Author Topic: Gross Income of 100k, Federal Tax Rate of -0.01%  (Read 10985 times)

codemonkey

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Gross Income of 100k, Federal Tax Rate of -0.01%
« on: January 23, 2016, 03:57:28 PM »
From Turbo Tax:

Quote
Amount to be Refunded $ 4,611.00 | Effective Tax Rate -0.01%

We are a single income family with four children.  I earned $106,000 Gross last year and $4,606 was taken out in taxes during the year, with just over $4,000 of that coming from our yearly bonus which has a mandatory 25% tax rate.  Between my 401k, our tIRAs, HSA, 10% Tithe, and other normal deductions we were able to come out $5 ahead in Federal taxes during 2015.  Last year we paid $896 in Federal taxes and since I felt like I had learned a lot from discovering MMM and this forum at the end of 2014, my goal for 2015 was to hit $0 in Fed taxes.

What really made this all possible is that we have four wonderful children.  We don't have them around for the tax break, but a $4,000 credit is what pushed us over the edge this year.

All of that said, our savings rate was only 44% last year, with another 10% in tithing, and we are going to try to push it to 48% this year and 50%+ the following year.  That's not nearly as good as a lot of people on this site, but we jumped from 32% in 2014 to 44% in 2015 after discovering MMM and are happy with how last year went.

I hope a lot of you have also learned some good things from you time on this site! 

redcedar

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #1 on: January 23, 2016, 04:58:06 PM »
Congrats! That is awesome! A family effort I am sure.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #2 on: January 23, 2016, 05:07:01 PM »
Congrats! That is awesome! A family effort I am sure.

Thanks for your kind comment Redcedar.

My wife comes from a family who always had problems with money and was stressed about money throughout her entire child hood through present time.  She still has some ways to grow in respect to our budget, but she got on board with a specific budget amount per week last year which ended up cutting her spending by almost 50%.  She was eating out regularly in 2014 3-4 times a WEEK, and she cut that to 2-3 times a MONTH in 2015. 

I have a specific weakness for good alcohol.  I cut my budget from $3,000 (holy crap, face punch!) a year to $1,300 and I'm planning to be under $1,000  this year.  Along with my disclaimer from our original post - we spend a lot of money still and most people don't have the same income that we do. It was definitely a family effort, and we are blessed to have such a high income.  We are doing our best to take advantage of it.

PhysicianOnFIRE

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #3 on: January 23, 2016, 05:35:47 PM »
That's awesome.  Any state income tax? 

When I've run scenarios that generate no federal income tax in an early retirement, I still end up with a few thousand in state taxes.  Obviously not an issue in certain states.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #4 on: January 23, 2016, 05:43:06 PM »
That's awesome.  Any state income tax? 

When I've run scenarios that generate no federal income tax in an early retirement, I still end up with a few thousand in state taxes.  Obviously not an issue in certain states.

We live in Michigan, which has a 4.25% tax, so despite our 529 contributions for all 4 kids, we paid $2,151 in state tax and 362 in city taxes, so we were not entirely tax free.

PhysicianOnFIRE

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #5 on: January 23, 2016, 09:34:07 PM »
That's awesome.  Any state income tax? 

When I've run scenarios that generate no federal income tax in an early retirement, I still end up with a few thousand in state taxes.  Obviously not an issue in certain states.

We live in Michigan, which has a 4.25% tax, so despite our 529 contributions for all 4 kids, we paid $2,151 in state tax and 362 in city taxes, so we were not entirely tax free.

Not too shabby.  You probably paid about $7000  in SS / Medicare too, so you're up to about $10,000 plus property and sales tax.  But still, you did well to eliminate the federal income tax.  Keep up the good work!

SomedayStache

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #6 on: January 24, 2016, 06:33:24 AM »
Kick ass!   Most of these type of examples involve two income earners with two 401k spaces.   If I could bump up our savings enough to do some IRAs my single income family might get close to this too!

But we are not that extreme yet.  Kudos to you! 

CorpRaider

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #7 on: January 24, 2016, 07:30:19 AM »
Noice!

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #8 on: January 24, 2016, 11:51:50 AM »
Pay your taxes, moocher.

livingthedream

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #9 on: January 24, 2016, 04:06:40 PM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

JLee

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #10 on: January 24, 2016, 04:29:22 PM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.


MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #11 on: January 25, 2016, 12:58:25 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

Think

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #12 on: January 25, 2016, 05:54:07 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

106k isn't considered a high earner for tax purposes.  It's the sweet spot of keeping all of your deductions, making enough money but not paying a lot in taxes. 

My husband and I each made around 150k before we married.  Getting married meant we got hit by the amt, no rental property deductions etc.  I had to write a 20k check to the irs.   For us, right below 150k was the sweet spot.

Now we are closer to 400k and our federal tax deduction from our paycheck totaled around 70k.  State at 30k.  We max out our 401ks and have a large interest payment on our mortgage. 

charis

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #13 on: January 25, 2016, 06:58:06 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

I don't believe that would be hard to do.  Almost $54K just on 401Ks, IRAs, and HSA alone.

Thegoblinchief

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #14 on: January 25, 2016, 07:34:52 AM »
Nice. We're a single-earner family of 3 down around $70K gross and also zero federal income tax liability. As income increases from here it will just keep getting stuffed into tax deferred accounts. Our "ceiling" on that ends somewhere in the same range as OP (we have about $25K of space left in 401(k) and IRAs each year after maxing HSA because so much of our savings is going to debt) and that's just with standard deductions, no itemizing.

johnny847

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #15 on: January 25, 2016, 07:36:36 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

I don't believe that would be hard to do.  Almost $54K just on 401Ks, IRAs, and HSA alone.

Except a single earner household would imply just one 401k, not two.

And I believe the OP doesn't qualify for deductible traditional IRA contributions because the OP makes too much while having a 401K (there may be some above the line deductions the OP didn't mention, but without them I don't see how the OP would qualify).
Edited: I was looking at the wrong entry in the deductinon limit table.
« Last Edit: January 25, 2016, 08:33:12 AM by johnny847 »

seattlecyclone

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #16 on: January 25, 2016, 08:05:12 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

Doesn't seem that hard.

Gross salary is $106,000.

Maxing out 401(k) means "wages" reported on tax return will be $88,000.

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

Max out a family HSA ($6,650). Now we're down to $70,350.

Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

The tax on this income is $4,144, but four $1,000 child tax credits brings it down to $144 net.

The OP claimed a negative $5 total tax liability, implying a tax of $3,995 before the child tax credit. A taxable income in the range of $32,750-$32,800 would do it. To achieve that they would need itemized deductions just $1,000 higher than their standard deduction, or $13,600. A tithe of 10% of gross salary would get them most of the way there, with state income tax making up the rest.

See? No cheating required.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #17 on: January 25, 2016, 08:08:28 AM »
Pay your taxes, moocher.

That's idiotic comment. You're in the wrong forum if you think people shouldn't save and take every deduction they are legally entitled to.

Take what you are legally entitled to. However, I don't see how he's paying nothing given the information he gave (high income single earner household with implied regular, taxable, income). It's certainly possible, but very hard to do.

Would love to see exactly how he's coming up with the $60-70k in deductions needed to zero out his income tax bill. Maxed 401k, HSA and a 10% tithe + other misc deductions don't add up, even with a $4k credit. Maybe he's rocking a massive mortgage that allows him to deduct enough interest and property tax? Would love to see it all.

First off, maybe I am stating things incorrectly.  If so, I apologize.  I pulled my "Gross Income" number from my paystub, showing what was earned prior to any taxes, healthcare costs, or deductions.

On the 1040, my Total Income was 80,541.
Minus 5,272 in tIRA contributions between my wife and I for an Adjusted Gross Income of 75,269.
Minus Itemized Deductions of 18,448 to get 56,821.
Minus exemptions (6x4,000) to get 32,821.

Tax we owe at this point is 3,994.
Child tax credit for four children gives us $3,994 in credit and zeroes out our return.




MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #18 on: January 25, 2016, 08:48:05 AM »

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

You can't get a deduction for both an IRA AND a 401k (or 403 or other similar). You also can't get an IRA deduction if you don't actually make income.

Quote
Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

You can't take both the standard deduction AND an itemized deduction.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #19 on: January 25, 2016, 08:55:28 AM »

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

You can't get a deduction for both an IRA AND a 401k (or 403 or other similar). You also can't get an IRA deduction if you don't actually make income.

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Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

You can't take both the standard deduction AND an itemized deduction.

seattlecyclone is referring to line 40 - Itemized or Standard Deductions for $12,600 and line 42 - Exemptions (6x$4,000), rather than saying you can take both the Standard AND Itemized deduction.

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #20 on: January 25, 2016, 08:56:39 AM »


First off, maybe I am stating things incorrectly.  If so, I apologize.

No need to apologize, I'm just curious.

Quote
  I pulled my "Gross Income" number from my paystub, showing what was earned prior to any taxes, healthcare costs, or deductions.

On the 1040, my Total Income was 80,541.
Minus 5,272 in tIRA contributions between my wife and I for an Adjusted Gross Income of 75,269.
Minus Itemized Deductions of 18,448 to get 56,821.
Minus exemptions (6x4,000) to get 32,821.

Tax we owe at this point is 3,994.
Child tax credit for four children gives us $3,994 in credit and zeroes out our return.

Sounds to me like your real gross was $80k, not $106? Also looks like you are trying to deduct both for a 401k and an IRA -- that's not possible. You can CONTRIBUTE to an IRA even if you max out your 401k, but you forgo the tax savings if you do. Of course, I'm just guessing based on the $18k deduction you listed that it's mostly from 401k. If you are contributing to both a 401k and and IRA and trying to deduct both, I would consult a tax professional to avoid erroneously taking deductions.

What is the $24,000 exemption you list (if you care to share)?

KCM5

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #21 on: January 25, 2016, 09:03:38 AM »

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

You can't get a deduction for both an IRA AND a 401k (or 403 or other similar). You also can't get an IRA deduction if you don't actually make income.

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Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

You can't take both the standard deduction AND an itemized deduction.

Regarding your first misconception, you can get a deduction of up to $5500 per filer (married filing joint in this case so $11000) for a traditional IRA even if one or both filer has a 401k if income is under certain limits - which in this case it is.

Your second misconception has been explained above.

If you're doing your taxes yourself, I'd suggest spending a little bit of time understanding our tax code.

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #22 on: January 25, 2016, 09:05:01 AM »
seattlecyclone is referring to line 40 - Itemized or Standard Deductions for $12,600 and line 42 - Exemptions (6x$4,000), rather than saying you can take both the Standard AND Itemized deduction.

$12,600 is the standard deduction amount in 2015 for a household, so I'm pretty sure seattle is attempting calculate with both, which isn't possible.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #23 on: January 25, 2016, 09:09:35 AM »

What is the $24,000 exemption you list (if you care to share)?

That is the exemption for any family of 6.  It'd be $8,000 if we had no children, $12,000 if we had one child, etc.

Check out line 42 on the 1040.

FIPurpose

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #24 on: January 25, 2016, 09:10:07 AM »

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

You can't get a deduction for both an IRA AND a 401k (or 403 or other similar). You also can't get an IRA deduction if you don't actually make income.

Quote
Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

You can't take both the standard deduction AND an itemized deduction.

You can contribute to a spouse IRA who did not work and still get the deduction.

See: Spousal IRAs
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

Psychstache

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #25 on: January 25, 2016, 09:11:24 AM »
seattlecyclone is referring to line 40 - Itemized or Standard Deductions for $12,600 and line 42 - Exemptions (6x$4,000), rather than saying you can take both the Standard AND Itemized deduction.

$12,600 is the standard deduction amount in 2015 for a household, so I'm pretty sure seattle is attempting calculate with both, which isn't possible.

Exemptions and deductions are two separate things. Whether or not you have itemized deductions or take the standard deduction has no bearing on claiming your exemptions.

SC said that he would need to have itemized deductions slightly above the standard deduction to meet the criteria to get in the 0 or negative tax range.

OP, congratulation on working the system. My wife and I just pulled off a similar feat this year (125k gross, 0 tax bill, no kids)

acroy

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #26 on: January 25, 2016, 09:11:28 AM »
Kickass!!

Kids are great little tax deductions. Love 'em ")

johnny847

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #27 on: January 25, 2016, 09:13:37 AM »
Kickass!!

Kids are great little tax deductions. Love 'em ")

[From the Root of Good blog.]

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #28 on: January 25, 2016, 09:28:06 AM »
What makes you think that's not possible?

My own situation, which doesn't include a legal spouse or spawn ;) I forget how much tax info changes just for hooking up officially.

Quote
No, he's not.  He is calculating the standard deduction and personal exemptions.

Sure he is, in his own words:

Quote
Maxing out 401(k) means "wages" reported on tax return will be $88,000.

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

Max out a family HSA ($6,650). Now we're down to $70,350.

Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

He's itemizing deductions (401k, HSA, etc.) AND including the standard deduction amount (emphasied), AND including exemptions.

charis

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #29 on: January 25, 2016, 09:33:58 AM »
What makes you think that's not possible?

My own situation, which doesn't include a legal spouse or spawn ;) I forget how much tax info changes just for hooking up officially.

Quote
No, he's not.  He is calculating the standard deduction and personal exemptions.

Sure he is, in his own words:

Quote
Maxing out 401(k) means "wages" reported on tax return will be $88,000.

The cutoff for full IRA deductions for a married joint filer with a retirement plan is $98,000, so we can take a full IRA deduction of $11,000. Now we're at $77,000.

Max out a family HSA ($6,650). Now we're down to $70,350.

Subtract a standard deduction ($12,600) and exemptions for a family of six ($24,000) to bring us down to $33,750 taxable.

He's itemizing deductions (401k, HSA, etc.) AND including the standard deduction amount (emphasied), AND including exemptions.

This is getting embarrassing.

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #30 on: January 25, 2016, 09:38:00 AM »
This is getting embarrassing.

It's right there, plain as day in the text, the number, and the math that he's trying to include the standard deduction in addition to itemized deductions he lists. If you can't comprehend that, don't complain to me.

Gin1984

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #31 on: January 25, 2016, 09:43:36 AM »
This is getting embarrassing.

It's right there, plain as day in the text, the number, and the math that he's trying to include the standard deduction in addition to itemized deductions he lists. If you can't comprehend that, don't complain to me.
Oh we all understand it.  The problem is, you don't.  Deducting a 401k, IRA or HSA is not "itemizing deductions", so yes, you can deduct all of those, plus the standard deduction.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #32 on: January 25, 2016, 09:44:01 AM »
This is getting embarrassing.

It's right there, plain as day in the text, the number, and the math that he's trying to include the standard deduction in addition to itemized deductions he lists. If you can't comprehend that, don't complain to me.

MilesTeg, you are confusing exactly what deductions are.

106 gross - 18k 401k - 6650 HSA - 1k Insurance premiums + Dividends - Capital Gain Loss + Interest gives me the 80,000 Gross Income on the 401k.

From there remove the 5.2k for the IRA, and are down to 75k.

Itemized DEDUCTIONS (Charitable gifts, property tax) removes 18,000 more. 

Standard EXEMPTIONS, that everyone gets, removes 24,000.

Then the Child Tax Credit wipes out $4,000 worth of tax, rather than just reducing the taxable amount.

I'm not sure what else we can say to help you understand how this is working.  I would recommend pulling out a 1040 form and going through it line by line to understand how everything plays together.  If that doesn't sound like fun, then run a scenario through Turbo Tax or your favorite tax software.  You don't have to pay until you file so you can play around with the numbers and see how it all fits together.


MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #33 on: January 25, 2016, 10:01:42 AM »
MilesTeg, you are confusing exactly what deductions are.

106 gross - 18k 401k - 6650 HSA - 1k Insurance premiums + Dividends - Capital Gain Loss + Interest gives me the 80,000 Gross Income on the 401k.

From there remove the 5.2k for the IRA, and are down to 75k.

Itemized DEDUCTIONS (Charitable gifts, property tax) removes 18,000 more. 

Standard EXEMPTIONS, that everyone gets, removes 24,000.

Then the Child Tax Credit wipes out $4,000 worth of tax, rather than just reducing the taxable amount.

I'm not sure what else we can say to help you understand how this is working.  I would recommend pulling out a 1040 form and going through it line by line to understand how everything plays together.  If that doesn't sound like fun, then run a scenario through Turbo Tax or your favorite tax software.  You don't have to pay until you file so you can play around with the numbers and see how it all fits together.

I see it now. The big difference maker is that you're married with 4 children. My own situation (2014) was unmarried, $138K salary + a few grand in cap gains. I thought I was doing good getting it down to ~13%, but lack the dependents and other tax savings powers you have. Gratz!

Thanks for not being a prick over a simple misunderstanding, unlike some folks in here.

Neustache

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #34 on: January 25, 2016, 10:18:07 AM »
Back to the OP - WTG!

That's great, and puts my 4% effective rate to shame.  We don't have access to a 401K to max and due to an asthmatic boy we don't pick the HDHP that goes along with the HSA (although we may someday). 

charis

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #35 on: January 25, 2016, 10:20:34 AM »
Pay your taxes, moocher.
Thanks for not being a prick over a simple misunderstanding, unlike some folks in here.

Thanks for the reminder about civility, we'll keep that in mind.

FIPurpose

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #36 on: January 25, 2016, 10:39:09 AM »
To make clear to anyone reading this thread that may still be confused. The use of the word "deduction" is being used, but in different contexts. In US Tax Code there is a big difference between "Above-the-line" deductions and "Below-the-line" Deductions, but commonly both get referred to as just deductions.

"Above-the-line" reduces your AGI (adjustable gross income). This includes IRA contributions, moving expenses, and many other things. Saying 401(k) is a deduction is only sightly a misnomer. You do not report your 401(k) contributions on your tax return at all.

"Below-the-line" deductions reduce your taxable income. This is where you either take a "standard deduction" or "itemize your deductions" and take your "personal exemptions".

Since many people on the board understand the nuances of different tax strategies by merely mentioned the IRS code, it often gets overlooked for people who are still learning. But when you do your taxes, you compute both Above and Below "deductions" separately, thus "Above" deductions do not affect whether you "itemize" or take the "standard deduction".

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #37 on: January 25, 2016, 10:54:30 AM »
To make clear to anyone reading this thread that may still be confused. The use of the word "deduction" is being used, but in different contexts. In US Tax Code there is a big difference between "Above-the-line" deductions and "Below-the-line" Deductions, but commonly both get referred to as just deductions.

"Above-the-line" reduces your AGI (adjustable gross income). This includes IRA contributions, moving expenses, and many other things. Saying 401(k) is a deduction is only sightly a misnomer. You do not report your 401(k) contributions on your tax return at all.

"Below-the-line" deductions reduce your taxable income. This is where you either take a "standard deduction" or "itemize your deductions" and take your "personal exemptions".

Since many people on the board understand the nuances of different tax strategies by merely mentioned the IRS code, it often gets overlooked for people who are still learning. But when you do your taxes, you compute both Above and Below "deductions" separately, thus "Above" deductions do not affect whether you "itemize" or take the "standard deduction".

Aye, this is the source of my confusion. It's been so damn long since I haven't been maxing out 401k/etc. and also itemizing for mortgage/etc. that I forgot this differentiation. Thanks for helping clarify.
« Last Edit: January 25, 2016, 10:56:50 AM by MilesTeg »

MilesTeg

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #38 on: January 25, 2016, 10:55:21 AM »
Pay your taxes, moocher.
Thanks for not being a prick over a simple misunderstanding, unlike some folks in here.

Thanks for the reminder about civility, we'll keep that in mind.

LOL, as someone already pointed out, and I've already clarified, it was a joke. Take a chill pill friend.

codemonkey

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #39 on: January 25, 2016, 11:07:40 AM »
To make clear to anyone reading this thread that may still be confused. The use of the word "deduction" is being used, but in different contexts. In US Tax Code there is a big difference between "Above-the-line" deductions and "Below-the-line" Deductions, but commonly both get referred to as just deductions.

"Above-the-line" reduces your AGI (adjustable gross income). This includes IRA contributions, moving expenses, and many other things. Saying 401(k) is a deduction is only sightly a misnomer. You do not report your 401(k) contributions on your tax return at all.

"Below-the-line" deductions reduce your taxable income. This is where you either take a "standard deduction" or "itemize your deductions" and take your "personal exemptions".

Since many people on the board understand the nuances of different tax strategies by merely mentioned the IRS code, it often gets overlooked for people who are still learning. But when you do your taxes, you compute both Above and Below "deductions" separately, thus "Above" deductions do not affect whether you "itemize" or take the "standard deduction".

Thanks for taking the time to write that up.  I'm far from being a tax professional and while I understood the concepts, I didn't actually know the proper terminology to explain it.

peoria

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Re: Gross Income of 100k, Federal Tax Rate of -0.01%
« Reply #40 on: January 25, 2016, 12:44:10 PM »
I will make $51000 this year as a single person and not pay any federal taxes and about $125 of AZ taxes. ( yes, I will still pay about $3045 soc/fica)

Gross income as per W-2. $39800
Max 401k at 18000
Max TIra at 5500

Employer matches 401k at 3.5% of income $1361.50 ( no taxes including Fica)
Employer bonus paid via 401 profit sharing $9950 ( no taxes including Fica)

Standard Deduction and single exemption takes me down to 6300 taxable
Saver's credit of $1000 (not refundable) federal tax liability. I could actually increase my taxable income by about $2200 and still have zero federal tax liability, except that I am using this to take full advantage of ACA ( though I am healthy and won't even use the insurance except for birth control and one annual physical).