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Old 02-15-2015, 08:56 AM   #21
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One thing to consider is making after-tax contributions to your 401k if your plan allows it. While it doesn't help you with taxes currently, under current rules you can roll after-tax 401k balances into a Roth IRA (either in-service if your plan allows in-service rollovers or after you sever service).

However, be aware that the recent Obama budget is proposing to close down this loophole.
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Old 02-15-2015, 09:02 AM   #22
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A friend's father once told me "you only pay taxes when good things happen."

+1 on charitable funds and asking about deferred comp (if your employer is super-solvent). Also ensure that your investing habits are tax aware -- high tax stuff in tax deferred accts, low tax stuff in brokerages, and minimize transactions.

Final thought: I think It was the "Millionaire Next Door" that talked about being income affluent vs. being balance sheet affluent. It pointed out that the balance sheet affluent actually pay very low taxes as a % of their investable/growing net worth. As a result of that insight, I always calculate two things when I update my balance sheet:

1). Effective asset tax rate (all taxes paid/total assets)
2). % of assets in tax deferred structures

I find that even though I pay enormous income taxes like the OP, these calls help me focus on the long run levers of wealth creation.
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Old 02-15-2015, 09:37 AM   #23
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I'll agree with the others that it sounds like an nice problem to have...but then, I don't make enough to have that problem! I might feel differently, if I did, though.

Still, 24% overall for federal taxes doesn't sound too bad. Does that include SS, as well? I guess if you lived in a state that had high state/local taxes, and/or lived in a really high cost of living area, the pain would be worse.
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Old 02-15-2015, 09:40 AM   #24
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Yes! We loved it when we made so much money. Great news! We never paid more than 25% taxes, even with 300K + income. YAY American. We would pay so much more in other westernized countries.
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Old 02-15-2015, 10:17 AM   #25
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Originally Posted by soupcxan View Post
Boo hoo for us, right?

Wages 347k + interest/dividends/CG 25k = AGI 372k
- itemized deductions: 24k - exemptions: 4k = 344k taxable income
Tax: 86k + AMT 1k + additional medicare tax 1k + net investment tax 1k
Total federal tax: 89k

We already max our 401ks, and our deductions are being phased out so more donations doesn't help. Having a kid this year also isn't likely to help much as that exemption is phased out for us too.
Lets look at that interest. First your subject to AMT. That's taxing you at 28% and it's dominating your tax return (you have an AMT balance). Your AMT exemption I guess is at about 30k (see 6251 line 29). So your actively phasing out that 0% bracket at $1 per $4 of income. That means your marginal tax rate is 28% + 28% / 4 = 35%. But wait there's more. Obama is stuffing you with 3.8% on top of that with NIIT. So we are looking at 38.8%.
Your next thing to google is "municipal bonds".
Now in the future if you happen to earn about $100k more (and your investment income will grow faster than your income if you save) then 6251 line 29 will drop to zero or close to it. This AMT slide at that point means you can accelerate income (say with Roth conversions) to lower your effective tax rate (until AMT balance drops to zero).
For capital gains. Don't sell anything. Re-balance with buying.
If your making charitable donations then do it with appreciated stock. At least you get something even if your deductions get phase out. Or quit giving people stuff. They only voted to take your money anyway.
Other people telling you that your tax burden isn't so great by bringing in SS for lower earners are neglecting that the lower earners get their money back and more via SS. You get bub-kiss for your federal payments (like a 30 seconds of golf for the CEO of America).
It sucks. You earned it you should be able to keep more of it.
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Old 02-15-2015, 10:21 AM   #26
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Have been there in the past, but I consider paying higher taxes as cheap rent for the privilege of living in the US of A!
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Old 02-15-2015, 10:38 AM   #27
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Have been there in the past, but I consider paying higher taxes as cheap rent for the privilege of living in the US of A!
If it's so great why does the US need a section 877A exit tax to try and prevent people leaving? Why did they hike the expatriation fee to a couple of thousand to stem the unprecedented demand? Why does the US have a wait time of over a year to get an interview to expatriate?

I also think the US is an incredible place but some stuff that's happening around taxes isn't so nice.
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Old 02-15-2015, 12:32 PM   #28
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We had a year where we crossed over the deduction/exemption rollback "hump" and were back to normal tax rates. I took advantage of it by taking a lot of capital gains at a true 15% (was it 20% then?) marginal rate. Experiment with tax software and see what your marginal rate will be, and where any breakpoints might be. Before that, and after, we were in the middle of the rollback region and marginal tax rates even on capital gains were quite a bit higher than their nominal values. Things have changed a bit since then, like the 3.8% ACA tax that steps instead of humps, so maybe you won't have the same opportunity.
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Old 02-15-2015, 01:14 PM   #29
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Originally Posted by pb4uski View Post
One thing to consider is making after-tax contributions to your 401k if your plan allows it. While it doesn't help you with taxes currently, under current rules you can roll after-tax 401k balances into a Roth IRA (either in-service if your plan allows in-service rollovers or after you sever service).

However, be aware that the recent Obama budget is proposing to close down this loophole.
Yes, the IRS did finally clarify this, but there are still some limitations. I'm still digesting the details, but my takeaway is that you can't roll over just the post-tax portion of the 401k to a Roth. Rather, you have to roll over both pre-and post-tax money from the 401k (in proportion to the balance) to IRAs. The pre-tax portion can go into a traditional (pre-tax) IRA, and the post-tax into a Roth. Here is one link that provides details:

New IRS Rules on After-Tax 401(k) Rollover To Roth IRA | Bankrate.com

and here is the official IRS notice. Section V example 4 is the most relevent:

http://www.irs.gov/pub/irs-drop/n-14-54.pdf
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