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High W-2 earnings are killing our taxes
02-14-2015, 11:43 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Aug 2004
Location: Houston
Posts: 1,448
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High W-2 earnings are killing our taxes
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.
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02-14-2015, 11:45 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,906
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even Uncle Sam is encouraging you to ER
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02-14-2015, 12:14 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,896
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Well, that's an effective rate of ~ 24% on your AGI.
People will have different takes on whether that's high/low/indifferent (and the thread will probably get shut down if we go there), but it's not a number that sound extraordinary to me, for that income level.
If it makes you feel any better, you could add in your property tax, SS and Medicare, sales tax, gas tax..... feel better now? No?
-ERD50
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02-14-2015, 12:25 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Bernalillo, NM
Posts: 2,717
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I never minded having been phased out of the various tax credits for making too much. It means my financial life is going well.
__________________
"We live the lives we lead because of the thoughts we think" ...Michael O’Neill
"We can cannot compel others to do our will" ....Norman Goldman
"There never is shortage of the gullible to accept the illogical"...Anonymous
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02-14-2015, 12:29 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,511
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not sure there is a lot you can do. Quite far out of my league. would you're employer work with you to do deferred comp? Some risks there.
Being in AMT land... many of the typical things don't work. maybe more muni bond investments that are GO (no private activity).
It is a nice problem to have... compared to many others that you could have.
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02-14-2015, 12:33 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Charitable Donor-advised Fund! You can contribute some of those higher tax dollars now (or appreciated securities), and let most of it build for donating when you are retired.
The tax limit on charitable donations is limited for regular tax, but you get the limitation back when computing AMT.
HSAs if you are eligible, but if you have an insurance plan with copays you won't be.
__________________
Retired since summer 1999.
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02-14-2015, 12:36 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Apr 2012
Location: Nashville
Posts: 2,506
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Quote:
Originally Posted by soupcxan
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.
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As others note, it all depends upon how you look at it. DW used to pay about that amount, then I went back to work..... Looking forward to the days when our "all other spending" exceeds taxes again. Not fun, but each of my siblings makes far less money than we pay in taxes; puts it in perspective if I ever were to get upset about it.
__________________
OMY * 3 2ish Done 7.28.17
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02-14-2015, 12:38 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,511
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Quote:
Originally Posted by 2017ish
As others note, it all depends upon how you look at it. DW used to pay about that amount, then I went back to work..... Looking forward to the days when our "all other spending" exceeds taxes again. Not fun, but each of my siblings makes far less money than we pay in taxes; puts it in perspective if I ever were to get upset about it.
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+1
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02-14-2015, 12:52 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by audreyh1
Charitable Donor-advised Fund! You can contribute some of those higher tax dollars now (or appreciated securities), and let most of it build for donating when you are retired.
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Since you do not get a tax deduction for letting it build in the DAF, I think money put in a DAF should be granted to charities right away. Otherwise, let it build in your own accounts and get a bigger tax deduction when you finally do donate.
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02-14-2015, 01:13 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by LOL!
Since you do not get a tax deduction for letting it build in the DAF, I think money put in a DAF should be granted to charities right away. Otherwise, let it build in your own accounts and get a bigger tax deduction when you finally do donate.
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Depends on your situation. What you say makes sense if you regularly itemize, or if you make a single massive "dump" of donations one year and nothing in other years.
In our situation, we regularly give, but in a typical year since we live in a state with no income tax, we don't currently own property and have no mortgage, we usually take the standard deduction so our charitable contributions (averaging maybe $4-5K a year) do exactly bupkis for our taxes.
So we're looking at one of these, perhaps dumping $20-25K in at a time, so we can get a nice writeoff one year, and take the standard deduction for 3-4 years while we replenish our accounts to deposit another $20-25K chunk. The current alternative is donating $4-5K a year and getting no tax relief whatsoever. I'm looking at the nuances of tax law to see what we can do and how much we can deduct in a single tax year. We may do it this year -- we've talked about it in the past but we're in a position now where it seems like a better idea. This may be even more important for us because if all goes as planned, DW will be ordained this July and will change from a W-2 employee to being self-employed and having to pay self-employment tax.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-14-2015, 01:16 PM
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#11
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Recycles dryer sheets
Join Date: May 2013
Posts: 127
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Here's a another way of looking at it that might make you feel better: if you look at total Fed taxes (including SSI + Medicare), your overall Fed tax rate would be about 29%. If you were self-employed, which is really common post-recession among my friends, and made $75K your tax rate would be about 24%. Not a huge difference.
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02-14-2015, 01:52 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Quote:
Originally Posted by LOL!
Since you do not get a tax deduction for letting it build in the DAF, I think money put in a DAF should be granted to charities right away. Otherwise, let it build in your own accounts and get a bigger tax deduction when you finally do donate.
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This is a way to lower your AGI if you are in a high ordinary tax bracket plus if you pay AMT, so it will probably help them most now than when retired.
[Assuming they can itemize it] They can donate 5% of their DA fund value every year while working (or a little less if their administrator allows it), and let the rest build. Then when they do retire, they can donate from the fund instead of spending their annual draw on charitable donations or itemizing.
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Retired since summer 1999.
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02-14-2015, 02:21 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 2,223
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Prob. doesn't make it any less bitter, but be glad you have no state and/or city income tax too.
__________________
" A person is smart, but People are dumb, dangerous, panicky animals, and you know it " Agent "K", Men in Black
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02-14-2015, 02:55 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Quote:
Originally Posted by ziggy29
Depends on your situation. What you say makes sense if you regularly itemize, or if you make a single massive "dump" of donations one year and nothing in other years.
In our situation, we regularly give, but in a typical year since we live in a state with no income tax, we don't currently own property and have no mortgage, we usually take the standard deduction so our charitable contributions (averaging maybe $4-5K a year) do exactly bupkis for our taxes.
So we're looking at one of these, perhaps dumping $20-25K in at a time, so we can get a nice writeoff one year, and take the standard deduction for 3-4 years while we replenish our accounts to deposit another $20-25K chunk. The current alternative is donating $4-5K a year and getting no tax relief whatsoever. I'm looking at the nuances of tax law to see what we can do and how much we can deduct in a single tax year. We may do it this year -- we've talked about it in the past but we're in a position now where it seems like a better idea. This may be even more important for us because if all goes as planned, DW will be ordained this July and will change from a W-2 employee to being self-employed and having to pay self-employment tax.
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We donate to the DAF every other year at the moment, because we itemize every other year.
And currently we donate 30% of our fund value every summer. But that's because we expect to add funds every other year. If we didn't donate funds often we would donate a much smaller amount of the DAF each year.
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Retired since summer 1999.
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02-14-2015, 03:09 PM
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#15
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Quote:
Originally Posted by audreyh1
They can donate 5% of their fund value every year while working (or a little less if their administrator allows it), and let the rest build. Then when they do retire, they can donate from the fund instead is spending their annual draw on charitable donations or itemizing.
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Right or wrong, that's the way we are doing it, to a tee.
Back to the OP, all I can only say is that I share your pain. We paid a bundle in FIT last year (I can't even bring myself to say how much). When DW retires, doing our tax return is going to be a lot less painful.
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02-14-2015, 07:37 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
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Covert the income from w-2 to self employed or llc and the world is your oyster.
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02-14-2015, 07:50 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,374
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I felt your pain for a number of years. If your earnings are mostly W-2 earnings there is little that you can do other than maximize tax-deferred savings. Can you do a HSA?
While it sucks to pay more in tax than most people make, count your blessings.
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Patience is the art of concealing your impatience.
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02-14-2015, 07:55 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 7,746
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Poor you!
You're taking home almost a quarter million after FIT and payroll taxes. That's almost double our gross income from our highest earning year. Sounds like you're doing pretty well, huge income tax burden notwithstanding.
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Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (8, 13, and 15).
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02-15-2015, 06:04 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,895
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Quote:
Originally Posted by timo2
I never minded having been phased out of the various tax credits for making too much. It means my financial life is going well.
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Ditto !
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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02-15-2015, 07:41 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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OP's "woes" reminds me of rental owners who tell similar woes when the properties stop losing money. Would they really want to keep losing 20K/yr rather than make 10K when they get to keep perhaps 75% of that 30K swing? You can focus on the taxes or perhaps what you keep after taxes. Same situation, different viewpts.
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