Middle Class Tax Trap?

[gluskap]

Me and the hubby's combined income is now at $233k.  Even though we are maxing out both of our 401k, so subtract $36k, we are phased out of most of the good tax deductions...ie Child Tax Credit, Roth IRA contributions, traditional IRA deductions, education credits, etc.  We have the mortgage interest deduction but we are just refinancing to a 15 year so that deduction will probably become less than the standard deduction next year.  We also put the max $5k into the Dependant Care FSA and some into the health care FSA, we don't have access to a HSA.  Is there anything else we can deduct to lower our MAGI?

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.  It would be awesome if I could work part time but that's not an option at my current job.  Maybe a career change to a less stressful lower paying job might be an option at some point.  Or should I just suck it up and save as much as we can and then just FIRE earlier?  Anyone else in the same situation and just want to commiserate?

[RFAAOATB]

I would love to commiserate but our combined income hasn't even hit six figures yet. 

[Yankuba]

Are you doing the back door Roth?

[Psychstache]

Could you put all that money into killing off the mortgage, and then quit and stay home?

[KiloRomeo]

Hate to break it to you, but that's not middle class. That's top 10 %.

[partgypsy]

yes subject title is kind of insulting to people who are actually in the middle class.
The only suggestion is try to transition as quickly as possible to live off of investments, which are taxed at a lower rate than income.

http://money.usnews.com/money/personal-finance/articles/2014/04/24/what-it-means-to-be-middle-class-today

[Eric]

It's always amazing to me how every single person in this country thinks that they are Middle Class.  Even those that earn $233K and are in the top 2-3% of incomes, yet still Middle Class.

But to answer your question, no, I don't think there's much else you can do to lower your current tax bill.  I like the plan of sucking it up and saving as much as you can to reach FIRE as soon as possible.  Working part time shouldn't be a tax strategy, as you're lowering your income way more than your tax bill.  It's fine for many other reasons obviously, but taxes should be near the bottom of that list.

[Gone Fishing]

Does one of your employers have a deferred compensation program?

[iamlindoro]

Others have already mentioned the distinctly upper class salary, so I'll leave that alone.

I'll just trot out my broken record recommendation for deferring/avoiding taxes, which is to get one of you into a self employed situation if possible, and to set up a Individual 401(k).  Then, max out the contributions for both participant and spouse, as well as "employer" contributions (which is still you, contributing from your income), deferring up to $106K per year (or $118K if you're over 50).  Note that this max contribution requires the salary earned on 1099 to be fairly high, between 140-185K depending on S-Corp versus Sole Proprietor.  Bam, your income is now a combined $127K for tax purposes.

I realize this is easier said than done, but you never know until you try- Since many businesses budget up to 30% for benefits, you or your spouse may be able to talk an employer into paying you slightly more as a 1099 employee, and both parties may benefit.  You'll have to cover any benefits that you value yourself as a business expense, but for me that's pretty much just medical and dental, and it's a net increase in income versus being a W-2 employee.

[rocksinmyhead]

It's always amazing to me how every single person in this country thinks that they are Middle Class.  Even those that earn $233K and are in the top 2-3% of incomes, yet still Middle Class.

But to answer your question, no, I don't think there's much else you can do to lower your current tax bill.  I like the plan of sucking it up and saving as much as you can to reach FIRE as soon as possible.  Working part time shouldn't be a tax strategy, as you're lowering your income way more than your tax bill.  It's fine for many other reasons obviously, but taxes should be near the bottom of that list.

+1000

[DoubleDown]

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.

This should give you great pause. If you truly would be straining to cover your mortgage on one salary, you are in a precarious financial position and should seriously re-think your housing choice.

[starguru]

Me and the hubby's combined income is now at $233k.  Even though we are maxing out both of our 401k, so subtract $36k, we are phased out of most of the good tax deductions...ie Child Tax Credit, Roth IRA contributions, traditional IRA deductions, education credits, etc.  We have the mortgage interest deduction but we are just refinancing to a 15 year so that deduction will probably become less than the standard deduction next year.  We also put the max $5k into the Dependant Care FSA and some into the health care FSA, we don't have access to a HSA.  Is there anything else we can deduct to lower our MAGI?

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.  It would be awesome if I could work part time but that's not an option at my current job.  Maybe a career change to a less stressful lower paying job might be an option at some point.  Or should I just suck it up and save as much as we can and then just FIRE earlier?  Anyone else in the same situation and just want to commiserate?

Ill commiserate with you being in a similar situation.  Wait to you get above 250k, the dick in the ass gets even longer. 

Unfortunately, I have no advice.  Get ready to have to get your employer to withhold extra payments and start making quarterly payments so you dont come up short.

Pay up, you totally undeserving cheater, else it ain't fair to anyone else.  You can afford it.

[iamlindoro]

Me and the hubby's combined income is now at $233k.  Even though we are maxing out both of our 401k, so subtract $36k, we are phased out of most of the good tax deductions...ie Child Tax Credit, Roth IRA contributions, traditional IRA deductions, education credits, etc.  We have the mortgage interest deduction but we are just refinancing to a 15 year so that deduction will probably become less than the standard deduction next year.  We also put the max $5k into the Dependant Care FSA and some into the health care FSA, we don't have access to a HSA.  Is there anything else we can deduct to lower our MAGI?

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.  It would be awesome if I could work part time but that's not an option at my current job.  Maybe a career change to a less stressful lower paying job might be an option at some point.  Or should I just suck it up and save as much as we can and then just FIRE earlier?  Anyone else in the same situation and just want to commiserate?

Ill commiserate with you being in a similar situation.  Wait to you get above 250k, the dick in the ass gets even longer. 

Unfortunately, I have no advice.  Get ready to have to get your employer to withhold extra payments and start making quarterly payments so you dont come up short.

Pay up, you totally undeserving cheater, else it ain't fair to anyone else.  You can afford it.

Cancel the thread, everyone.  We've skipped to page 6 of some other thread in a stunningly effective savings of time and energy.

[irishbear99]

This should give you great pause. If you truly would be straining to cover your mortgage on one salary, you are in a precarious financial position and should seriously re-think your housing choice.

+1

[johnny847]

Me and the hubby's combined income is now at $233k.  Even though we are maxing out both of our 401k, so subtract $36k, we are phased out of most of the good tax deductions...ie Child Tax Credit, Roth IRA contributions, traditional IRA deductions, education credits, etc. 

Only one of those things you mentioned, the traditional IRA deduction, is an actual tax deduction. You mentioned two tax credits, and Roth contributions, which are neither tax deductions nor credits.

We have the mortgage interest deduction but we are just refinancing to a 15 year so that deduction will probably become less than the standard deduction next year.

This doesn't affect MAGI which qualifies you for certain tax credits and deductions. Your itemized deductions reduce your taxable income, not your (M)AGI. I am surprised how many people on this forum do not understand this distinction.

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.

This should give you great pause. If you truly would be straining to cover your mortgage on one salary, you are in a precarious financial position and should seriously re-think your housing choice.

This is the true problem that you should be trying to address, not your tax bill.


For some humor, I've added this list of ways to reduce your tax liability, as found over on the Boglehead forums

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.

Or just pay the tax and enjoy life.
...
17. Hire accountants and investment advisors and pay them lots of money. Anything you pay them that is more than 2% of your AGI is deductible.

Oh and you can stab yourself in the eye to accomplish #12 and #10 in one go.

[Guesl982374]

OP - No, not much else you can do. I agree with others that you are in the top 2-3% of households so you aren't in the middle class. I'd call this either extremely upper middle class or more realistically lower upper class. Just because your spending is in the middle class (I'm assuming) doesn't mean your income is. The term I saw a while back is HENRYs - High Earners Not Rich Yet. Typically HENRYs end up paying the highest tax bill in terms of % of income.

I see three solutions to your tax "problem"
1) Keep expenses low and build the 'stashe as capital gains are typically taxed lower than earned income (at least in the US).
2) Pull back housing costs so if you want to drop one income for other reasons (child care, hobbies, etc.) you can
3) STFU and just be thankful you are earnering in the top 0.01%+ of the history of humankind. http://www.globalrichlist.com/

My wife and I are practicing all three ATM.

[zataks]

Chiming in here in a similar income situation but living in a mortgaged condo while maintaining a mortgaged rental property in another state. 

HENRYs, I like that.  That's us.  VERY early in the accumulation stages though so net worth does not feel commensurate with wages.  Yet.

We can't quite maintain our current budget on her income alone (she is the higher earner) but if we cut the budget to bare bones, we could.  Even with current big-ass budget, we're saving more than the average American household makes.
1) Does it suck to pay so much in taxes?  Yes.
2) Does it suck making tons of money and savings tons of money? No.
Does #1 outweigh #2?  Fuck no. 

Work on budgeting and mindful spending and enjoy the good life. 

[HipGnosis]

One strategy I read long ago - so not sure it's still viable...
Pay next years property tax at the end if this year - that puts this years and next years on this years taxes.  For next years taxes, take the standard deduction.
Repeat, alternating years.

[johnny847]

One strategy I read long ago - so not sure it's still viable...
Pay next years property tax at the end if this year - that puts this years and next years on this years taxes.  For next years taxes, take the standard deduction.
Repeat, alternating years.

This can reduce their tax liability if they should normally take the standard deduction.

But as I mentioned before, they are interested in reducing their AGI to qualify for certain tax credits and deductions. Property taxes, along with donations to charity or anything else that is an itemized deduction, reduces taxable income, not (M)AGI. It does not help them one bit in qualifying for certain tax credits and deductions.

[CanuckExpat]

gluskap,

Not much you can do (legally/easily) to reduce current taxes. Some things you might want to consider though:
Backdoor Roth
"Mega back door Roth" (your ability to do this depends on your employer)

Also, you mentioned switching to a 15 year mortgage, but already being stretched on housing payments. If that is the case, you may want to reconsider this.Of course you want to pay as little in interest as possible, but you also have to look at the cashflow side. Also, the higher your tax bracket, the larger the effective subsidy of the mortgage tax deduction, i.e., a higher earner with a 4% mortgage rate has a lower effective rate than a low earner with the same nominal 4% mortgage.

[Guses]

Ill commiserate with you being in a similar situation.  Wait to you get above 250k, the dick in the ass gets even longer. 

Unfortunately, I have no advice.  Get ready to have to get your employer to withhold extra payments and start making quarterly payments so you dont come up short.

Pay up, you totally undeserving cheater, else it ain't fair to anyone else.  You can afford it.

Somewhere, someone is playing the world's saddest song on the tinyest violin just for you.

You poor thing.... Ahhrgh, I cannot fathom the misery that you must endure daily...  8-/


RE the OP, the best startegy is to FIRE ASAP and thus minimize the amount of tax that you must pay. Of course, if you are feeling strained on an income of that magnitude, you will likely be unable to accomplish this quickly.

Reduce expenses to accelerate the process.

[starguru]

gluskap,

Not much you can do (legally/easily) to reduce current taxes. Some things you might want to consider though:
Backdoor Roth
"Mega back door Roth" (your ability to do this depends on your employer)

Also, you mentioned switching to a 15 year mortgage, but already being stretched on housing payments. If that is the case, you may want to reconsider this.Of course you want to pay as little in interest as possible, but you also have to look at the cashflow side. Also, the higher your tax bracket, the larger the effective subsidy of the mortgage tax deduction, i.e., a higher earner with a 4% mortgage rate has a lower effective rate than a low earner with the same nominal 4% mortgage.

How does one contribute after tax dollars to a 401k?  Can anyone do it or does the employer have to allow it?

[CanuckExpat]

How does one contribute after tax dollars to a 401k?  Can anyone do it or does the employer have to allow it?

Your ability to do so depends on your employer / plan provider.

[starguru]

How does one contribute after tax dollars to a 401k?  Can anyone do it or does the employer have to allow it?

Your ability to do so depends on your employer / plan provider.

Heh which one is it the employer or plan provider? :)

[iamlindoro]

233k might sound relatively high to some people, but keep in mind that that's between two people. $116,500 is not a high income for an individual person.

I have seen you comment on this thread and a few others how you don't consider these kinds of salaries high. I am curious, and this isn't me picking a fight:  What do you consider high income?  The median *household* income for the US in 2013 was $51,939.  $116K as an individual income is therefore over double the probable average household income for the US in general.

I see also that you're in the Bay Area.  So am I, and I work in tech, but I still consider ~116K to be a high income, even for here.  I really think this amount is a high income in all but the most affluent of areas.

Edit to add: Looks like in 2011 dollars, a household in the 95th percentile of incomes made 186K.  It's not too much of a stretch to say that 223K is pretty solidly in the top 1-2 percent, which seems pretty high to me.

[dragoncar]

233k might sound relatively high to some people, but keep in mind that that's between two people. $116,500 is not a high income for an individual person.

I don't really understand why Americans tend to consider income at the household level, rather than the individual level. A household of two people can easily earn twice as much money as just an individual person. It makes no sense to compare different-sized households without adjusting for the number of people.


As for the OP, I think most people here probably can't imagine how much taxes you have to pay at that level of income, which is honestly not even that high of an income. It's one thing to apply some tax tables but it's quite another thing to actually pay 35-40% of your total income to the government between federal tax, California tax, and FICA. Until you actually have to pay that kind of money to the government, you don't know what it's like.

I'm not sure what the OP is really asking for, other than perhaps empathy. I can offer that since I agree the taxes are high. I'm not sure what else there is to add though.

Yeah $116k is 97th percentile for single filers so gtfo "it's not a high income."

I get that you don't feel upper class.  I don't either and make more.  But the fact that I can retire and live off my investment income says otherwise.  You aren't sailing your yacht around the world, but you gotta get your head out of your high col bubble.

Anyways I agree you should get a 30 year mortgage to improve cash flow while reaping great subsidies.

[Abe]

Re: Until you actually have to pay that kind of money to the government, you don't know what it's like.

My wife and I do, and don't really notice it since we look at our take-home pay only when making the budget. It is still a firehouse of cash that we are trying to stuff into investments as fast as we can. The other money magically disappears into the void, and since we weren't rich growing up, don't even notice it is missing. Growing up in a less developed country as a child makes me appreciate the ridiculous ease of life in this country, and having a funded government (albeit inefficient and often ridiculous one) is well worth not having a boat I can set on fire and replace every year.

[dragoncar]

233k might sound relatively high to some people, but keep in mind that that's between two people. $116,500 is not a high income for an individual person.

I have seen you comment on this thread and a few others how you don't consider these kinds of salaries high. I am curious, and this isn't me picking a fight:  What do you consider high income?  The median *household* income for the US in 2013 was $51,939.  $116K as an individual income is therefore over double the probable average household income for the US in general.

I see also that you're in the Bay Area.  So am I, and I work in tech, but I still consider ~116K to be a high income, even for here.  I really think this amount is a high income in all but the most affluent of areas.

Edit to add: Looks like in 2011 dollars, a household in the 95th percentile of incomes made 186K.  It's not too much of a stretch to say that 223K is pretty solidly in the top 1-2 percent, which seems pretty high to me.

My personal definition of "high" is probably that the income from one year of work is enough to retire. For most people, that would be an income of well over $1,000,000 per year.

It's hard for me to consider an income level to be "upper class" if you have to work for 8 years to be able to retire, which would be my rough estimate for ~$115k.

I realise this definition is not tied to any statistical data, but I don't see what is upper class about having to work for a living. $223k won't be paycheck to paycheck, but you also can't retire without putting in around 5 or more years of work, which means until then, you're in the same boat as almost everybody else -- dependent on other people to get by.

There are definitions of middle class based on statistics, but I also think it's defensible to define middle class as "not being financially independent, but not living paycheck to paycheck".

So once you retire and are spending say 50k/year without lifting a finger will you still call yourself middle class?

Being able to quit working in 5-8 years and still lead a typical American life should make you mindblowingly grateful for your income level

If you disagree, I suggest the Bay Area may not be for you and westchester may be more your speed.

[caliq]

I won't consider myself middle class when I'm retired. I don't think it makes much sense to define classes based on income (other than passive income).

.....do you know the definition of the term you are talking about?

class - "the system of ordering a society in which people are divided into sets based on perceived social or economic status"

America doesn't have social classes, at least not in the formal sense of days past, so when we speak about class we speak almost entirely about economics -- namely income, for the majority of people in this country.  You can choose to make up your own definitions for words, but just because you decide that ketchup is now a synonym for automobile does not make it so.

[caliq]

I won't consider myself middle class when I'm retired. I don't think it makes much sense to define classes based on income (other than passive income).

.....do you know the definition of the term you are talking about?

class - "the system of ordering a society in which people are divided into sets based on perceived social or economic status"

America doesn't have social classes, at least not in the formal sense of days past, so when we speak about class we speak almost entirely about economics -- namely income, for the majority of people in this country.  You can choose to make up your own definitions for words, but just because you decide that ketchup is now a synonym for automobile does not make it so.

It's not as if there is an "official" definition of middle class.

You seem to be conflating "economic status" with "income".

Income is fleeting.

Wealth and economic status is more a function of net worth and/or passive income.

Isn't that one of the major principles of this website? Why do we do discard that in defining classes?

Because most people in America, the people you're trying to categorize, don't really have much net worth.  Median US household net worth was 56k in 2013.  The vast majority of Americans' economic status is directly tied to their day to day income.  They're one job loss away from ruin.  Yeah, it's their own fault, but that's the reality of the situation in this country. 

This is the reality that you're insulated from when you live in a world where 233k isn't enough. 

[Tabaxus]

233k might sound relatively high to some people, but keep in mind that that's between two people. $116,500 is not a high income for an individual person.

I have seen you comment on this thread and a few others how you don't consider these kinds of salaries high. I am curious, and this isn't me picking a fight:  What do you consider high income?  The median *household* income for the US in 2013 was $51,939.  $116K as an individual income is therefore over double the probable average household income for the US in general.

I see also that you're in the Bay Area.  So am I, and I work in tech, but I still consider ~116K to be a high income, even for here.  I really think this amount is a high income in all but the most affluent of areas.

Edit to add: Looks like in 2011 dollars, a household in the 95th percentile of incomes made 186K.  It's not too much of a stretch to say that 223K is pretty solidly in the top 1-2 percent, which seems pretty high to me.

My personal definition of "high" is probably that the income from one year of work is enough to retire. For most people, that would be an income of well over $1,000,000 per year.

It's hard for me to consider an income level to be "upper class" if you have to work for 8 years to be able to retire, which would be my rough estimate for ~$115k.

I realise this definition is not tied to any statistical data, but I don't see what is upper class about having to work for a living. $223k won't be paycheck to paycheck, but you also can't retire without putting in around 5 or more years of work, which means until then, you're in the same boat as almost everybody else -- dependent on other people to get by.

There are definitions of middle class based on statistics, but I also think it's defensible to define middle class as "not being financially independent, but not living paycheck to paycheck".

You have got to be kidding.  I net around $170k after tax, dual person single income household.  I won't be able to retire in 6-8 years of this because I won't be preserving the income level for 8 years, but the idea that I am not upper class, sitting where I am today, goes beyond silly.  It's actually a bizarre worldview.

[caliq]

I'm sorry that your job is so horrible that a mere 5 to 8 years is so painful for you that you can't see how much your high income is benefiting you. 

[Tabaxus]

Here's another way of looking at this.

With an income of $100k in the bay area, you can add around $50k to your investments per year. (That's actually very aggressive, and considerably more frugal than most people on these forums.) Using a 4% safe withdraw rule, that means you generated $2k of passive income for the rest of your life, with one year of work.

With an income of $200k, you might be able to add around $100k to your investments. (The reason this is twice as much despite more taxes is that I'm assuming your living costs remain constant and did not scale up.) Again using a 4% rate, you generated $4k of passive income for the rest of your life, with one year of work.


Of course, in practice, there is compounding involved here, so how much passive income you add depends also on how much you already have and so forth. But in general, I try to think of your employment income as a tool to generate passive income for life. And $2-4k of passive income is not a whole lot.

By contrast, with an income of $1,000,000, you can increase your lifetime passive income by around $25k. Now that's a much more impressive sum that many people here could comfortably retire on.


If you look at employment income as a way to "buy stuff", I agree, these amounts in the low hundreds of thousands seem very impressive. You can buy so many toys with them.

But my objective in life is not to buy stuff. And I thought that was the case for most people here.

Your concept that you're only upper class if you can retire on the passive income generated by a single year of savings is just bizarre.  You could retire in 8.  Most people can retire in what, 20, 30 years?  You're upper class.  Embrace it.

[dragoncar]

With an income of $200k, you might be able to add around $100k to your investments. (The reason this is twice as much despite more taxes is that I'm assuming your living costs remain constant and did not scale up.) Again using a 4% rate, you generated $4k of passive income for the rest of your life, with one year of work.

Sigh, only $4k of passive income for the rest of your life?  After working for an entire year?  Might as well give up now with such piddling amounts of money.

[gluskap]

Are you doing the back door Roth?

I plan to do this next year. Last year 2014 I was on maternity leave for 5 months with no  earned income so I was able to do regular roth contribution for 2014. However I also have traditional IRA so would need to pay some tax when I convert into roth. So to avoid that I was planning on rolling over traditional IRA first into 401k so then I would have no pretax money in Traditional IRA and then do back door roth.

[gluskap]

Could you put all that money into killing off the mortgage, and then quit and stay home?

The plan now is to payoff mortgage as quickly as possible which is why we refinanced to a 15 year. Since housing is like 50% of our expenses once it's paid off I think I could stop working. It'd be nice to have enough money at that point to both retire together but we will see. It's at a low interest rate cuz of the refinance 2.875% so some people think it's better to invest the money versus paying off house too early so still debating that. The ideal would be to pay off the house when we are ready to FIRE so we would have lower expenses and not need to pull out much money and be at a low tax bracket when we retire.

[gluskap]

Hate to break it to you, but that's not middle class. That's top 10 %.

Just going by the numbers I agree we are very happy with our income. I guess because of the HCOL area our lifestyle feels very middle class because even though we make more we have to spend so much for housing.

[gluskap]

Does one of your employers have a deferred compensation program?

Unfortunately no

[gluskap]

I have considered just being a SAHM to lower our income but then we would be straining to make our mortgage since we live in a HCOL area.

This should give you great pause. If you truly would be straining to cover your mortgage on one salary, you are in a precarious financial position and should seriously re-think your housing choice.

Yes we bought our house before I came to MMM. It's expensive because it's in an area with a really good school district. If we stayed with the 30 year mortgage I think we could live off of one income...we would still need to make cuts but doable. But we just recently refinanced to a 15 year with the intent of paying off the house and retiring around that timeframe. So with the higher payments I feel like we need to both work to be comfortable and still have some savings. I think once the kid or kids are finished with school we would probably downsize and move to a much cheaper house.

[gluskap]

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.

Or just pay the tax and enjoy life.
...
17. Hire accountants and investment advisors and pay them lots of money. Anything you pay them that is more than 2% of your AGI is deductible.

Oh and you can stab yourself in the eye to accomplish #12 and #10 in one go.

Hilarious! Thanks I needed that perspective. I think I'm just having one of those days at work where I feel like I'm working so hard and I just feel like there's no point in working any harder cuz if I make more ill just end up paying more of it in taxes and not seeing much of a difference in lifestyle.

[gluskap]

Thanks everyone for the replies. I guess I was maybe hoping for anything I might've overlooked to reduce my tax bill and help me save more to FIRE earlier. But I think I just need to suck it up, pay the taxes, and just try and spend less.

Am sort of regretting the refinance a bit now. The idea was that with the house paid off earlier we could retire with lower expenses but it does make me nervous if something were to happen to one of our jobs. We do have a year of expenses in our EF though.

I apologize if the title was misleading. I guess our income might not be considered middle class to some but it describes our lifestyle I think.

[BayIslandSaver]

There are some harsh replies on this thread.  Being in the Bay Area, I can see where OP is coming from.  In certain neighborhoods, yes, that combined income could 'feel' middle class.  I've tried to focus less on comparing myself with what other people have/buy/consume and more on how I can spend more time with my family and friends through earning, saving, and investing. 

Time is limited.  I just wish I found the MMM way earlier.

[Norioch]

My two cents: $116,000 for an individual is a crazy high amount of money. That's more than I paid for my home. I say that as an individual who makes well over $116,000 per year. We're not middle class. And when I first crossed the $116,000 income level, my marginal tax rate actually went down because I'm no longer paying social security tax on each additional dollar I make. I hardly feel trapped.

[Norioch]

To be fair, my own situation isn't perfectly comparable since I live in a place with a lower cost of living. I know I couldn't buy a decent home in the bay area for $116,000. I sympathize with your higher housing costs.

[rocksinmyhead]

233k might sound relatively high to some people, but keep in mind that that's between two people. $116,500 is not a high income for an individual person.

I don't really understand why Americans tend to consider income at the household level, rather than the individual level. A household of two people can easily earn twice as much money as just an individual person. It makes no sense to compare different-sized households without adjusting for the number of people.

As for the OP, I think most people here probably can't imagine how much taxes you have to pay at that level of income, which is honestly not even that high of an income. It's one thing to apply some tax tables but it's quite another thing to actually pay 35-40% of your total income to the government between federal tax, California tax, and FICA. Until you actually have to pay that kind of money to the government, you don't know what it's like.

I'm not sure what the OP is really asking for, other than perhaps empathy. I can offer that since I agree the taxes are high. I'm not sure what else there is to add though.

this post boggles my mind. I make a good amount of money and I'm single with no kids and no mortgage. I'm pretty sure I know what it's like to pay "that kind of money" to the government, but the idea that there is anything "ohhh, poor me" about that scenario is seriously insane to me.

also, income at the household level makes some amount of sense because sharing housing and other costs is an advantage. I don't think either individual or household is an ideal, totally apples-to-apples way to look at it.

America doesn't have social classes, at least not in the formal sense of days past, so when we speak about class we speak almost entirely about economics -- namely income, for the majority of people in this country.  You can choose to make up your own definitions for words, but just because you decide that ketchup is now a synonym for automobile does not make it so.

I don't know, I think we kind of have social classes. class is a weird thing. if you look at where I live, you might guess lower-class. I feel middle-class, I dress middle-class, my whole family is middle-class, and if you meet me and talk to me you would probably think I'm middle-class. but when it comes to financial issues, in no way am I delusional enough to think that my problems are the problems of the middle class. I think with discussion about class you just have to define what you're talking about. people took exception to the OP's description of herself as middle class because she was clearly talking about financial/tax issues, and in that sense I think most of us can agree she's not middle class, even though her lifestyle may be.

Hilarious! Thanks I needed that perspective. I think I'm just having one of those days at work where I feel like I'm working so hard and I just feel like there's no point in working any harder cuz if I make more ill just end up paying more of it in taxes and not seeing much of a difference in lifestyle.

well I think the idea of MMM is that you definitely shouldn't see a difference in lifestyle regardless of any increase in income ;)

*disclaimer: clearly Oklahoma has a vastly lower COL than the Bay Area, but still. put yourself in context, man!
**also not meaning to continue to pile on the OP here, I understand what you mean about feeling as though you have a middle-class lifestyle, and I wish you luck in deciding how to allocate your funds! this was meant to be more in response to Cathy and the conversation on class.

[Ftao93]

At that salary range, I would just shovel everything leftover into the mortgage.  If you can't pay that off very quickly, you've hosed yourself with more house than you can buy.

Denver is a fairly high housing cost, but since our rent is low and we stand to inherit a condo, we can live a very nice life off of 25k take home. our plans are to streamline it further to 20k.  Combined we make 62k, and take home about half.

While I'll heartily agree that the OP is NOT middle class, being envious of their income helps no one.   Point out the same strategies we're all trying to use and leave the OP to let the light dawn on themselves :P.

[I'm a red panda]

It's always amazing to me how every single person in this country thinks that they are Middle Class. 

I think Bill Gates and Warren Buffett have both admitted to not being middle class.  But they might be the only ones.

$116,500 is not a high income for an individual person.

Yes it is.  It is not an unthinkably outrageous income, but it is indeed a high income.
The median HOUSEHOLD income is $51k.  So for ONE person to be making double that, it is indeed high.

[starguru]

this post boggles my mind. I kind of hate throwing out numbers like this on the internet, but I grossed $180k in 2014 and I'm single with no kids and no mortgage. I'm pretty sure I know what it's like to pay "that kind of money" to the government, but the idea that there is anything "ohhh, poor me" about that scenario is seriously insane to me.

Its not a "poor me" thing, but more a "when is enough is enough" thing and a "is this really going to solve any problems" thing. 

So lets see, 180k, so your marginal rate is 28%, but i bet your effective rate is more like 20-23% especially if you are self employed, since you could effectively put 45k away in tax deferred retirement plans.  Plus the last 2 tax increases from Obama haven't affected you.  At all.  So your rates haven't gone up. 

Imagine someone saying you should pay 10% more.   Would you be happy writing an $18k check?  Do you feel your money would actually help anyone? 

I bet your perspective would change.  Even if it didn't, since raising taxes isnt going to fix any problems, there will be calls to raise them even more, so the next tax increase will change your perspective, or the one after that. 

Since there are so many people without savings out there, what if the plan was to tax savings, you know, to make things more fair?  Like 1% for anyone with more than 100k in the bank, back to the first dollar?  Would people care then?  Of course they would, because it would actually affect them.

[bzzzt]

I think middle class is more of a perspective than an income level. Work hard, provide for your family, hopefully retire some day, etc. This is a vast majority of the population. On either end, you have people who are ok with others providing for them (lifetime welfare recipients/trust fund people).

DW and I both work hard and have higher earning blue collar jobs. We land in the top 20% income bracket pretty solidly. We still manage to land in the 25% bracket due to tax deferred investments, deductions and balancing estimated income vs. working more. We paid ~$40k in federal taxes last year for our hard work.

On the flip side, my SIL has struggled to hold down jobs at gas stations and nursing facilities because she's lazy and a bitch. Has two kids by two different fathers. One of whom, she HAD to marry and have my in-laws pay for a nice wedding then she separated from a year later. She is now back at home living with my in-laws. Both kids are living with father #2 due to being in a better school system (not in the 'hood). Oh, and BTW, somehow he got permanent disability in his mid 40s for a bad back (must've been too stupid for re-training?). She recently got a large payment + reconstructive dental from Worker's Compensation from a patient hitting her in the mouth. Her lack of preventative dental care plus smoking left her teeth weak and her front teeth shattered. She then tried to scam a PTSD claim about the "trauma". She got a tax refund of more than she paid in federal taxes last year due to child tax credits and such.

It's like a reward for being stupid.

So, do I feel bad for trying to reduce my tax burden? Not a fucking chance.

[dragoncar]

So, do I feel bad for trying to reduce my tax burden? Not a fucking chance.

I don't think anyone here has suggested you should.