Not sure if this should be in here, or in "ask a mustachian", but -
Just got our 2014 tax return back from the accountant, and wondering if there's anything we're overlooking that would reduce our taxable income. Here's our financial profile -- anyone care to make recommendations?
Us:
Married, 2 kids (both approaching college age). Kids are from Mrs CS' prior marriage; joint custody with their father.
We both work full time. We're both in good health, active - lots of outdoor recreation.
2014 gross income $343K, almost all W2 earnings (very little in taxable interest).
Retirement savings so far:
Almost everything is in retirement accounts.
Between the two of us, about $825K in various retirement funds (mix of Roth, rollover IRAs, 401(k) plans). Everything is in Vanguard indexed funds.
Ongoing retirement savings:
Me: about $50K/year in a pension & profitsharing plan.
Mrs. CS: we max out her 401(k), currently at about $23K/year (with the age 50+ $5K/annual catchup)
We both work in the private sector, and have funded Social Security for well over the 10 year minimum to generate SS payments.
Non-retirement savings:
About $80K in taxable accounts at Vanguard, all in VTSAX. Continuing to invest yearly -- contributions to this have been slower, as we have prioritized maximizing savings in the retirement accounts, and in prepaying the mortgage (see below).
HSA plan:
$12K in a HSA plan. Just learned recently that we can invest this (it's been all cash), so our plan is to contribute the annual family max ($6650 for 2015) each year, and treat the HSA as basically an IRA.
Cash:
$30K in CDs (emergency fund - around 2% interest)
$90K in cash (some larger house improvement projects are in the works; est. approx. $50-60K outlay for that.) When we're done with those projects, we'll invest the rest.
Debt:
Mortgage: about $130K left on a 30-yr fixed note, 3.5% rate. We have been massively prepaying it each year, and expect to pay it off in about 2-3 years at most. We've discussed whether to invest vs. prepay, and simply want the peace of mind of having it all done.
Conservatively, there is at least $600K in equity in the house. At some point in retirement we plan on selling this house and downsizing; that time is probably 20 years in the future, and we estimate we will be able to pocket $500K or more from the equity at that time, further adding to the retirement $ available then.
No other debt - no car loans, credit cards are paid in full each month.
Future known expenses:
Kids' college: we have a 529 plan for each, with about $30K in each plan, which should be close to covering our share of their college expenses (shared with another household due to divorce). We'll probably have to add in another $5-8K each.
So, on to the question:
On $343K of gross (not AGI), we paid $73K in federal income tax. We live in a state with no income tax. (Also no county or other local income-based taxes.) That works out to around a 21% effective tax rate.
Anyone see a way to reduce these income taxes? We max out every tax-advantaged retirement account that we qualify for and that we know of. We do not contribute to a traditional IRA, but at our income level, that would not be tax-deductible anyway.
We don't own any businesses or any real estate other than the house we live in. Could real property investment (rental property) offer a way to offset some taxable income? We've discussed purchasing rental property, but have not explored it very far.