The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Broadway2019 on May 21, 2017, 07:37:03 PM
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I make about $125k a year (single) and am looking for ways to minimize my taxes. I will invest the $17,500 into my 401k, however, do not have any other investments at this point. I cannot deduct student loan interest because I make too much. I don't have a lot of disposable income now since I am paying off student loans and other non - mustachian debt. However, if there were any simple things I could do now to reduce the amount of taxes that would be great.
Any suggestions?
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Get a 1040 income tax form (https://www.irs.gov/pub/irs-pdf/f1040.pdf).
There are two main ways to reduce income taxes:
1. Deductions. These reduce your taxable income dollar for dollar. These are found at lines 23 through 35 and then line 40 and 42. Easiest ones for you here are probably putting $5,500 into a traditional IRA or contributing to an HSA, but maybe some of the others apply or you can find ways to get them to apply to you. The other thing to look at is Schedule A where you might be able to itemize your deductions if you have mortgage interest, property taxes, charitable deductions, or high medical expenses - which you probably don't yet.
2. Credits. These reduce your tax owed dollar for dollar. These are found around lines 46 through 54 and 66 through 73. Again the game is to see if any of these apply to you or you can rearrange your life so that they apply to you.
Unfortunately, young single high income people are not treated very kindly by the tax code. If you have a mortgage, a spouse, and a few kids, with more of an average income, you'll have all sorts of tax breaks.
Good luck.
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Unfortunately, young single high income people are not treated very kindly by the tax code. If you have a mortgage, a spouse, and a few kids, with more of an average income, you'll have all sorts of tax breaks.
This is what I hate about our tax systems. Politicians appeal to parents or the needs of parents and many people fall for that. Because fuck single people and people without children? (Pun intended.) I think we'd be better as a society if we made families pay their fair share and returned that in the economy to the poor and struggling.
I digress. Yeah, one of the best ways to reduce taxes is to increase family size. Not sure how it is in the USA but here in Canada is is pretty hefty. I think if I had two children instead of one, my tax rate including transfers would be negative. With an income 2x-3x my peers (single parent households).
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Is there a reason for saving $17,500 vs 18K? Do you have access to an HSA?
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Unfortunately, young single high income people are not treated very kindly by the tax code. If you have a mortgage, a spouse, and a few kids, with more of an average income, you'll have all sorts of tax breaks.
This is what I hate about our tax systems. Politicians appeal to parents or the needs of parents and many people fall for that. Because fuck single people and people without children? (Pun intended.) I think we'd be better as a society if we made families pay their fair share and returned that in the economy to the poor and struggling.
I digress. Yeah, one of the best ways to reduce taxes is to increase family size. Not sure how it is in the USA but here in Canada is is pretty hefty. I think if I had two children instead of one, my tax rate including transfers would be negative. With an income 2x-3x my peers (single parent households).
Single high income isn't exactly what I would define as "poor and struggling"...
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Sorry Gin1984, I meant to say I will save whatever amount is capped. I thought it was $17,500. Guess I will be savings $18,000.
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Unfortunately, young single high income people are not treated very kindly by the tax code. If you have a mortgage, a spouse, and a few kids, with more of an average income, you'll have all sorts of tax breaks.
This is what I hate about our tax systems. Politicians appeal to parents or the needs of parents and many people fall for that. Because fuck single people and people without children? (Pun intended.) I think we'd be better as a society if we made families pay their fair share and returned that in the economy to the poor and struggling.
I digress. Yeah, one of the best ways to reduce taxes is to increase family size. Not sure how it is in the USA but here in Canada is is pretty hefty. I think if I had two children instead of one, my tax rate including transfers would be negative. With an income 2x-3x my peers (single parent households).
Canada may be different, but because the U.S.'s major entitlements are paid for by generational transfers, our tax code is pretty punishing to your typical parents. Even with a lot of little breaks, when you look at what you get from Social Security/Medicare versus what it costs to produce each individual contributor to SS/Medicare, non-parents are getting a much better deal if you are just looking at taxes. If you're talking about parents where only one of the parents work, then it may be more equitable or even tilted in parents' favor, as a retired couple that only had one worker gets a much bigger bang for each dollar paid in SS taxes.
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Unfortunately, young single high income people are not treated very kindly by the tax code. If you have a mortgage, a spouse, and a few kids, with more of an average income, you'll have all sorts of tax breaks.
This is what I hate about our tax systems. Politicians appeal to parents or the needs of parents and many people fall for that. Because fuck single people and people without children? (Pun intended.) I think we'd be better as a society if we made families pay their fair share and returned that in the economy to the poor and struggling.
I digress. Yeah, one of the best ways to reduce taxes is to increase family size. Not sure how it is in the USA but here in Canada is is pretty hefty. I think if I had two children instead of one, my tax rate including transfers would be negative. With an income 2x-3x my peers (single parent households).
Single high income isn't exactly what I would define as "poor and struggling"...
Sorry, I didn't mean to suggest high income single people are downtrodden. I meant to say that the tax system advantages those with children, ignores singletons, and neglects the poor and struggling.
Canada may be different, but because the U.S.'s major entitlements are paid for by generational transfers, our tax code is pretty punishing to your typical parents. Even with a lot of little breaks, when you look at what you get from Social Security/Medicare versus what it costs to produce each individual contributor to SS/Medicare, non-parents are getting a much better deal if you are just looking at taxes. If you're talking about parents where only one of the parents work, then it may be more equitable or even tilted in parents' favor, as a retired couple that only had one worker gets a much bigger bang for each dollar paid in SS taxes.
I am not overly familiar with the US system nor have ever looked into I think more than people (like above in this thread) alluding that is does favour couples with children where one parent does not make much.
For me in Canada, I am single making a good salary with one child. My effective taxable income including transfers is ~2k. Which is a laughable small fraction of my income that is taxable.
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Watch income limits for tax advantageous IRA contributions. You can't always use traditional and get a tax reduction.