Reducing Income Taxes

**carsensejoe** · 04-28-2007, 10:03 PM

get married
have some kids
invest in solar panels for your house (LOL)
buy a hybrid vehicle(LOL)
pretaxed investments
go see a pro u need a taxman to help you 46% is crazy
the government sux

**CRFSaver** · 04-28-2007, 10:18 PM

mind you that was before the company started taking out 401k and medical/dental. It will be lower but still rediculous.

I don't mind paying my fair share but damn...

**bigsaver** · 04-29-2007, 05:52 AM

I personally think the tax system in this country is insane! I believe everyone should pay the same amount in taxes. Just because I worked hard in school does NOT mean I should be paying six figures in taxes, but I'm sure there are a bunch of you who would disagree.

**sweeps** · 04-29-2007, 05:55 AM

46%? That's impossible unless you had some significant taxable event.

Are you itemizing your deductions or taking the standard deduction? Your state income taxes are deductible on your federal taxes.
Does your income include interest income? This fund is exempt from federal and CA taxes.

**sweeps** · 04-29-2007, 06:17 AM

Originally posted by bigsaver View Post

I personally think the tax system in this country is insane! I believe everyone should pay the same amount in taxes. Just because I worked hard in school does NOT mean I should be paying six figures in taxes, but I'm sure there are a bunch of you who would disagree.

So how much would that amount be? Would that be per person or per family?

**scfr** · 04-29-2007, 06:58 AM

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**MonkeyMama** · 04-29-2007, 07:07 AM

46% - not impossible - there is AMT and CA taxes are very high (9.3%).

If you are in AMT there really isn't much you can do than leave Cali. State taxes could easily be putting you in AMT. Is a huge issue around here = have plenty of clients paying upwards of 46% in income taxes. Getting married and having kids will hurt you with AMT.

Maxing out retirement is a good start.

Buying a home will be a great tax write-off. Though property taxes will up your chances of facing AMT (double-edged sword).

The only other thing I can suggest is contribute to a traditional IRA. It will be non-deductible now, but the principal will be tax-free when you withdraw AND it will grow tax-free in the meantime. I am a CPA and have a lot of clients in your shoes. For the ones who could not contribute to a deductible IRA or a ROTH, this is what we have been recommending. There is a big tax loophole in 2010 where you can convert your traditional IRAs to ROTHs, regardless of your income. Sure, the law is subject to change, but for now the 2010 rule stands, and is a huge tax advantage. Regardless if that law changes, a non-deductible IRA contribution shelters some of your money (earnings on contributions) from taxes, so is better than nothing.

Good Luck.

**MonkeyMama** · 04-29-2007, 07:14 AM

Oh my only other advice is start your own business.

Business owners get the amazing tax shelter of large retirement contributions (up to $44k/year).

**humandraydel** · 04-29-2007, 12:23 PM

Originally posted by MonkeyMama View Post

Oh my only other advice is start your own business.

Business owners get the amazing tax shelter of large retirement contributions (up to $44k/year).

Interesting. I assume the $44k has to be FROM the business? In other words, one couldn't start a part time business on the side and sock away income from a full time job?

**CRFSaver** · 04-29-2007, 12:47 PM

well the 46% was what they took out of my first check before any of my normal deductions such as 401k and medical. Obviously those reduce my taxable right now but only by the tune of about 16k a year. Buying a house will help and you are right my state income taxes allow me to itemize so I am being a heck of a lot more careful about keeping receipts. As a single person the 95k income limit keeps me from contributing to a Roth or even getting the tax benefit for a regualr IRA.

I chose to live in California so I can accept that my state tax bill will be higher. Just doesnt mean i have to take it laying down. And rather pay the redicluous taxes here then have to live in Virginia despite lower state income taxes.

**sweeps** · 04-29-2007, 02:03 PM

Originally posted by MonkeyMama View Post

46% - not impossible - there is AMT and CA taxes are very high (9.3%).

No, not impossible, but you'd have to be trying pretty hard to accomplish that. AMT is maximum 28% rate. Maximum regular tax rate is 35% -- and that only kicks in for taxable income over $336,550. And all that doesn't count the numerous deductions one can get.

Originally posted by CRFSaver

well the 46% was what they took out of my first check

Ok, that's what they took out of your paycheck. I can accept that. But I think you'll find your effective tax rate at the end of the year was much lower than 46%.

Anyway, yes, buying a house will be huge tax savings -- mortgage interest and property taxes are huge line items. Throw in your state income tax (assuming no AMT as MonkeyMama points out) and your Schedule A will be a lifesaver. You can also do some energy improvements on your house to tax advantage of the Home Energy Efficiency Improvement Tax Credit.

**DebbieL** · 04-30-2007, 10:47 AM

You would be paying more than that here in Canada at your income level. We are taxed VERY heavily here.

**thekid** · 04-30-2007, 10:54 AM

Originally posted by DebbieL View Post

You would be paying more than that here in Canada at your income level. We are taxed VERY heavily here.

Yeap, 46% marginal rate is quite normal here in Canada if you are making 100K$. The tax man here bites hard

**safari** · 04-30-2007, 12:15 PM

You will be surpised, but US has one of the lowest personal tax rates in the world. This chart is pretty interesting. For example, in Belgium people are paying 55% average income tax, compared to 28% in US.

Reducing Income Taxes