Federal tax question - are we just in the spot that is really painful?
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Anonymous
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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 |
Anonymous
| You don't mention if you have kids. My husband and I are in similar boat. We don't have kids yet and I am a high GS14 and he makes a decent salary but he is in the private sector. I consulted an accountant and he told me that the tax code is geared towards people who have kids. Those deductions help a lot. In addition, all of us make a really high salary, comparatively. It might not seem like it here but when you consider that the median income in the rest of the country is around 50K, I think, you should understand why you are paying so much. We max out our 401K, give to charity, have a mtg deduction, DC taxes etc, but we still always owe around 3K to the feds each year. We get some back from DC but this year it was around 700, which is typical. |
Anonymous
| 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. |
Anonymous
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yep we're screwed too. We owe soooo much every year. We don't claim any deductions either, so we aren't sure why we always owe.
DINKs= screwed on taxes! |
Anonymous
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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. |
Anonymous
At the level of 2 GS15s, having kids isn't a tax shelter. Things like kiddie credits, child care credits, and personal exemptions phase out. |
Anonymous
| Sadly my boyfriend and I have not gotten married for just this reason. He makes over $300 and I make around $150. We have 2 kids but we are both single for tax purposes. I get to claim the kids and the mortgage against my income. He just gets screwed but we would be worse off tax wise if we were to be legally married. |
Anonymous
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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. |
Anonymous
| My heart bleeds for you. |
Anonymous
| 529 DC for each kid, each parent up to $4k so a total of $16,000. |
Anonymous
Us too! Always royally screwed. |
Anonymous
+1. you people have no perspective. |
Anonymous
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. |
Anonymous
That doesn't generate a federal deduction. |
Anonymous
No federal benefit, AND with reduced state income tax, you may pay higher federal taxes (since you are deducting less state income tax). I still do 529 though. |