Where are the tax breaks for people making 200k/year

[someguy]

I've seen the opposite -- I'm getting applications from current or recent ex military guys looking for 30%+ above the average salary for the position because they are grossing up to compensate for losing the tax benefits.

BIG part of it I have to consider after my military time is over is that a good chunk of entitlements are in the form of non-taxable "allowances." Many separated military people don't understand how much their salary needs to increase to compensate for the tax benefit we receive.

 

[phil1ben]

The phase-out of itemized deductions is called the Pease Rule. Named after the Congressman who first introduced it.......

Generally, your itemized deductions are reduced by a sum equal to 3.0% multiplied by the amount that your AGI exceeds $300,000.00 (married filing joint) not to exceed 20% of your deductions.

Example: Your AGI is $1,000,000 above the Pease threshold and your unprotected itemized deductions add up to $32,000. The 3% rule would reduce these deductions by $30,000, leaving you with only $2,000. Because of the 80% rule, you can deduct $6,400 (20% of $32,000).

That is why many high income earners do not have a mortgage.

 

[razztazz]

Good for them to have a high income. They may make a lot, but they spend a lot and owe a lot, too.

Sounds like a management problem

 

[razztazz]

Congrats friend, you are now a member of the rich.

Here's part of the problem. Piker. The "Top 1%"er likes to think he/she's a Somebody but the reality is they are still normal people. Highly paid ones but nothing special. The real money, the real Somebodies are as far over their head as they are my head. You couldn't live on the difference.

As a single person even making peanuts many years ago, I know what it's like to always get f''ked over wrt taxes and having nowhere to run. I'd always ask myself : Would I like to have the bigger money and get stuck with bigger taxes? Or would I prefer to have things like they were 5, 10, 20 yrs ago? ie Nice low, "F''k The Man" tax rates and far less take home pay? Or maybe this is just the bushllit "poor people" tell themselves?

Personally I think I am entitled to what everybody else has. Poor people, rich people, everybody. You name it.

 

[Fermion]

Here's part of the problem. Piker. The "Top 1%"er likes to think he/she's a Somebody but the reality is they are still normal people. Highly paid ones but nothing special. The real money, the real Somebodies are as far over their head as they are my head. You couldn't live on the difference.

As a single person even making peanuts many years ago, I know what it's like to always get f''ked over wrt taxes and having nowhere to run. I'd always ask myself : Would I like to have the bigger money and get stuck with bigger taxes? Or would I prefer to have things like they were 5, 10, 20 yrs ago? ie Nice low, "F''k The Man" tax rates and far less take home pay? Or maybe this is just the bushllit "poor people" tell themselves?

Personally I think I am entitled to what everybody else has. Poor people, rich people, everybody. You name it.

The stick in the eye is the Roth IRA. Everyone should be able to contribute directly to a Roth IRA regardless of income without having to play backdoor fun games. It is quite easy for someone to have high income along with high expenses in a high cost of living area and be above the contribution thresholds without actually having that much more saving.

I am not going to play the ultimate game. The government told me what they wanted the split to be, I say no, and we both will now get nothing during my early retirement. (actually the government will have to pay me a bit)

 

[retire2020]

Have you researched a Backdoor Roth IRA yet? This 2-step method should be available at your income level. Just make sure that you understand the tax implications of the Pro-Rata rules before you actually convert to the Roth. There is lots of info in the forums and the web in general on this strategy as it is available to almost everyone.

Another option to seriously look into is if either of your 401k plans will allow "after-tax" contributions. Most 401ks only allow pre-tax or Roth contributions up to to the elective deferral limit of $17,500. If you are fortunate enough to have a plan that allows "after-tax" contributions you can save up to the "defined contribution" limit of $52,000 yearly. The beauty of this setup is that these after-tax contributions can then be converted to a Roth IRA.

Oh, and by the way, congratulations on your promotion. When looking at investment options be sure not to let the tax tail wag-the-dog. When we were dual income I didn't like the high tax numbers but I did like the high after tax income. It made me even more motivated to attain ER when the tax bills would go way down.

-gauss

Thanks Gauss…I was not aware of this. I just spoke with my company and they allow it. Can I convert that to roth IRA right away or will have to wait for some time? If it allows it right away then my tax implications will be just nil.

 

[Travelwanted]

1-I invested in a land trust. That helped a lot. Do your research first as they are complex.

2-I purchased film tax credits. Available here not sure if they are available in other states.

Still paid >30% tax rate. Ugh!

 

[pb4uski]

Back when I was working we were a high income Megacorp family (all W-2 earnings). Other than maxing our 401k/HSA etc. there isn't much you can do other than pay through the nose.

 

[Travelwanted]

I am not going to play the ultimate game. The government told me what they wanted the split to be, I say no, and we both will now get nothing during my early retirement. (actually the government will have to pay me a bit)[/QUOTE]


Couldn't agree more! I have paid MORE than "my fair share". Looking forward to lower tax brackets ahead.

 

[haha]

Here are the tax breaks clearly laid out:
Bogleheads • View topic - Taxes on a family with $200,000 gross income

"I'll start with this example.

Married couple, both age 50. Two kids ages 15 and 18.

Wife makes $168,000
Husband makes $22,000 "

With that much income disparity, I would hate to see his Honey-Do list.

Ha

 

[Fermion]

"I'll start with this example.

Married couple, both age 50. Two kids ages 15 and 18.

Wife makes $168,000
Husband makes $22,000 "

With that much income disparity, I would hate to see his Honey-Do list.

Ha

It is quite long I am sure. My wife makes $257,000 and I make $0.

 

[M Paquette]

200K isn't even remotely rich. It is probably considered poor in NYC.

Ditto San Francisco, home of the million dollar one bedroom condo. Of course, there aren't a whole lot of middle class folks living in much of Manhattan or San Francisco. Thats what Queens and Oakland are for...

(Huge issue in SF right now, with members of the Protester Class getting all riled up over rising rents. They're protesting this almost as much as new construction...)

 

[haha]

(Huge issue in SF right now, with members of the Protester Class getting all riled up over rising rents. They're protesting this almost as much as new construction...)

A very careful local RE consulting firm did a big study that showed, yes occupiers, new apartment construction does lower rents. Supply and demand is not a 1% trick. The braying class including our first avowedly socialist council member will have none of these conclusions. True, these new buildings have higher rents, but buildings only a few years older in the same area are much cheaper.

Seattle still has many cheap neighborhoods. The protestors don't want these, they want the closest in, most hip neighborhoods, at prices of 10 years ago. Some of them also want preferential treatment of certain groups.

Ha

 

[haha]

Consider the lucrative world of tax loss harvesting! A number of years ago we made a very bad loan - when we finally decided it wasn't worth chasing after we declared it a loss and had been able to write off $3000 of that loss each year thereafter! Last year we sold a rental and showed a honking great profit but were able to write off the remaining loan loss against the profit! Score! We only wrote IRS and state checks for a silly amount rather than a gobsmacked amount!

Now I punctuate with only exclamation points because it makes me feel better about our taxes!

(really, I'd rather have money and pay taxes on it than not have money and pay no taxes) (first world problem)

Also, your loss was not imaginary, you lost money to save on taxes, overall not a good trade, though reasonable enough once the money is gone.

Ha

 

[calmloki]

Also, your loss was not imaginary, you lost money to save on taxes, overall not a good trade, though reasonable enough once the money is gone.

Ha

Oh we didn't plan on losing the money, and were real sure what we lost was real. Sort of glad to finally be able to write off the loss against profit. The money we didn't have to pay in taxes is pretty real as well. Nice of Unca Sam to forgo that tax money as a consolation prize for our loss years ago.

 

[dadoftwo]

Wow, had a busy day at work, what a great surprise to find all this great advice. Wife and 2 kids live in Hawaii. Pretty modest living because food, housing and private school takes a big chunk of our earnings. We're not financially wise people, so I have lots to research now! I'm hoping to take the simplest path first and go from there. And yes, I realize this is a "good" problem to have. It just sort of snuck up on me and I didn't notice until I completed turbotax lol.

 

[Amethyst]

Congratulations for having made it into the income bracket where you get to work hard and pay the bills for all the grasshoppers and deadbeats, yet don't make enough to get into the country club.

I have no tax advice beyond the wisdom already shared...

Amethyst

 

[panacea]

Thanks Gauss…I was not aware of this. I just spoke with my company and they allow it. Can I convert that to roth IRA right away or will have to wait for some time? If it allows it right away then my tax implications will be just nil.

Be very careful with this. I don't think it will work the way you are picturing it. I'm not clear on what specific strategy you are considering but it sounds like you are thinking of converting Traditional 401(k) savings to Roth 401k savings, which is 100% taxable at your marginal tax rate (which could be pushed to as high as 40% depending on your income and amount of 401k savings).

Or are you simply talking about making future contributions to a Roth 401k in which case there's no conversion tax but your income taxes will increase immediately because you are no longer deferring the income. Might make sense for you depending on your situation but either way, there are tax implications.

The only thing that wouldn't involve a tax consequence is if you are suggesting rolling a Rollover IRA into your existing 401k to allow you to do backdoor Roth contributions going forward (outside of your work 401k). If this is what you meant, then I retract all of my concerns for you and your tax bill.

 

[retire2020]

Be very careful with this. I don't think it will work the way you are picturing it. I'm not clear on what specific strategy you are considering but it sounds like you are thinking of converting Traditional 401(k) savings to Roth 401k savings, which is 100% taxable at your marginal tax rate (which could be pushed to as high as 40% depending on your income and amount of 401k savings).

Or are you simply talking about making future contributions to a Roth 401k in which case there's no conversion tax but your income taxes will increase immediately because you are no longer deferring the income. Might make sense for you depending on your situation but either way, there are tax implications.

The only thing that wouldn't involve a tax consequence is if you are suggesting rolling a Rollover IRA into your existing 401k to allow you to do backdoor Roth contributions going forward (outside of your work 401k). If this is what you meant, then I retract all of my concerns for you and your tax bill.

No..I'm not converting traditional 401K to roth ira nor I'm taking about Roth 401K. I'm already contributing 23K(17.5K + 5.5 catch up) in my 401K which are pre-tax money. As Gauss mentioned...My company allows after tax 10% of my salary on top of pre-tax 23K into after tax 401K plan. Let's say that 10% is 10K. I'm planning to take that 10K and convert into Roth IRA. Since that 10K was after tax money, I'll not have to pay any tax on it. I spoke with my 401K admin and they said I can do it but wanted to hear from folks who have already done it and if there is any gottcha.

In any case…23K + Company Match + After Tax 401K contribution(capped at 10% of my salary) can not exceed 52K

 

[Fermion]

Yes retire2020 we are going to do the same thing. Contribute about $20,000 additional to our 401K in after tax money and then do what is called an in-plan conversion of that money into a Roth 401K. There is no tax except on the earnings from the $20,000 during the time between contribution and conversion.

Only very few plans allow this...it is essentially a $20,000 back door Roth

 

[RockyMtn]

Don't overthink the tax thing. Take what you can from the IRS, bite your tongue and right the check. Next year do the same thing. That's basically the way it works for high income folks.

Consider the alternative....you could be making $15k a year and paying nothing.

 

[Fermion]

Don't overthink the tax thing. Take what you can from the IRS, bite your tongue and right the check. Next year do the same thing. That's basically the way it works for high income folks.

Consider the alternative....you could be making $15k a year and paying nothing.

Or making $95K and paying nothing like some.

 

[Shawn]

Yes retire2020 we are going to do the same thing. Contribute about $20,000 additional to our 401K in after tax money and then do what is called an in-plan conversion of that money into a Roth 401K. There is no tax except on the earnings from the $20,000 during the time between contribution and conversion.

Only very few plans allow this...it is essentially a $20,000 back door Roth

Same here.

My 401k allows after-tax contributions *and* in-service withdrawals of after-tax contributions (and their earnings). Both are needed for this to efficiently work. So after I max out my before-tax and age 50 catchup contributions ($17.5K plus $5.5K in 2014), I max out my after-tax contributions to my 401k ($34.5K minus employee contributions to my defined benefit pension since these count against the limit) and then immediately roll the after-tax contributions into a Roth IRA. This is all defined by the IRS 415c limit.

I started building-up after-tax contributions in both an IRA and my 401k in 2007 when I learned the law would change in 2010 to allow Roth conversions at any income level. To date, I've made over $300K in backdoor Roth contributions. These are funds that would have otherwise gone into taxable accounts and now they are tax free.

It is a free lunch if your 401k plan allows it.

 

[Rustward]

Don't overthink the tax thing. Take what you can from the IRS, bite your tongue and right the check. Next year do the same thing. That's basically the way it works for high income folks.

Consider the alternative....you could be making $15k a year and paying nothing.

Really.

We had several years in which we paid >40K in federal income taxes (no, I am not counting SS or property taxes). It felt really really good. Be thankful that you have the income.

 

[daylatedollarshort]

Or making $95K and paying nothing like some.

I have always liked the Millionaire Next Door and successor books, but as time goes on I get the wisdom from them even more. One of the groups mentioned are the low profile millionaires, who had a median realized income of $113K. Many are self employed, so they are probably not paying huge amounts or maybe even zero in income taxes, yet building up wealth in a business that won't be taxed for years, if ever.