Maximizing Fed refund and lowering taxable income

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
BogleHead1008
Posts: 144
Joined: Fri Jul 23, 2021 8:44 am

Maximizing Fed refund and lowering taxable income

Post by BogleHead1008 »

Hope this thread does not violate any TOS or rules of this forum, if this does please let me know and I will ask for a delete.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

I had just looked at my 2020 returns along with W2 and realized I just peaked to 22% bracket by 2 grand and should have avoided by doing IRA for spouse...

With standard deduction and 2 dependent kids, I was wondering what other ways we missed that could have lowered our adjusted income and have got a higher refund.

I have looked at IRA limits and it says MFJ has a 6k limit but couldn't understand if its together or per individual. Spouse is a home maker and I am HCE so the 401(K) is capped at 8 or 9% (not sure).

plan for 2021 tax filing time (2022 apr)
- Maximize IRA for both, I might be capped due to 401k, not sure yet
- Increase charitable contributions, not sure if this helps with standard deduction
Monsterflockster
Posts: 815
Joined: Thu Nov 21, 2019 12:03 am

Re: Maximizing Fed refund and lowering taxable income

Post by Monsterflockster »

It’s a progressive tax structure. Only $2000 is taxed at 22%, not you’re whole income.

Max out your IRA is a no brained. Giving is obviously important... but I wouldn’t pull any hair out over $200
Last edited by Monsterflockster on Sun Sep 12, 2021 5:26 pm, edited 1 time in total.
Topic Author
BogleHead1008
Posts: 144
Joined: Fri Jul 23, 2021 8:44 am

Re: Maximizing Fed refund and lowering taxable income

Post by BogleHead1008 »

Monsterflockster wrote: Sun Sep 12, 2021 5:22 pm It’s a progressive tax structure. Only $2000 is taxed at 22%, not you’re whole income.
I got that, but I could have avoided that 3700$ overage by doing the IRA on spouse.

This is before joining bogleheads, now I know I should maximize the IRA and/Roth IRA.
venkman
Posts: 1278
Joined: Tue Mar 14, 2017 10:33 pm

Re: Maximizing Fed refund and lowering taxable income

Post by venkman »

Krishmk wrote: Sun Sep 12, 2021 5:11 pm - Increase charitable contributions, not sure if this helps with standard deduction
You have to itemize in order to take advantage of charitable deductions.

If you're committed to giving a significant amount to charity each year, you can start a
donor advised fund
and front load it with several years' worth of donations, to the point where your itemized deductions exceed the standard deduction. This works well if you already have other deductions that put you close to the standard deduction limit.
sciencewhiz
Posts: 55
Joined: Thu Aug 21, 2008 7:30 pm

Re: Maximizing Fed refund and lowering taxable income

Post by sciencewhiz »

Krishmk wrote: Sun Sep 12, 2021 5:25 pm
Monsterflockster wrote: Sun Sep 12, 2021 5:22 pm It’s a progressive tax structure. Only $2000 is taxed at 22%, not you’re whole income.
I got that, but I could have avoided that 3700$ overage by doing the IRA on spouse.
How did you figure $3700?

If you were $2000 over the 22% bracket and had instead put 6k in an IRA, you'd save 2k*22% + 4k*12%=$920.
If you're an HCE, you're earning 130k or more, so getting your taxable income down to 82k is pretty good already.
GenawithanE
Posts: 126
Joined: Mon Aug 26, 2019 11:14 pm

Re: Maximizing Fed refund and lowering taxable income

Post by GenawithanE »

As for charitable, for 2021 only, you and your wife can take a charitable reduction of $600 for cash charitable contributions (not DAF or goodwill) on top of your standard deduction.
Yes, you can do what is colloquially called a spousal or homemaker IRA, up to the max for her age, given your income. deductability depends on your modified adjusted gross income, of course.
User avatar
FiveK
Posts: 12012
Joined: Sun Mar 16, 2014 2:43 pm

Re: Maximizing Fed refund and lowering taxable income

Post by FiveK »

Krishmk wrote: Sun Sep 12, 2021 5:11 pm I have looked at IRA limits and it says MFJ has a 6k limit but couldn't understand if its together or per individual. Spouse is a home maker and I am HCE so the 401(K) is capped at 8 or 9% (not sure).
The "I" in IRA stands for "Individual" so the contribution limits are per person.

When filing MFJ, however, there are some income-related limits that may apply differently to each spouse. See IRA Deduction Limits for traditional IRA deductions, and IRA Contribution Limits for direct Roth IRA contributions.
bradpevans
Posts: 747
Joined: Sun Apr 08, 2018 1:09 pm

Re: Maximizing Fed refund and lowering taxable income

Post by bradpevans »

sciencewhiz wrote: Sun Sep 12, 2021 11:31 pm
Krishmk wrote: Sun Sep 12, 2021 5:25 pm
Monsterflockster wrote: Sun Sep 12, 2021 5:22 pm It’s a progressive tax structure. Only $2000 is taxed at 22%, not you’re whole income.
I got that, but I could have avoided that 3700$ overage by doing the IRA on spouse.
How did you figure $3700?

If you were $2000 over the 22% bracket and had instead put 6k in an IRA, you'd save 2k*22% + 4k*12%=$920.
If you're an HCE, you're earning 130k or more, so getting your taxable income down to 82k is pretty good already.
yes to saving $920 in taxes but also yes to - $6,000 gross / maybe -$5400 net.

From a cash flow / pay the bills perspective I've never viewed IRA/401K as "saving taxes" but more akin to "money i never made"
Yes i know I made the money .. but it came off the top and cash flow is as if i never made that money (in terms of bills / spending power)
Topic Author
BogleHead1008
Posts: 144
Joined: Fri Jul 23, 2021 8:44 am

Re: Maximizing Fed refund and lowering taxable income

Post by BogleHead1008 »

FiveK wrote: Mon Sep 13, 2021 11:39 pm
Krishmk wrote: Sun Sep 12, 2021 5:11 pm I have looked at IRA limits and it says MFJ has a 6k limit but couldn't understand if its together or per individual. Spouse is a home maker and I am HCE so the 401(K) is capped at 8 or 9% (not sure).
The "I" in IRA stands for "Individual" so the contribution limits are per person.

When filing MFJ, however, there are some income-related limits that may apply differently to each spouse. See IRA Deduction Limits for traditional IRA deductions, and IRA Contribution Limits for direct Roth IRA contributions.
Great point on "I" in IRA, I didnt think of that.
Post Reply