Federal tax question - are we just in the spot that is really painful?

[Anonymous]

Anonymous wrote:

Anonymous wrote:529 DC for each kid, each parent up to $4k so a total of $16,000.

But donations to a 529 won't help reduce fed taxes, right? (Not OP, but an interested lurker.) We had a 529 with T. Rowe Price but recently started contributing more to a Virginia one (we live in Fairfax) so we could bring down our state taxes with a deduction. I don't recall any benefit on the federal side, though....

Since we have elementary-age kids, we do max out our FSA dependent care accounts, which at least brings down our taxable income by $5K.

Depends on how much you earn. I always get those dependent care amounts added back into taxable income due to my income. Every year I forget this during open enrollment and am always slapped by it in april.

[Anonymous]

Anonymous wrote:My husband and I are both the equivalent of GS 15s so a decent salary by US standards - but for DC we are not in the 1%.

Is there anything from a federal tax perspective that we can do in order to reduce out tax liability - and who is the professional that I could talk to for this?

We have the standard items - DC "state tax", property tax, mortgage, a bunch of charitable contribtuions, 401K.

We got hit hard as we refianced our mortgage to a 15 year so our mortgage interest claim dropped significantly (we also paid off more of our loan so can't complain too much).

Thanks for any ideas

I never understand why people bemoan having a lower mortgage interest deduction. You should be celebrating the money you didn't have to pay the bank this year, which is 3 times what your deduction would have saved on taxes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:My husband and I are both the equivalent of GS 15s so a decent salary by US standards - but for DC we are not in the 1%.

Is there anything from a federal tax perspective that we can do in order to reduce out tax liability - and who is the professional that I could talk to for this?

We have the standard items - DC "state tax", property tax, mortgage, a bunch of charitable contribtuions, 401K.

We got hit hard as we refianced our mortgage to a 15 year so our mortgage interest claim dropped significantly (we also paid off more of our loan so can't complain too much).

Thanks for any ideas

I never understand why people bemoan having a lower mortgage interest deduction. You should be celebrating the money you didn't have to pay the bank this year, which is 3 times what your deduction would have saved on taxes.

They're still paying out the money, it's just going to equity. From a cash flow perspective they have less money net. Obviously, in the long term they'll be better off when they cash out their equity in the house.

[Anonymous]

Anonymous wrote:

Anonymous wrote:My heart bleeds for you.

+1. you people have no perspective.

"I make too much money, waaaaaah!"

[Anonymous]

Anonymous wrote:Yes you are at the level of getting hit the hardest in taxes. It's difficult at the 300-400k level. When you are above 400k is when it starts getting better and the income exceeds the tax ratio.

It is difficult when you make $300k-$400k?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Yes you are at the level of getting hit the hardest in taxes. It's difficult at the 300-400k level. When you are above 400k is when it starts getting better and the income exceeds the tax ratio.

It is difficult when you make $300k-$400k?

No one said "difficult." But from a tax policy perspective, people in this income range pay the highest percentage of their income.

Imagine a tube balloon. You squeeze it near the end, like this:



That part in the dog's mouth? That's this income group. The part on the left are the people with lower incomes. The part on the right are the top 1%.

Actually this isn't even entirely accurate, as the part on the right should be disproportionately bigger than the part on the left. The air in the balloon represents the amount of income you keep.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My heart bleeds for you.

+1. you people have no perspective.

"I make too much money, waaaaaah!"

Srsly. Two GS 15s make "a decent amount of money" ??? Understatement of the year.
I'd gladly pay more taxes to get more salary.

[Anonymous]

Anonymous wrote:To answer your basic question:

Yes, you are in the band that gets hit the hardest. People below you enjoy lower marginal rates, and the truly wealthy generally have different sources of income (i.e. capital gains) subject to lower rates and manipulation.

Two GS 15s earn a little under $300,000 depending on what step, right? This is all wage income.

Since you refinanced your mortgage, I would reckon you're in the 2.5% range now, right? You don't say what size, but call it a $500,000 mortgage. That will generate around $12,000 in deductible interest in the early years, give or take.

Add $8,000 in property tax and $15,000 in DC income tax and you've got $35,000 in deductions. Add another $5,000 in charitable giving and you're at $40,000.

That leaves you with $260,000 of taxable income. Which is in the 33% marginal tax bracket (so, basically $55,765 in tax on the first $226,850, plus 33% on the remaining $33,150). Give or take.

Plus you each have FICA tax on nearly all of your wages.

The only ways you would have to reduce the tax really would be to earn less, max out your 401K plans at work, make more charitable donations.

This is the price of being a wage slave.

Wow - did you see our return? It is pretty close to it.

So what I am hearing is that unless we fundamentally change our incomes, or the Senate does something to AMT, we are stuck paying an effective federal tax rate of ~20%.

[Anonymous]

Just wanted to say I really enjoyed the dog picture, PP.

[Anonymous]

Anonymous wrote:Yes - we do have kids. We claim childcare - but there is not a lot more for us. I guess I should not complain as the next area is medical - and we do not hit the 10% of AGI.

For federal withholding, we each claim 0 deductions, and still had over 5K tax liability to the federal government.

For this coming year, we adjusted to have more withheld so that we do not have that same size check that we need to cut next year.

We're in the same boat. 0 deductions and have to shell out 5K around tax time. We also have more money than we know what to do with because DCUM notwithstanding, 325K is a ton of money.

[Anonymous]

Anonymous wrote:

Anonymous wrote:My heart bleeds for you.

+1. you people have no perspective.

Seriously, DH and I are in a similar situation and it's very tough. We max out retirement contributions, have mortgage interest deductions, etc...but we still get slammed for taxes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My heart bleeds for you.

+1. you people have no perspective.

Seriously, DH and I are in a similar situation and it's very tough. We max out retirement contributions, have mortgage interest deductions, etc...but we still get slammed for taxes.

What I wanted to include was that the PPs who say people in this income wage have no perspective are simply jealous. Believe me, a mostly wage salary in the DC area does not mean that we are living large.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Yes - we do have kids. We claim childcare - but there is not a lot more for us. I guess I should not complain as the next area is medical - and we do not hit the 10% of AGI.

For federal withholding, we each claim 0 deductions, and still had over 5K tax liability to the federal government.

For this coming year, we adjusted to have more withheld so that we do not have that same size check that we need to cut next year.

We're in the same boat. 0 deductions and have to shell out 5K around tax time. We also have more money than we know what to do with because DCUM notwithstanding, 325K is a ton of money.

Here's a tip: withhold more.

[Anonymous]

F....U.....

From a 150K HHI.

One of you should quit. Great tax benefits to halving your income.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes - we do have kids. We claim childcare - but there is not a lot more for us. I guess I should not complain as the next area is medical - and we do not hit the 10% of AGI.

For federal withholding, we each claim 0 deductions, and still had over 5K tax liability to the federal government.

For this coming year, we adjusted to have more withheld so that we do not have that same size check that we need to cut next year.

We're in the same boat. 0 deductions and have to shell out 5K around tax time. We also have more money than we know what to do with because DCUM notwithstanding, 325K is a ton of money.

Here's a tip: withhold more.

Why? I don't pay a penalty and I can easily come up with the extra cash. I'd rather owe than get a refund.