Author Topic: Taxes sucked so I'm looking for ways to save next year  (Read 4105 times)

Giro

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Taxes sucked so I'm looking for ways to save next year
« on: April 07, 2015, 08:48:42 AM »
Very similar to the other post except I am not a dr and I don't have a million in assets.

Would you take equity out of your paid off home to invest?  33% tax bracket and already itemize due to other taxes paid.  I live in a cheap-ish house but it's paid for.  I could easily take out $100K and invest it.  I want the tax deduction and based on my rough conservative calculations I would net about $4400. 

Is that worth it?

At a 7% return.  I make $7000 in returns.  I pay $3800 in interest.  I save $1250 in taxes.

I didn't calculate the taxes that I would pay on the $7000 once I start pulling it out.  But, those will be minimal because my income will be significantly lower.

What say y'all?


Gone Fishing

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #1 on: April 07, 2015, 09:07:53 AM »
Might work out fine, but I would not leverage up when stocks "appear" to be so expensive.  Though, I might be tempted after a 10-20% correction.  If you are in the 33% bracket you should have plenty of cash for investing.  Are you maxing out your available retirement accounts?

zolotiyeruki

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #2 on: April 07, 2015, 11:51:25 AM »
You're in the 33% tax bracket and have a paid-off house?  No way would I be cashing out the equity, personally.  The math isn't *quite* as good as you make it.  For simplicity's sake, let's assume you withdraw the earnings each year:
+$7000 earnings
-$3800 interest
+$1266 taxes avoided because of interest deduction (I've never had a HELO/C--is the interest on those deductible, or just a traditional mortgage?)
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$4466 net returns
-$1117 income taxes (25% on capital gains, and this is only federal)
----------
3349 take-home

At your income level, that's not a whole lot of return.  I'd focus first on maximizing pre-tax retirement accounts, minimizing spending, and socking away as much as possible in traditional investments.

Giro

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #3 on: April 07, 2015, 12:25:49 PM »
I'm maxing out everything I can pre-tax.  No debt.  Just looking on ways to increase the bottom line.


Giro

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #4 on: April 07, 2015, 12:48:04 PM »
Also, I would not be cashing in these investments while in this high tax bracket.  I will wait until I'm retired.

zolotiyeruki

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #5 on: April 08, 2015, 07:28:15 AM »
I'm maxing out everything I can pre-tax.  No debt.  Just looking on ways to increase the bottom line.
In that case, I'm afraid there's not a ton you can do, aside from rental real estate, where you can claim depreciation and such.

You know what this sounds like?  You're experiencing what it feels like to be rich.  So plow your excess into index funds, quit worrying, and enjoy life.

merula

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #6 on: April 08, 2015, 07:34:45 AM »
Are you using tax-advantaged investments? Assuming you have at least some taxable investment income, that could help.

Giro

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #7 on: April 08, 2015, 08:08:42 AM »
I've been researching real estate rentals.  We have two rentals now but I want to sell one of them.  There really is no margin at all in that one. 

Thinking about using some equity from the home to invest in a rental or two. 

I've been throwing money into taxable index funds hand over fist.  All of our excess is now going into investments and we should get close to $75k added to them this year.  It still doesn't do a whole heck of a lot to the tax problem.  But, when I retire in a couple of years, our taxable income will be much lower.  I just wish there was more I could do right now. 

Gone Fishing

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #8 on: April 08, 2015, 08:55:50 AM »
Are you self employed?

zolotiyeruki

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #9 on: April 08, 2015, 09:27:50 AM »
I've been throwing money into taxable index funds hand over fist.  All of our excess is now going into investments and we should get close to $75k added to them this year.  It still doesn't do a whole heck of a lot to the tax problem.  But, when I retire in a couple of years, our taxable income will be much lower.  I just wish there was more I could do right now.
Relax and don't worry about it, then.  You're already doing the "more" by investing in index funds  What's your ER timeframe?  With all the money you're socking away, you should have no problem setting up your Roth Ladder, if such is necessary for your retirement.

Giro

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #10 on: April 08, 2015, 09:30:33 AM »
My ER time frame is maybe 5 years, hopefully less.   My husband is FI now but he's going to work for another 10???  he's nuts tho and I am quitting as soon as I hit my number.

I am not self employed.

forummm

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #11 on: April 08, 2015, 09:43:20 AM »
At a 7% return.  I make $7000 in returns.  I pay $3800 in interest.  I save $1250 in taxes.

I wouldn't do it in this market. Expecting a 7% return is not realistic. Prices are too high. 1%-2% real returns over the next 10 years are more likely.

You also need to add in the cost of the loan (closing costs, fees) and lost interest on the escrow account.

If the market drops 20% and you won't need the money (or to sell your house) for another 10 years after that, then the situation is different.

Giro

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Re: Taxes sucked so I'm looking for ways to save next year
« Reply #12 on: April 08, 2015, 11:24:06 AM »

1%-2% real returns over the next 10 years are more likely.

You also need to add in the cost of the loan (closing costs, fees) and lost interest on the escrow account.

If the market drops 20% and you won't need the money (or to sell your house) for another 10 years after that, then the situation is different.

Me and probably 95% of this board really hope your wrong about market returns. 

I don't have any closing fees since it's an equity loan and I don't need the money or plan to sell the home.  Rental property is still an option with the equity.  I plan to look around some this weekend and see what's out there.