Re: Getting killed on taxes - any ideas?

Post by thangngo » Wed Jun 13, 2018 12:28 pm

stocknoob4111 wrote:
Wed Jun 13, 2018 12:21 pm
an_asker wrote:
Tue Jun 12, 2018 1:22 pm
OP comes across as a humble brag. Even on this forum, I doubt if more than 25% make that kind of money (though I could be wrong!).
OP statistically is actually part of the 1%... I believe an income of $380k/yr or higher puts you in the top 1% in the entire country. And paying 22% tax on that kind of income and then referring to it as "getting killed on taxes" is quite ridiculous. I am single and make less than quarter that income and pay more than the OP in taxes. If the OP is getting killed then I must be getting worse than killed :annoyed
Wait what? You're making around 110k and pay more than 100k in tax? Or was it percentage wise?

R2D2
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Re: Getting killed on taxes - any ideas?

Post by R2D2 » Wed Jun 13, 2018 12:49 pm

The hostility and self-righteousness in the responses is very disappointing. So are the excuses given for it.

SRenaeP
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Re: Getting killed on taxes - any ideas?

Post by SRenaeP » Wed Jun 13, 2018 1:05 pm

inbox788 wrote:
Wed Jun 13, 2018 12:25 pm
an_asker wrote:
Wed Jun 13, 2018 11:13 am
That said, I believe livesoft has provided a succinct list of action items for OP to reduce taxes.
Yup. Great list. I've abbreviated the list below to items that I think are most relevant to this discussion. I think item 12 is also impacted by 2018 changes and needs re-evaluation.
livesoft wrote:
Tue Jun 12, 2018 1:37 pm
10. Poke your eyes out. If you are blind, you get an extra exemption. You will probably need medical attention (see #9).

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.
Cross off #14. At his income level, the OP will have to carry forward the losses indefinitely. They won't be usable in the near term (losses carry forward once you're over ~$150k AGI).

CnC
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Re: Getting killed on taxes - any ideas?

Post by CnC » Wed Jun 13, 2018 1:05 pm

I empathize with the op.

He is rich, but doesn't feel rich. He comes on here after reading about all the people here with 7 and 8 figure portfolios and thinks he can get some help.

Instead they say, well you just make too much money stop complaining.

I had a similar response when I asked about Roth 401k contributions. It ammounted to if you end up with 3-4 million pre tax in your 401k stop worrying you are already rich and it's a good problem to have.

While I don't make nearly what the op does I do emphasize.


One possible option for yourself is after tax 401k contributions rolled into a Roth each year.

It is going to allow my wife and I to be able to fund our 401ks& IRA's to a tune of ±80k a year eventually.

80k a year tax advantaged is very nice.

Katietsu
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Re: Getting killed on taxes - any ideas?

Post by Katietsu » Wed Jun 13, 2018 1:07 pm

thangngo wrote:
Wed Jun 13, 2018 12:28 pm
stocknoob4111 wrote:
Wed Jun 13, 2018 12:21 pm
an_asker wrote:
Tue Jun 12, 2018 1:22 pm
OP comes across as a humble brag. Even on this forum, I doubt if more than 25% make that kind of money (though I could be wrong!).
OP statistically is actually part of the 1%... I believe an income of $380k/yr or higher puts you in the top 1% in the entire country. And paying 22% tax on that kind of income and then referring to it as "getting killed on taxes" is quite ridiculous. I am single and make less than quarter that income and pay more than the OP in taxes. If the OP is getting killed then I must be getting worse than killed :annoyed
Wait what? You're making around 110k and pay more than 100k in tax? Or was it percentage wise?
I assume they are referring to the percentage (22%) not the absolute 100k. I was honestly thinking the same thing, ie I have a much lower income but a higher % going to taxes.

MP1233
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Re: Getting killed on taxes - any ideas?

Post by MP1233 » Wed Jun 13, 2018 1:09 pm

R2D2 wrote:
Wed Jun 13, 2018 12:49 pm
The hostility and self-righteousness in the responses is very disappointing. So are the excuses given for it.
I agree. This is a young couple who spent years in graduate school and now find themselves in jobs paying $200k+/yr. This is new territory for them, and they deserve rational non-biased responses.

[OT comments removed by admin LadyGeek]

Grt2bOutdoors
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Re: Getting killed on taxes - any ideas?

Post by Grt2bOutdoors » Wed Jun 13, 2018 1:12 pm

You’re not getting killed on taxes. You are paying the going rate. How you pay less in taxes in a legal manner? Convert wage income to passive income, to do that you first need gobs of capital- your quandary though is first you have to accumulate that capital, bringing you back to the need to earn wage income. The bright side of this is in a few years you can invest meaningful amounts of capital in those passive vehicles. I don’t recommend a duplex unless you have sufficient capital for repairs and/or occasional tenants who don’t pay the rent.

Sorry, don’t see how you can avoid it short of hitting the lottery.

PS. I do “empathize” but if 100k is the price you/we as a whole pay for all the benefits of living here in the US, it’s a small price in the grand scheme of things. Paying AMT is the worse, thankfully they are giving us a break for a few years.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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inittowinit
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Re: Getting killed on taxes - any ideas?

Post by inittowinit » Wed Jun 13, 2018 1:29 pm

R2D2 wrote:
Wed Jun 13, 2018 12:49 pm
The hostility and self-righteousness in the responses is very disappointing. So are the excuses given for it.
Agreed.

OP, here is a thread that contains resources you might find of use:

viewtopic.php?p=3155#3155

jwaxjwax
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Re: Getting killed on taxes - any ideas?

Post by jwaxjwax » Wed Jun 13, 2018 1:29 pm

Just for clarification, we are not paying $100K in taxes. We paid $112,000 federal taxes on an income of about $442,000. Not a huge difference, but I did want to make that correction, as some are quoting an effective rate of 22%, which is not accurate.

jwaxjwax
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Re: Getting killed on taxes - any ideas?

Post by jwaxjwax » Wed Jun 13, 2018 1:30 pm

Thank your for the link
inittowinit wrote:
Wed Jun 13, 2018 1:29 pm
R2D2 wrote:
Wed Jun 13, 2018 12:49 pm
The hostility and self-righteousness in the responses is very disappointing. So are the excuses given for it.
Agreed.

OP, here is a thread that contains resources you might find of use:

viewtopic.php?p=3155#3155

alfaspider
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Re: Getting killed on taxes - any ideas?

Post by alfaspider » Wed Jun 13, 2018 1:39 pm

jwaxjwax wrote:
Wed Jun 13, 2018 1:29 pm
Just for clarification, we are not paying $100K in taxes. We paid $112,000 federal taxes on an income of about $442,000. Not a huge difference, but I did want to make that correction, as some are quoting an effective rate of 22%, which is not accurate.
I agree that you aren't really getting "killed" on taxes- just paying the going rate. However, the best tax savings for people in your income bracket is all of the tax-advantaged accounts available to you.

401k (With mega backdoor Roth if available)
HSA
Backdoor Roth
Dependent care spending account if you have kids
529 if you have kids

A couple can have well over $100k of tax-advantaged space available in many cases.

mervinj7
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Re: Getting killed on taxes - any ideas?

Post by mervinj7 » Wed Jun 13, 2018 1:44 pm

jwaxjwax wrote:
Wed Jun 13, 2018 1:29 pm
Just for clarification, we are not paying $100K in taxes. We paid $112,000 federal taxes on an income of about $442,000. Not a huge difference, but I did want to make that correction, as some are quoting an effective rate of 22%, which is not accurate.
Have you recalculated your taxes based on the 2018 tax brackets? I would think that $442k in annual income with a standard deduction and no kids would be less than $100k in taxes. Your effective federal tax rate should be around 22.6% unless I missed something. Of course this assumes that you did nothing to reduce your taxable income including 401k contributions.

https://taxfoundation.org/2018-tax-reform-calculator/

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TomatoTomahto
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Re: Getting killed on taxes - any ideas?

Post by TomatoTomahto » Wed Jun 13, 2018 1:51 pm

6) Don't let the tax tail wag the dog. Don't take actions simply to avoid taxes. The fact that you have to pay high taxes is an indication that you have high income, and that's not a bad thing. Do what you can to minimize the taxes, but having high income is better than having low or no income
I feel no hostility or jealousy and don’t think that you’re “humble bragging.” Heck, I might be one of those that JBTX is referring to posting about 7 digit incomes, except that I’m factual: neither humble nor bragging.

The important things are to not die picking up pennies in front of a steamroller, nor becoming something you’re not (e.g., a landlord) in order to, possibly, if things work out, save on taxes.

On a personal note, I concur with the sentiment that your wife should de-stress her life. You are at a financial place where you’ve earned the right to say, “it’s only money.”

dbr
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Re: Getting killed on taxes - any ideas?

Post by dbr » Wed Jun 13, 2018 1:54 pm

I don't have enough knowledge of taxation at those income levels to be helpful. As far as the question, I applaud anyone for asking, as that is a sensible thing to do. Maybe a lesson to learn is don't make hyperbolic comments like "getting killed" that are likely to hit a sour note with a lot of people. On the other hand, posters can look past that.

Beehave
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Re: Getting killed on taxes - any ideas?

Post by Beehave » Wed Jun 13, 2018 2:12 pm

crit wrote:
Wed Jun 13, 2018 8:11 am
NextMil wrote:
Tue Jun 12, 2018 2:02 pm
You are getting absolutely destroyed by people here, but I will say, I understand your point of view. With a high income, seeing the raw numbers come out somehow hurts worse than if you figure the actual tax rate which actually isn't that terrible, but to folks not making this sort of cash, its really hard to understand the complaint.
We paid 6 figures in taxes last year. We are well aware of our relative fortune. And I find it very, very hard to understand this complaint.

Taxes are what we pay to live in a civilized society. Full stop.

We pay our fair share, happily, and even think that tax rates on our income level should be higher. We don't have children to justify taxes for paying teachers. We'd just prefer our civilisation to be educated (and our bridges maintained, etc., etc.). That's enough reason to pay our taxes.
+1

ExitStageLeft
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Re: Getting killed on taxes - any ideas?

Post by ExitStageLeft » Wed Jun 13, 2018 2:35 pm

The determination of Highly Compensated Employee status is either 5% ownership or being in the top 20% of compensated employees with a salary of at least $120,000. If by chance her salary places her just within that top quintile, one strategy would be to reduce her pay enough to drop out of the top 20% in compensation.

If reducing her annual salary by $10,000 were sufficient to no longer be an HCE, you would be able to maximize her 401k at $18,500 per year. The net reduction in W-2 income would lower your federal and state income tax by something like $8,000. Your take-home would be reduced by about $10k but your 401k contribution would be increased by $8500.

Maverick3320
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Re: Getting killed on taxes - any ideas?

Post by Maverick3320 » Wed Jun 13, 2018 2:42 pm

TomatoTomahto wrote:
Wed Jun 13, 2018 1:51 pm
6) Don't let the tax tail wag the dog. Don't take actions simply to avoid taxes. The fact that you have to pay high taxes is an indication that you have high income, and that's not a bad thing. Do what you can to minimize the taxes, but having high income is better than having low or no income
I feel no hostility or jealousy and don’t think that you’re “humble bragging.” Heck, I might be one of those that JBTX is referring to posting about 7 digit incomes, except that I’m factual: neither humble nor bragging.

The important things are to not die picking up pennies in front of a steamroller, nor becoming something you’re not (e.g., a landlord) in order to, possibly, if things work out, save on taxes.

On a personal note, I concur with the sentiment that your wife should de-stress her life. You are at a financial place where you’ve earned the right to say, “it’s only money.”
As he "factually" mentions his 7 digit income in someone else's thread :sharebeer

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knpstr
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Re: Getting killed on taxes - any ideas?

Post by knpstr » Wed Jun 13, 2018 2:57 pm

In my honest opinion while $100,000 seems like an outrageous amount of tax, it is "only" 22% of your pay and that's not an outrageous percentage.

You make A LOT of money as ordinary income, taxes come with the territory.

While real estate can be great, at your tax and income level a duplex isn't even going to be noticeable.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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TomatoTomahto
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Re: Getting killed on taxes - any ideas?

Post by TomatoTomahto » Wed Jun 13, 2018 3:07 pm

Maverick3320 wrote:
Wed Jun 13, 2018 2:42 pm
TomatoTomahto wrote:
Wed Jun 13, 2018 1:51 pm
[snip...]
I feel no hostility or jealousy and don’t think that you’re “humble bragging.” Heck, I might be one of those that JBTX is referring to posting about 7 digit incomes, except that I’m factual: neither humble nor bragging.
As he "factually" mentions his 7 digit income in someone else's thread :sharebeer
A - it is not MY 7 digit income; it is my wife's, or perhaps my family income.
B - it is factual.
C - many other people mention their incomes; is there anything wrong with that? You, JBTX, and others continue on with the class warfare nonsense that has no place on BH.
D - are you suggesting that I'm hijacking a thread? I was just, perhaps lamely, trying to counter JBTX's nonsense.

What I'd like for Christmas is a forum where everyone with BH values, regardless of income or assets, can be open, without having to hear snark.

Dottie57
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Re: Getting killed on taxes - any ideas?

Post by Dottie57 » Wed Jun 13, 2018 3:20 pm

TomatoTomahto wrote:
Wed Jun 13, 2018 3:07 pm
Maverick3320 wrote:
Wed Jun 13, 2018 2:42 pm
TomatoTomahto wrote:
Wed Jun 13, 2018 1:51 pm
[snip...]
I feel no hostility or jealousy and don’t think that you’re “humble bragging.” Heck, I might be one of those that JBTX is referring to posting about 7 digit incomes, except that I’m factual: neither humble nor bragging.
As he "factually" mentions his 7 digit income in someone else's thread :sharebeer
A - it is not MY 7 digit income; it is my wife's, or perhaps my family income.
B - it is factual.
C - many other people mention their incomes; is there anything wrong with that? You, JBTX, and others continue on with the class warfare nonsense that has no place on BH.
D - are you suggesting that I'm hijacking a thread? I was just, perhaps lamely, trying to counter JBTX's nonsense.

What I'd like for Christmas is a forum where everyone with BH values, regardless of income or assets, can be open, without having to hear snark.
While you are asking for Christmas gifts, Also ask for less hyperbole in topics. OP IS not getting killed n taxes. If OP could no longer afford food, housing transportation and healthcare he would have my sympathy.

A better topic/title for the thread would be “ Help me find additiona ways to reduce taxes and keep more of my income.”.

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LadyGeek
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Re: Getting killed on taxes - any ideas?

Post by LadyGeek » Wed Jun 13, 2018 3:25 pm

I removed an off-topic post (Page 1). As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
I changed the thread title to reflect the OP's intent.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

niceguy7376
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by niceguy7376 » Wed Jun 13, 2018 3:37 pm

OP would be better off if they can post more information about incomes, contributions, expenses to receive appropriate guidance.
My first post on this topic is to convey that for the level of income and taxes he mentioned, I didnt see any red flags on the % of income that went to taxes.

His updated numbers still show that his federal tax is still at a respectable 25% bracket.

mervinj7
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Re: Getting killed on taxes - any ideas?

Post by mervinj7 » Wed Jun 13, 2018 3:58 pm

LadyGeek wrote:
Wed Jun 13, 2018 3:25 pm
I changed the thread title to reflect the OP's intent.
Thanks, LadyGeek! I think posters were getting far too distracted by the hyperbolic title.

I just wanted to follow-up on my worked out tax example from before under different suggested scenarios for 2018.

Gross Income: $442k

2018 Federal Income Tax Liability --> Effective Tax Rate
Standard Deduction, no kids: $99.4k --> 22.4%
w/ $18.5k+10k 401k contribution : $89.7k --> 20.2%
w/ $28.5k 401k, $6.8k HSA : $87.5k --> 19.7%
w/ 2x Backdoor Roth IRA of $11k: no change in present taxes but great for future tax reduction
w/ rental property income: not worth it at your effective hourly rate to be an landlord

Acquire 2 kids
w/ $28.5k 401k, $6.8k HSA, $2.6k dep FSA, 2 child tax credits: $82.9k --> 18.7%

So it looks like your current effective tax rate for 2018 with no changes is around 20.2% (not 22% or 25%) with some room to adjust a bit lower. With the raw numbers worked out, do you still "feel" like you are getting killed in taxes? If so, at this point you should follow niceguy's suggestions and post more information regarding income, contributions, expenses, portfolio allocation, etc...

Source: https://taxfoundation.org/2018-tax-reform-calculator/
Last edited by mervinj7 on Wed Jun 13, 2018 4:56 pm, edited 1 time in total.

letsgobobby
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by letsgobobby » Wed Jun 13, 2018 4:33 pm

Not recommending rental real estate necessarily but his real estate losses (depreciation, interest, taxes, insurance, maintenance, repairs, etc) could be enough to offset his rental income. That doesn't sound like a winner unless most of it is depreciation, but in that case it can be a nice diversification,and a fairly tax efficient one.

inbox788
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Re: Getting killed on taxes - any ideas?

Post by inbox788 » Wed Jun 13, 2018 4:39 pm

mervinj7 wrote:
Wed Jun 13, 2018 3:58 pm
LadyGeek wrote:
Wed Jun 13, 2018 3:25 pm
I changed the thread title to reflect the OP's intent.
Thanks, LadyGeek! I think posters were getting far too distracted by the hyperbolic title.

I just wanted to follow-up on my worked out tax example from before under different suggested scenarios for 2018.

Gross Income: $442k

2018 Federal Income Tax Liability --> Effective Tax Rate
Standard Deduction, no kids: $99.4k --> 22.4%
w/ $18.5k+10k 401k contribution : $89.7k --> 20.2%
w/ $28.5k 401k, $6.8k HSA : $87.5k --> 19.7%
w/ 2x Backdoor Roth IRA of $11k: no change in present taxes but great for future tax reduction
w/ rental property income: not worth it at your effective hourly rate to be an landlord

Acquire 2 kids
w/ $28.5k 401k, $6.8k HSA, $2.6k dep FSA, 2 child tax credits: $82.9k --> 18.7%

So it looks like your current effective tax rate for 2018 with no changes is around 20.2% (not 22% or 25%) with some room to adjust a bit lower. With the raw numbers worked out, do you still "feel" like you are getting killed in taxes? If so, at this point you should follow niceguy's suggestions and post more information regarding income, contributions, expenses, portfolio allocation, etc...
Thanks for being constructive. More specific information would be helpful.

What's wrong/different with this estimate? They're in the ballpark, but a bit off, and adding IRA/401k maintains the discrepancy.
Federal Tax Calculator
Taxable income $409,900
Effective tax rate 21.5%
Estimated federal taxes $94,844
Federal taxes withheld $0
We estimate you will owe $94,844

Income $442,000
Age 35
Dependents 0
401(k) contributions $0
IRA contributions $0
Withheld $0
https://www.nerdwallet.com/taxes/tax-calculator

dogagility
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Re: Getting killed on taxes - any ideas?

Post by dogagility » Wed Jun 13, 2018 4:45 pm

livesoft wrote:
Tue Jun 12, 2018 1:37 pm
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. 2018: Limited.
5. That big house should come with huge property taxes which can be deducted on Schedule A. 2018 Limited
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.
14. Rental real estate that loses lots of money.
15. Participate in a Deferred compensation plan.
Man, I LOVE this site! Where else is financial discussion so entertaining! 8-)

ExitStageLeft
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by ExitStageLeft » Wed Jun 13, 2018 5:15 pm

OP did mention that they live in a high tax state. Doing some quick analyses like other commenters, it looks like Federal tax is in the ballpark of $90k and state tax as high as $32k (California).

There don't appear to be many ways of alleviating the approximately 28% of their total income that goes into federal and state taxes. There are some options that have been mentioned on how to put a larger portion into tax-advantaged accounts. The OP stated they are already doing backdoor Roth contributions. That remaining options for contributing to a tax-advantaged acount are a health savings account, a mega backdoor Roth, a self-employment retirement plan. Options for reducing AGI may include purchase of real estate - that's way oustide my wheelhouse so I'll just shut up on that.

One has to participate in a High Deductible Health Plan to get the HSA deduction. That's $6,850 that can be taken off the AGI if maxxing out the contribution. It remains untaxed if spent on qualified expenses, so plan on using it for your health care costs in retirement.

The mega backdoor Roth option is spelled out in the wiki page: https://www.bogleheads.org/wiki/After-tax_401(k)
It requires a 401k plan that allows after-tax contributions and in-service distributions. This will not affect the taxes paid on earned income, but could dramatically increase the tax-advantaged savings each year.

mervinj7
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Re: Getting killed on taxes - any ideas?

Post by mervinj7 » Wed Jun 13, 2018 5:38 pm

inbox788 wrote:
Wed Jun 13, 2018 4:39 pm

What's wrong/different with this estimate? They're in the ballpark, but a bit off, and adding IRA/401k maintains the discrepancy.
Federal Tax Calculator
Taxable income $409,900
Effective tax rate 21.5%
Estimated federal taxes $94,844
Federal taxes withheld $0
We estimate you will owe $94,844

Income $442,000
Age 35
Dependents 0
401(k) contributions $0
IRA contributions $0
Withheld $0
https://www.nerdwallet.com/taxes/tax-calculator
That nerdwallet calculator seems quite off. Let's go straight to the source and do some hand calculations based on the official IRS 2018 tax brackets.
https://www.irs.gov/irb/2018-10_IRB

With $24k std deduction:
19050*.1+(77400-19050)*.12+(165000-77400)*.22+(315000-165000)*.24+(400000-315000)*.32+(418000-400000)*.35=$97,679 --> 22.1%
With $24k std deduction & $28.5k 401k
19050*.1+(77400-19050)*.12+(165000-77400)*.22+(315000-165000)*.24+(389500-315000)*.32 = $88,019 --> 19.9%

ExitStageLeft
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by ExitStageLeft » Wed Jun 13, 2018 7:26 pm

Yeah, the Nerdwallet calculator is trimming $8,100 from the taxable income.

OP is also paying a Medicare surcharge of 0.9% for income above $250,000. Comes out to something like $1,500.

inbox788
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by inbox788 » Wed Jun 13, 2018 11:00 pm

ExitStageLeft wrote:
Wed Jun 13, 2018 7:26 pm
Yeah, the Nerdwallet calculator is trimming $8,100 from the taxable income.

OP is also paying a Medicare surcharge of 0.9% for income above $250,000. Comes out to something like $1,500.
I googled $8100 and came up with 2 exemptions. This might the discrepancy and might be their mistake (they took the exemption for the couple, since no dependents were entered?).
https://turbotax.intuit.com/tax-tips/ir ... /L0ZjReVay

Anyway, looks like retirement accounts is the main way to expand tax advantaged/deferred space at these income levels, and the options are severely limited. The only other thought is if there is any way to smooth out the income stream, but that depends on the job opportunities. If OP/spouse can somehow reduce income for some equity (i.e. buy into business with sweat equity) and cash out later when not earning income (hopefully spread out and not all at once), the net tax situation may be beneficial, but carries risk (both downside as well as upside potential).

MrPotatoHead
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Re: Getting killed on taxes - any ideas?

Post by MrPotatoHead » Wed Jun 13, 2018 11:29 pm

Longdog wrote:
Wed Jun 13, 2018 7:02 am
I think it was your use of the phrase “killed on taxes” that triggered many of the responses. While it may feel like you are paying a lot of taxes - probably more than you ever have in your life - you’re only paying your fair share of your very high income.
Could not delete my post, so I removed my commentary.
Last edited by MrPotatoHead on Wed Jun 13, 2018 11:38 pm, edited 1 time in total.

MrPotatoHead
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Re: Getting killed on taxes - any ideas?

Post by MrPotatoHead » Wed Jun 13, 2018 11:31 pm

SRenaeP wrote:
Wed Jun 13, 2018 8:40 am
crit wrote:
Wed Jun 13, 2018 8:11 am
NextMil wrote:
Tue Jun 12, 2018 2:02 pm
You are getting absolutely destroyed by people here, but I will say, I understand your point of view. With a high income, seeing the raw numbers come out somehow hurts worse than if you figure the actual tax rate which actually isn't that terrible, but to folks not making this sort of cash, its really hard to understand the complaint.
We paid 6 figures in taxes last year. We are well aware of our relative fortune. And I find it very, very hard to understand this complaint.

Taxes are what we pay to live in a civilized society. Full stop.

We pay our fair share, happily, and even think that tax rates on our income level should be higher. We don't have children to justify taxes for paying teachers. We'd just prefer our civilisation to be educated (and our bridges maintained, etc., etc.). That's enough reason to pay our taxes.
You do realize that you can just give money to the Treasury if you so desire... Also, if you itemize, you can opt to take the standard deduction and pay more taxes.
Plus ten million. Awesome post.

SGM
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by SGM » Thu Jun 14, 2018 4:00 am

Judge Learned Hand expanded upon an often quoted earlier statement he made in a Supreme Court case,

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

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ray.james
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by ray.james » Thu Jun 14, 2018 1:14 pm

ExitStageLeft wrote:
Wed Jun 13, 2018 7:26 pm
Yeah, the Nerdwallet calculator is trimming $8,100 from the taxable income.

OP is also paying a Medicare surcharge of 0.9% for income above $250,000. Comes out to something like $1,500.
I never even knew this! So for couple this is 0.9% on 250K which is the social security wage base ?(includes 401k etc but not cafeteria plans.) We have not yet breached that number, so I probably missed learning it.

I get giggles when I learn a basic thing after seven years on this site!

edit: another Q: If Person A had investment income of 20K and wages 310K
a) will owe 0.9% on 50K and 3.8% on 30K
b) 0.9% on 60k and 3.8% on 20K?
c) 0.9% on 60K and 3.8% on 30K?
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

ExitStageLeft
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by ExitStageLeft » Thu Jun 14, 2018 3:11 pm

ray.james wrote:
Thu Jun 14, 2018 1:14 pm
ExitStageLeft wrote:
Wed Jun 13, 2018 7:26 pm
Yeah, the Nerdwallet calculator is trimming $8,100 from the taxable income.

OP is also paying a Medicare surcharge of 0.9% for income above $250,000. Comes out to something like $1,500.
I never even knew this! So for couple this is 0.9% on 250K which is the social security wage base ?(includes 401k etc but not cafeteria plans.) We have not yet breached that number, so I probably missed learning it.

I get giggles when I learn a basic thing after seven years on this site!

edit: another Q: If Person A had investment income of 20K and wages 310K
a) will owe 0.9% on 50K and 3.8% on 30K
b) 0.9% on 60k and 3.8% on 20K?
c) 0.9% on 60K and 3.8% on 30K?
B.

https://www.irs.gov/businesses/small-bu ... dicare-tax

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serbeer
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by serbeer » Thu Jun 14, 2018 3:27 pm

This locked thread contains pretty comprehensive list of nearly all your real options IMO:
viewtopic.php?f=10&t=105229

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MossySF
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by MossySF » Thu Jun 14, 2018 11:13 pm

mervinj7 wrote:
Wed Jun 13, 2018 3:58 pm
w/ $28.5k 401k, $6.8k HSA, $2.6k dep FSA, 2 child tax credits: $82.9k --> 18.7%
Child tax credits phase out starting at 110K for couples. The OP will get get nothing.

HSAs only make sense if the employer is willing to give you more salary (or make your contributions) for taking a higher deductible plan. (Which is why it makes sense for self-employed.) Otherwise, you will pay more medical costs than you can save on taxes.
letsgobobby wrote:
Wed Jun 13, 2018 4:33 pm
Not recommending rental real estate necessarily but his real estate losses (depreciation, interest, taxes, insurance, maintenance, repairs, etc) could be enough to offset his rental income. That doesn't sound like a winner unless most of it is depreciation, but in that case it can be a nice diversification,and a fairly tax efficient one.
What probably will happen is the OP will end up paying a lot of expenses that cannot be deducting against income and have to keep rolling into the future. After 8 years, I now have 60K of rental losses in continual carryover. The problem is HCOL housing prices keep going up higher than rents so whenever you buy, it takes about a decade before rents catch up where you finally have profits to offset.

letsgobobby
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by letsgobobby » Thu Jun 14, 2018 11:24 pm

HSAs only make sense if the employer is willing to give you more salary (or make your contributions) for taking a higher deductible plan.
Or:
2. They reduce your medical premiums enough to make it worthwhile to take the HSA
3. They make an employer contribution to your HSA.

Or both. :wink:

re: rentals, obviously YMMV. I haven’t had that negative experience. We made renovations to bring up the value of the home; depreciation of those expenses has offset our income and we haven’t owed any taxes on the income. So we have earned 5% plus/minus consistently on the home, net of expenses, tax-free (or is it tax-deferred?). There are worse things in life.

mervinj7
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by mervinj7 » Thu Jun 14, 2018 11:30 pm

MossySF wrote:
Thu Jun 14, 2018 11:13 pm
mervinj7 wrote:
Wed Jun 13, 2018 3:58 pm
w/ $28.5k 401k, $6.8k HSA, $2.6k dep FSA, 2 child tax credits: $82.9k --> 18.7%
Child tax credits phase out starting at 110K for couples. The OP will get get nothing.

HSAs only make sense if the employer is willing to give you more salary (or make your contributions) for taking a higher deductible plan. (Which is why it makes sense for self-employed.) Otherwise, you will pay more medical costs than you can save on taxes.
That is partially correct. With the 2018 tax law, the child tax credit starts to phase out at $400k AGI and disappears at $440k AGI. In OP's case, he will be cutting it a bit close but with the pre-tax deductions I mentioned above, he should be eligible for most of the credit if he did have two kids.
For HSAs, many employers including mine have little to no premiums for choosing a HDHP and they even kick in $1500 into the HSA.

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MossySF
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by MossySF » Thu Jun 14, 2018 11:47 pm

letsgobobby wrote:
Thu Jun 14, 2018 11:24 pm
HSAs only make sense if the employer is willing to give you more salary (or make your contributions) for taking a higher deductible plan.
Or:
2. They reduce your medical premiums enough to make it worthwhile to take the HSA
3. They make an employer contribution to your HSA.
Unfortunately, I don't know if there are many nice employers like that. Most of them use HSAs to give employees a slight decrease in premiums + slight contributions and take the lions' share of the savings for themselves.

As someone who knows the numbers, historically the employers have been paying gigantic health insurance bills without their employees knowing the amount. (My company pays $2800/mo per employee for a $0 deductible plan.) So yes, employers probably should be taking the lions' share. But in context of the OP's thread, this makes it unlikely as a W2 employee that choosing an employer HSA option will come out ahead.

Again, like I mentioned earlier -- if the OP worked as a contractor where billing rates are grossed up to match the missing benefits, then choosing HDP + HSA is a great tax savings option. (Plus the 55K Solo 401K.)
letsgobobby wrote:
Thu Jun 14, 2018 11:24 pm
re: rentals, obviously YMMV. I haven’t had that negative experience. We made renovations to bring up the value of the home; depreciation of those expenses has offset our income and we haven’t owed any taxes on the income. So we have earned 5% plus/minus consistently on the home, net of expenses, tax-free (or is it tax-deferred?). There are worse things in life.
The numbers are pretty easy to calculate. As an HCOL example, a 4 bedroom home in the San Francisco Sunset district costs 1.4M-1.6M and currently rents for $5000-$6000/mo. That's effectively $9K-$10K/mo (including downpayment opportunity costs) to be the landlord so you will be running losses for years waiting for rents to catch up even though rents are exploding (up double from 5 years ago). I have heard though it's a better idea to totally chop up the house, put bunk beds in and then rent each bed out on AirBnB for $50/night. The neighbors will hate you and the city will try to shut you down -- but that can cover the cost of buying right now in San Francisco.

letsgobobby
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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by letsgobobby » Fri Jun 15, 2018 1:08 am

The HSA example was a reference to my own plan. We get $1600 in employer contributions, and save $90 every 2 weeks in premium reductions, for a total savings of $4100 with the HSA. Then we get to defer an additional $5000 or so, which saves us another $1500 in taxes. So that’s $5600 in savings per year right off the bat, to say nothing of tax-free growth. That more than compensates us for taking on the risk of a higher deductible.

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Re: [Looking for ways to reduce taxes and keep more of my income]

Post by sketchy9 » Fri Jun 15, 2018 11:46 am

There's a reason the saying says that you can't avoid death and taxes. As a similarly high-earning W2 employee at one point in my life, I can share that there really aren't a lot of options. Livesoft's list covers them. You can frame the situation in such a way as to make it more palatable, e.g. it's not that much as a percentage, or you're doing your part to pay for civilized society, or it simply means that you earn a lot so you should be thankful for that. None of that will keep money in your pocket of course, but you'll be less grumpy about it.

As an aside, I see nothing wrong with being annoyed by how much one pays in taxes and trying to (legally) pay as little as possible. And I also think effective tax rate should include payroll taxes, not just income tax. It's all going to the government, and as dozens of threads have argued, money is fungible.

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