Dual W-2 earners - how to stop getting hosed on taxes?

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soupcxan

Thinks s/he gets paid by the post
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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?
 
My wife and I are also DINKs and have been seriously discussing getting divorced because of the higher income marriage penalties.
 
I wish I made enough to pay $77K in FIT.

Outside of quitting one job, or divorcing....no good ideas here.
 
What about pre-tax HSA and pre-tax health insurance premiums?

Why do you have capital gains? You should be tax-loss harvesting and always have a $3,000 capital loss. You should try to have only qualified dividends and of course no interest (OK, less than $10 in interest).

And donate lots more to charity including appreciated stock shares held long-term. Why not $20K in donations?
 
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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.
 
With straight w2 income I don't think there's much you can do. I guess you could move your taxable accounts into tax-managed/muni bonds etc to reduce your 12k dividends. You could also take out a bigger mortgage. But realistically this will only make a few k difference at most.

Do you have any opportunity to take your compensation as deferred income at either of your workplaces? For example, where I work I can deferred my compensation into later years which could be tax advantageous if in later years say DW was to stop work or I timed my leaving at the beginning of a year.

On the other hand, you are talking about 77k/358k = 21.5% tax rate with no state tax for texas. I think this is a great rate and maybe just see it as a glass that is half full?
 
Increase your giving more for one. Your combined income is similar to our dual income situation, but our charitable giving is abt 5-10% of income per year. You are blessed with good fortune. Give back more to those less fortunate and reap the reward of a bigger deduction.
 
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As others have mentioned..... there is no good or easy way to reduce taxes.... you kinda just have to live with it...


You still get to take most of your income home, so do not sweat the taxes...


I remember talking to a guy who used to have to make $1 mill quarterly estimated taxes.... this was about 30 years ago, so I will probably butcher it, but he said he would rather be paying $4 million in taxes than zero... zero meant very little income.... $4 mill meant a LOT of income...
 
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 do you mean 'hosed' on taxes? It sounds like you're in that 1% neighborhood, you know, those people who don't pay their 'fair share'? [/satire] :hide:

Seriously, like others have said with W2 income, there's not much you can do. Charity is a personal choice, but from a pure balance sheet view it doesn't provide you with any more $ in your pocket, it just lowers your tax bill. You have to give away $3 to 'save' $1 (or whatever your marginal rate is).


-ERD50
 
Of course, the first thing to do is maximize your pre-tax deductions and minimize your investment income. Then, if your goal is just to minimize taxes, you can spend more (on charity, mortgage interests, property taxes, etc...) to get higher deductions. Or, if your goal is to maximize the amount of $$$ left in your pocket, sometimes paying the tax man is the way to go.
 
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You may already be aware of this link, as I have posted it before, but if not this is my favorite article on how to not pay any federal income tax -

ROI: How to Avoid Paying Income Taxes - WSJ.com

Most of it does rely on having business expenses and income, but if you ever have a chance to do 1099 type consulting work or start a side business, it may prove useful for future reference.

From the article -

"Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool."
 
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ERD50 said:
What do you mean 'hosed' on taxes? It sounds like you're in that 1% neighborhood, you know, those people who don't pay their 'fair share'? [/satire] :hide:

Seriously, like others have said with W2 income, there's not much you can do. Charity is a personal choice, but from a pure balance sheet view it doesn't provide you with any more $ in your pocket, it just lowers your tax bill. You have to give away $3 to 'save' $1 (or whatever your marginal rate is).


-ERD50
Click to expand...

Giving more to charity is a good thing, but from financial standpoint it is false economy as shown above.:mad:

Short of starting your own business to develop more write-offs, not much you can do with straight W-2 income. I agree it sucks, my wife and I have the same problem, but at lower income amounts. Pay too much in taxes and not enough ways to reduce the tax bill. As several have suggested, I guess worrying about paying too much in taxes is not the worst problem to have. It is bad that as hogh income you have even less deductions available that can be taken by lower income. I think you are just stuck with your current situation, unfortunately.
 
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...
 
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.
 
iibgdi said:
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...
Click to expand...

REWahoo said:
FIFY
Click to expand...



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....
 
soupcxan said:
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?
Click to expand...
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?
 
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.
 
Animorph said:
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.
Click to expand...

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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