Author Topic: Help me lower my tax bill!  (Read 5285 times)

sekritdino

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Help me lower my tax bill!
« on: November 16, 2014, 10:04:10 PM »
Hello fellow Mustacians! I have a challenge for you: help me lower my taxable income by about $10-20k for 2014. After taking out the standard deduction, personal exemptions, maxed out HSA and 401(k), my taxable income is about $85,500 in 2014. The problem is (besides not wanting to pay so much in tax), I'm missing out of a lot of OTHER tax write offs with this taxable income.

If I have less than $75k taxable income, I can write off an additional $2,500 in student loan interest paid this year. Also, if I had an income under $60-70k (phase out is between those numbers), I could contribute to a traditional IRA and write off another $5500.

It's like the reverse of that old saying "You have to spend money to make money." Here I need to save money to save more money!

Any ideas? I have no kids, unmarried, and I don't own a home. (The b/f didn't think getting married for the tax write off was a good idea when I proposed it to him. Lame haha"

bluecheeze

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Re: Help me lower my tax bill!
« Reply #1 on: November 16, 2014, 10:09:51 PM »
Calculate your itemized deduction and then donate the appropriate amount to get your taxable income down.
A $10k-$20k check to some organization of your choice would make them happy :-)  And then there is the joy of giving.

MDM

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Re: Help me lower my tax bill!
« Reply #2 on: November 16, 2014, 10:27:24 PM »
See http://www.irs.gov/pub/irs-pdf/f1040.pdf: lines 13, 14, 17, 18, and 23-35 (at least some of which you already know about, per the OP).

Any unused pre-tax deductions (e.g., various insurance options; commuter costs)?

And in the vein of bluecheeze's suggestion: tell your employer you will gladly work for less ;).

Otherwise, keep up the good work!

madmax

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Re: Help me lower my tax bill!
« Reply #3 on: November 16, 2014, 10:39:47 PM »
Find stuff that you no longer want, donate to charity.

Sell stock that is under its cost basis

Start an Ebay business from home and deduct a portion of your rent/mortgage.

FIPurpose

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Re: Help me lower my tax bill!
« Reply #4 on: November 16, 2014, 10:46:04 PM »
Break your leg and then spend a lot of money on medical bills.

I'm not sure that you're going to come out ahead on this one. What would itemizing look like for you?

chucklesmcgee

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Re: Help me lower my tax bill!
« Reply #5 on: November 16, 2014, 11:45:46 PM »
There's not too much you can do. Donate something, start a hopefully profitable business and write off startup costs for now...other than that and maybe certain credits we don't know about because we don't know absolutely everything about you, looks like you may just have to bite the bullet on this one.

seattlecyclone

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Re: Help me lower my tax bill!
« Reply #6 on: November 16, 2014, 11:50:46 PM »
If you're serious about reducing your income, you could ask about taking an unpaid leave of absence from work to do some traveling or work on your house or whatever else you might do if you had a month off.

RichMoose

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Re: Help me lower my tax bill!
« Reply #7 on: November 17, 2014, 06:31:26 AM »

johnny847

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Re: Help me lower my tax bill!
« Reply #8 on: November 17, 2014, 07:31:38 AM »
You say that if you have less than $75k of taxable income, you can take the student loan deduction. That is incorrect! To qualify for the student loan interest deduction you need your modified adjusted gross income to be less than $75k (MAGI is taking your AGI, and then adding back a couple things which don't generally apply to most people). You do not include your deduction or exemption in AGI.  Therefore, donating to charity (or any other method of increasing your itemized deductions) wouldn't work either.

There's no magic to reducing your taxes. We can look at the 1040. Looking through the list of things that reduce your AGI, there really isn't much left that I would guess you qualify for (you need to be self employed, be an educator, do performing arts, being in the reserves, and have domestic production activities). I'm guessing you either don't pay alimony or you've factored that in already to your calculations.
The only options left are the following, but will cost you more than the subsequent decrease in AGI and thereby taxes:
1) Stop working for the rest of the year
2) Take an early withdrawal of savings (I believe this means retirement plans)
3) Get a new job, and then move more than 50 miles for that job (but this isn't a large reduction of AGI)
4) Incur a capital loss (but you can only deduct $3000 this year)
5) Start a business and have a loss in income

I'll leave this list of things to reduce your taxes (but not necessarily (M)AGI) here from a Bogleheads thread for your amusement. http://www.bogleheads.org/forum/viewtopic.php?p=677232#677232

Quote
1. Contribute max to 401(k) and self-employed retirement plans.
2. Contribute to Roth IRAs (only reduces future taxes, not today's taxes)
3. Invest tax efficiently (only reduces future taxes)
4. Give your money away to charity
5. Buy biggest house in world and pay huge property taxes
6. Have huge mortgage on that house and pay huge amount of interest
7. Get married and have lots of kids
8. Be sure to lose money in the stock market since $3000 of losses are deductible each year against ordinary income.
9. Move to a state with high income taxes because state income taxes are deductible.
10. Have severe health issues that you pay for out of your own pocket as you can deduct health care expenses above 7.5% of AGI
11. Grow old, you get more exemptions for being old
12. Go blind, you get more exemptions for being blind
13. Buy property and rent it out at a loss. The more losses the better.
14. Quit your jobs. With no earned income, it's not surprising that your taxes drop.
15. Avoid investments that create taxable income. You want losers to reduce your taxes.
16. Etc.
Oh and to knock out two birds with one stone, you should stab yourself in the eye to meet #10 and #12.

EDIT: You were already $10k over when you thought you could include standard deduction + exemption. Adding that back in, you're now ~$20k over. Looks like you're just going to have to pay those taxes.
« Last Edit: November 17, 2014, 08:10:08 AM by johnny847 »

FIPurpose

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Re: Help me lower my tax bill!
« Reply #9 on: November 17, 2014, 10:26:36 AM »
You could also get married. If you're eyeing that special someone. (Seriously though don't do this for money)

RootofGood

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Re: Help me lower my tax bill!
« Reply #10 on: November 17, 2014, 01:33:47 PM »
Too bad you can't pop out a few kids between now and Dec 31.  Not that that would reduce your AGI (just your taxable income and increase Child Tax Credits).  But it would reduce your overall tax.   


DoubleDown

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Re: Help me lower my tax bill!
« Reply #11 on: November 18, 2014, 09:20:36 AM »
If you like speculative risk and want to try buying a house that appreciates a lot in a hot market, rental losses are 100% tax deductible at your income level. This means that if you invest in a rental home that is not profitable from a cash-flow basis, all the expenses and losses related to the rental are deductible from your own income. Years later, if the home appreciates more than all those accumulated losses over the years, you can sell the home for a profit while having taken advantage of the tax deductions all that time.

As an example, say you buy a house for $200,000 (putting $40,000 at 20% down payment). Let's say you can rent the house for $15,000/year (nowhere close to the 1% rule). Every year your expenses (maintenance, repairs, expenses, mortgage payments, management costs, property tax, insurance, etc.) total $25,000. So, you're losing $10,000 a year to own that house, but you can deduct all those losses from your income tax. Even improvements to the house can be depreciated.

After 10 years of losing $10,000/year, you would have sunk $100,000 into the rental house. If you can sell the house for at least $300,000 at that point, you will have broken even. Your tax savings likely would come close to matching the lost opportunity costs of your invested $ (that is, the returns you could have made on your invested money if you had not sunk it into the house).

If you sell for over $300,000, then you will have turned a profit. If for example, you think it is reasonable that your $200k house could be worth $400k or $500k in ten years, then you've made a great decision. But this is, of course, wildly speculative -- not unheard of though in certain real estate markets. This also works for vacation homes or transient rental units (beach front, lake cabins, etc.) that you can occasionally use yourself if you want.

Personally, I'd rather invest in a positive cash flow property and just pay the tax bill until you get married and maybe have some kids, but the above method will work to lower your taxes right now. Also, this assumes Congress doesn't take away the current, ridiculously generous mortgage interest tax write-offs that are given. Those deductions may be on the chopping block if they ever get serious about tax reform (it's been identified in recent, serious tax reform proposals).

skunkfunk

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Re: Help me lower my tax bill!
« Reply #12 on: November 18, 2014, 09:26:16 AM »
What's your total tax bill? You could adopt a bunch of kids and get that down to nearly 0.

NinetyFour

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Re: Help me lower my tax bill!
« Reply #13 on: November 18, 2014, 09:36:55 AM »
Are you sure you have taken advantage of all the tax advantaged opportunities you have regarding your income?  I was not aware until this year that I could defer up to $23,000 of my salary (pre-tax) into a 403b account, in addition to my defined contribution retirement funds.  It might be worth double checking with your HR department.