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Old 02-06-2014, 08:01 AM   #21
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Work less? Adopt me and my family?? Just kidding of course! Congrats on earning such a great income! It does feel unfair that hard-working folks have to give up so much of their income, but I look at it as a small price to pay to be able to live in the land of the free and brave.
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Old 02-06-2014, 08:19 AM   #22
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Originally Posted by iibgdi View Post
Start a business. Any business. It doesn't even have to be a successful business or a time consuming business to reap some household deductions.

Actually both of you should do so. 2 home offices, 2 cars. Many dedeuctible expenses.

Corporate meetings are now held in new orleans during mardi gras or vegas or near disney world...
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Originally Posted by REWahoo View Post
FIFY


LOL.... yep, nothing like getting the IRS to come audit like taking the home deduction...


Some people have this belief that you do not have to run a business like a business in order to take deductions... WRONG....


Many years ago I helped on an IRS audit of a rich guy.... he was running a 'business'... except it was not profitable and never would be... in reality it was his hobby.... even though his revenue was over $5 million per year... yep, $5 mill per year in revenue and the IRS said it was a hobby... because he was spending about $10 mill a year on it.... year in and year out... as they said, there was no profit motive which is a requirement....


Also, you cannot take 'household' deductions... (at least not legally).... sure, many people do, but they run a risk....
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Old 02-06-2014, 08:23 AM   #23
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Originally Posted by soupcxan View Post
We're DINKS and we're getting killed on our federal taxes because we're both W-2 employees. Our 2013 MFJ return is going to look like this:

358 Gross income
-35 401k deductions
+12 Dividends, interest, and capital gains
=335 Total Income
-21 Itemized deductions (7 mortgage intr., 12 sales/prop taxes, 2 donations)
-5 Exemptions
=308 Taxable income
77 Federal tax bill!

Neither of our current jobs can be easily converted to self-employment. We may add a dependent in the future but that's only a small benefit. Our deductions and exemptions have already started phasing out and that's only going to get worse. Is there anything we can do other than one of us quitting?
It would be quite a bit lower if that income were 2/3 capital gains and qualified dividends, even with AMT.

Sorry - can't help as long as you are both earning wages other than up the charitable gifting.

Good job on the 401K savings!

Are either of you eligible for a Health Savings Account?
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Old 02-06-2014, 08:28 AM   #24
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Don't forget that if you are actually running your own business that makes money that you have to pay both sides of FICA so that uses up some benefit of any legitimate expense write offs.
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Old 02-06-2014, 08:48 AM   #25
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A larger mortgage, eliminate cap gains, try to make sure dividends are contained in the 401k's. Backdoor Roths if you aren't already. Roth is no help now, but will eventually build. You could start a 529 plan for a relative. IIRC 529's can be transferred to many people for education expenses, including yourself.

There is no easy and painless way to avoid taxes, of course.
What this guy said.

OP - At least you have a mortgage, I am in a similar tax bracket with lots of dependents but it seems that the home mortgage interest deduction is the only thing I could deduct anymore -- except I don't have a mortgage!

Virtually all of the (arguably) viable vehicles for sheltering personal income taxation were shut down with the 86 tax reform act.
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Old 02-06-2014, 09:34 AM   #26
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LOL.... yep, nothing like getting the IRS to come audit like taking the home deduction...

Also, you cannot take 'household' deductions... (at least not legally).... sure, many people do, but they run a risk....
True, but you can take a "home office" deduction. You can either figure it out on an actual square footage basis and take cuts of utilities, etc on that basis or you can take a "standard" one like I do. Not a big deal and only a small deduction based on the universe of other potential business deductions.
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Old 02-06-2014, 09:57 AM   #27
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Don't overcomplicate your life for a few extra bucks. Trust me it won't be worth it. Living with the thought of an IRS audit for suspect deductions is no way to live a healthy and fulfilling life. Be thankful for your relative success and enjoy the journey.
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Old 02-06-2014, 10:11 AM   #28
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I don't think anyone here who has suggested a small business has suggested a sham business or deductions. I am sure many here have expertise that could earn consulting income or have the skills to develop a knowledge worker side business using brains and a lap top, and then many expenses do become legitimately deductible, like health insurance or attending a business related conference in London or Paris.
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Old 02-06-2014, 10:14 AM   #29
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We may add a dependent in the future but that's only a small benefit.
Maybe bigger than you think, if one of you throws in the towel to stay at home with the 'added dependent'. At least do the math (run the numbers with less income, but a big reduction in taxes, reduction in expenses for both child care and employment related expenses. Add in the intangibles, like better adjusted kid(s), someone to make calls on behalf of the working spouse, someone to be at home for the cable guy, etc, etc. What's all that worth?...a hard number to pin-down, but zero is as arbitrary as any other number. Making the decision to have only one in the rat race with an agreement on budget that does not accomplish keeping up with the Jones' might be a path to getting the second out of the rat race too.
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Old 02-06-2014, 10:23 AM   #30
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I don't know how old you are, but with income like that it shouldn't take too long for you to build a nice nest egg and RE. Then your taxes should go down.
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Old 02-06-2014, 10:25 AM   #31
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I do not think that is high at all. Fed taxes are a deal plus you have no state tax...in Calif. you would pay another 30k. But I am sure Texas gets it share from you in other ways.

Keep saving and taxes are low in retirement.

Thank you for your payments.
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Old 02-06-2014, 10:29 AM   #32
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Virtually all of the (arguably) viable vehicles for sheltering personal income taxation were shut down with the 86 tax reform act.
But, but, but.... Everyone says there are tax loopholes for the wealthy!?!? There are very few loopholes for W2 income.

I am in a similar situation as you are, I am single and only have state taxes, charity and a realitively low mortgage interest deduction. I have actually gotten hit with AMT the last few years.

I have been lbym and socking as much as I can into tax managed accounts and hopefully those accounts will eventually "pay" my salary. Right now I pay about 26% on my w2 income and about 10% on investment gains (quite a bit of my gains are still unrealized). I average about 22% tax on all my w2+realized gains. This year I will get hit with the new 3.8% medicare surtax for the ACA and that will probably bump me to about 24% just for my FIT.
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Old 02-06-2014, 10:34 AM   #33
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And donate lots more to charity including appreciated stock shares held long-term. Why not $20K in donations?
That is what we did. We started building a pretty healthy balance in a DAF which is now funding donations during our ER low-tax-rate-period before tax rate spikes again at 70.5.

Donations went in at 35%+ marginal rate and coming out at 15% rate (that is, if we had donated now, they would have been against a 15% rate).
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Old 02-06-2014, 10:39 AM   #34
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Sorry no wisdom, but least you don't live in CA!

Rental real estate might help if you are so inclined, side-business might offer a little relief.
FYI...Rental real estate losses get phased out above $100k of income. At $150k income there is no allowable deduction.

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Property owners with modified adjusted gross incomes of $100,000 or less may deduct up to $25,000 in rental real estate losses per year if they "actively participate" in the rental activity. You actively participate if you are involved in meaningful management decisions regarding the rental property and have more than a 10% ownership interest in the property. This allowance is phased out for taxpayers whose MAGI exceeds $100,000 and eliminated entirely when it exceeds $150,000. Thus, it is useless for high-income landlords.
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Old 02-06-2014, 11:00 AM   #35
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This is definitely a first world problem.

My tax rate is similar to yours, on a much smaller combined income (less than half). Is it bad that I envy your problems?
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Old 02-06-2014, 11:12 AM   #36
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I pay the same % fed taxes on a much lower income (single now) and then on top of that another 7-9% state tax
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Old 02-06-2014, 11:23 AM   #37
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Not much you can do about that other than be happy that you just about make it into the top 1% and that you are there during a time when we have (almost) historically low tax rates. Oh, and be happy you have no state or local income taxes, unlike those of us in Ohio.

Your tax rates will definitely have gone up in 2013 compared with 2012 with the new additional medicare and net investment income taxes, but really since the Bush tax cuts in 2001 and 2003, tax receipts as a percentage of GDP have been much lower than the long term average, so there may be worse to come.

The only useful piece of advice I could give is that in the year before you retire, make a big charitable contribution to a donor advised fund, and use that to make charitable contributions for the rest of your life, so you can take advantage of your higher marginal tax rates while working.

An HSA would help a little too.

And I hope you are making back-door Roth contributions - not that that reduces your taxes currently, but will help in the future.
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Old 02-06-2014, 11:40 AM   #38
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That is what we did. We started building a pretty healthy balance in a DAF which is now funding donations during our ER low-tax-rate-period before tax rate spikes again at 70.5.

Donations went in at 35%+ marginal rate and coming out at 15% rate (that is, if we had donated now, they would have been against a 15% rate).
A donor advised fund (like the "Giving Fund" at Fidelity) might be good if you can lop off enough to keep you below a tax threshold. Certainly an advantage now compared to after retirement if your income goes down. However, limited usefulness if your W-2 income just keeps rising for many years.
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Old 02-06-2014, 12:10 PM   #39
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Bogleheads • View topic - Taxes on a family with $200,000 gross income
Maybe some ideas can be gleened from here
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Old 02-06-2014, 12:25 PM   #40
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A tax rate of 21% is great. I'd sign up for that in a heartbeat.
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