9 ms·
It’s possible to pay $150 in taxes on an income of $150K
- denimnerd42 5y agoYup.. you don't really start to get hit by federal taxes bad until after that 150k mark. You'd still be getting wrecked by property taxes or rent and sales tax in my state though.
- rejectedandsad 5y agoThis will be the first year I’ll be making more than $150k, not looking forward to next April considering im still basically broke.
- lostcolony 5y agoWhy? Tax brackets are progressive, so even if you had moved up a bracket it wouldn't change the fact you're still making more money (i.e., you don't suddenly go from paying 24% to 32%; you just pay 32% of the money made above the 24% bracket). And given the 2021 brackets, if you're single, you haven't even moved up a bracket ($86,376-$164,925 is the 24% bracket), but even if it had, your effective tax rate barely changes. About the only thing you lose moving up in income is the ability to contribute to an IRA, and, of course, being able to claim various benefits that you aren't eligible for if you've been in 6 figures anyway.
- rejectedandsad 5y agoI’ve never been able to contribute to an IRA. But realistically for me the only change is I’ll owe instead of getting a refund on account of the withholding. Considering I don’t keep much in cash I’ll need to make some changes in a year.
- stu2b50 5y agoThat's not true, you can always backdoor Roth IRA. And if you have a 401k and depending on how it works you might be able to do a mega backdoor Roth IRA.
- lostcolony 5y agoWhy will you owe instead of getting a refund? What has changed this year? Are you a 1099 and you didn't contribute enough? Because if you're a W2, and you haven't changed any of your amount withheld, you're just making more, and you got a refund last year, and it's the same employer...I'd be shocked if you ended up owing. Even if you changed employers, it's unlikely you'll end up owing (at least, not much); while the new employer won't know what bracket to start withholding from, the extra amount you'll be paying into social security is an extra 6% that will likely cover much of it.
- deleted 5y ago[deleted]
- aynyc 5y agoTheir after tax is $70K. What’s their rent or mortgage? 3 kids, what do they pay for childcare?
- denimnerd42 5y agoand watch it come out that their parents take care of their kids and their house is paid off :D
- onlyrealcuzzo 5y agoThere's not even enough money to buy food unless they are living off savings. They couldn't even pay property tax! By definition, if they were living off dividends or capital gains - if they were doing things legally - they'd have a higher taxable income. This is click bait to the extreme.
- sdotsen 5y agoI used to follow their blog and they are at the forefront of the FIRE movement. No thanks. It's crazy the length they go to in order to minimize their expense. They def have a lot of help from their family. It def is click bait and what they're doing isn't "healthy" in my opinion. We let our kids be kids and that means spoiling them on many things. I'm not referring to iPhones or cars, but more like I'm not going to worry about whether I should buy two icees or one icee to split between both kids.
- imajoredinecon 5y agoThe author has 3 children, and that's a _household_ income of $150000. 150 grand is not a huge family income to support 2 adults and 3 kids; as a country, we give people tax breaks to encourage having children and to help support people who make that choice. Calling this "Houdini-like" (author's words) tax hacking seems like a bit of a misunderstanding of deliberate social policy!
- chooseaname 5y ago>>150 grand is not a huge family income to support 2 adults and 3 kids An awful lot of families are doing this on 1/3 of that amount.
- ksherlock 5y agoWhen you subtract all the retirement savings, they're doing it on half that ($73,000).
- masklinn 5y agoHaving the money to invest and deciding to do so does not mean you don’t have the money. A family on the median household income would have negative net income with that level of investment.
- tudorw 5y agoAbout 46% of US families apparently, https://www.statista.com/statistics/183807/number-of-households-by-household-income-2009/ https://www.statista.com/statistics/183807/number-of-househo...
- Booktrope 5y agoSmall point, but the average household size in the US is 2.5, on half of the 5 people in this household, so you really can't compare their family income to family income statistics for much smaller families.https://www.statista.com/statistics/183648/average-size-of-households-in-the-us/ https://www.statista.com/statistics/183648/average-size-of-h...
- dehrmann 5y agoThis is for a couple with kids, so both can max-out 401(k)s, IRAs are still a thing wen you make <$124k, so they could make out both, and because of the kids, you can use pre-tax money for dependent care, and there are tax credits for kids. The other giant caveat is they merely deferred taxes on $46,000.
- deleted 5y ago[deleted]
- yowlingcat 5y agoGood on the author for making use of these tax benefits. I don't see anything out of the ordinary here. For govt workers, the 457 benefit seems really nice. Having kids in an LCOL area seems to be very doable. I imagine the same article but for 10x the income would be "interesting". As a side note, it's worth indicating that if you work at FAANGs and other types of companies, you can use the mega backdoor Roth IRA method [1] to put up to $38k away in retirement accounts a year. [1] https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work https://www.nerdwallet.com/article/investing/mega-backdoor-r...
- tick_tock_tick 5y agoI mean why is this that surprising? Almost half the country doesn't even pay federal income tax. Contrary to a lot of narratives at-least at the federal level it is almost completely funded by the "rich". Now at the local level we can have a different discussion about regressive taxes like sales, gas, etc.
- walshemj 5y agoNo sure why you would never take your FS government pension. This does assume your COL (with three kids) is so low you can max out all your pension
- SavantIdiot 5y agoThe two biggest reducers he cites are 401k contributions and tax-loss harvesting. #1. 401k. While this is a great idea, if he's trying to retire at 33, putting 17.5k away from his 70k paycheck is not going to help because he can't touch it until he is 59.5 (w/o penalty). #2. Capital losses Tax-loss harvesting means selling securities that are underwater to get a capital-loss deduction. I don't know where to start explaining why this is such a bad idea. I'll pick the two most compelling reasons why this is dumb. First, you can only do this so many times before you've whittled your investment to zero. Second, you are violating the most basic principle of standard-person (non-rich) investing: buy and hold. That's all he's got in his back o' tricks. What an awful post.
- stu2b50 5y ago>because he can't touch it until he is 59.5 (w/o penalty). That's not quite true. With 5 years of preplanning, you can get money out of a 401k without any penalty at any age (although, you will of course pay taxes on it) by doing a backdoor Roth IRA ladder.
- SavantIdiot 5y agoI've not heard of that. So it goes from one IRA into another? Why? Plus, ROTHs have yearly limits of $6k. While it can be done I don't see the benefit of doing it, esp. given the tiny amounts (compared to what is needed for retirement).
- stu2b50 5y agoYou can rollover 401k money into a Roth IRA (but this is a taxable event and you will pay income tax on that - just a note because "Roth" in the name tricks people up). That money will count as a contribution (ie not a gain). There's also NO limit on how much you can convert. You can withdraw any amount of contributions to Roth IRAs no penalty. But you have to wait 5 years for rollovers. So basically 1. Pick how much money you'll need in 5 years 2. Rollover that much money from your 401k to a Roth IRA (pay taxes in this step) 3. 5 years later withdraw that money from your Roth IRA
- ggregoire 5y ago> Taxes. It is our duty as patriotic Americans to keep our individual taxes as low as possible. Can someone explain that sentence? What's "patriotic" about paying less taxes?
- kleinapple 5y agoThe author is writing tongue-in-cheek.
- remexre 5y agoI... usually hear this sentence sarcastically... but here it really seems as if the author isn't using it as such. I dunno, if you're a proponent of Starve The Beast [0], this is a consistent belief I suppose. [0]: https://en.wikipedia.org/wiki/Starve_the_beast https://en.wikipedia.org/wiki/Starve_the_beast
- MattGaiser 5y agoThey probably subscribe to an ideology like this: https://en.wikipedia.org/wiki/Starve_the_beast https://en.wikipedia.org/wiki/Starve_the_beast
- Swizec 5y agoThe best tax optimization trick you can do is to open an LLC. Costs $800/year to maintain in California, enables you to claim business expenses for a looot of things. Sometimes surprisingly. You don’t even need a whole lot of revenue. Just sell something, anything, and go for it. The penalty for going overboard is to pay back taxes with a bit of interest. As long as you don’t do anything crazy, you should be fine. Remember: USA uses taxes to encourage you to spend money on approved activities. Like running a business, having kids, or buying your primary residence.
- shiftpgdn 5y agoAlso the extreme headache of an audit
- DoreenMichele 5y agoI wonder if odds of that go up if you brag on the internet about your sort of shady approach to taxes and cavalier attitude that it's just some kind of game to be played.
- andrewmcwatters 5y agoOP probably owns an LLC and writes off things that would have him out of compliance based on the way he talks.
- andrewmcwatters 5y agoYeah, for anyone reading who needs to read this: don’t do this. Unless you’re running a legitimate business, this is blatant tax fraud. Also $800/yr in California? You people are being ripped off. LLCs aren’t laid any fees to maintain annually in Arizona, and they’re perpetual entities.
- markdown 5y agoNot necessarily. There's a difference between tax avoidance and tax evasion.
- bingidingi 5y agoHoly shit, $500 a year for health insurance? I pay twice that a month and don't even get an HSA option. Seems weird to put so much into retirement funds if your plan is to retire in your 30s, the penalties of touching that before 60 are pretty substantial. I suspect there's some sort of inheritance of property or something they're not disclosing.
- stu2b50 5y agoI'm assuming he's planning on getting the money out of the 401k via a backdoor Roth IRA ladder. It's fairly common for people doing FIRE.
- poundofshrimp 5y agoHSA has nothing to do with the quality of the insurance plan btw. HSAs are only available in conjunction with HDHP (High Deductible Health Plan). Typically, HDHPs are Bronze level plans that don’t provide a good coverage (which is why HSAs are allowed to supplement such plans).
- bingidingi 5y agoI guess I'm just lucky; my plan has a high premium, high deductible, and no HSA.
- pmorici 5y agoNo, It's $500 + $6,450 so $580 a month plus an unspecified employer contribution. Because it is a HDHP with an HSA though they are incentivized to keep their costs in check and anything they don't spend of the $6k gets rolled over to the next year and once you hit retirement if you have a surplus at retirement age you can use the money like an IRA.
- bingidingi 5y agoWow... maybe I should find a different job with better insurance. I pay ~$12,000 a year for premiums, have an $8k deductible, and don't get an HSA.
- ksherlock 5y ago$69,000 in salary, with $44,700 (65%) going (pre-tax) into a traditional IRA, Pension, 401K, and 457.
- AndrewGaspar 5y agoCapital losses? In this market?
- tingletech 5y ago2013
- itsdrewmiller 5y agoBetterment auto-harvested a lot of losses in early 2020 during the covid drop.
- andrewmcwatters 5y agoI’m always amazed that people think 401(k)s are a great idea. Yeah, that’s exactly what I want, the government telling me how I can spend my money, until I’m almost ready to die, with no guarantee the laws governing 401(k)s won’t change along the way, or that some moron politician won’t siphon from my retirement.
- lukevp 5y ago401(k)s are privately managed. They were originally designed as a technique to replace pensions, and are separate from government-mandated savings like Social Security. How would a politician siphon from your retirement? A 401(k) is basically just an IRA that a company manages for you and pays someone to administer so that the deferred tax burden can happen. Or do you mean that in the future, taxes may go up? If that’s your belief, nothing prevents you from using a Roth 401(k) if your company offers it (my previous 2 employers both offered this).
- andrewmcwatters 5y agoThere's actually nothing in the United States Code that specifies whether or not "Cash or deferred arrangements" (U.S. Code § 401, subsection (k), or "401(k)"), is privately managed. A 401(k) can be a publicly managed pension! A 401(k) is a type of pension. A 401(k) agreement can straight up be cash payments! > (A) [...] a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash; It's just that no one does that. That trust that is mentioned is the stock portfolio approach that nearly every organization uses. > How would a politician siphon from your retirement? I guess you weren't listening to political discourse for the last 8 years, you know, where politicians repeatedly suggested that we add additional taxes specifically to 401(k) trusts, annually, as another form of expense ratio.
- ianhawes 5y agoGood luck trying to qualify for a mortgage.
- jamesmeador 5y agoMost lenders use pre-deduction gross income (the gross amount before 401k/457 contributions).
- Mathnerd314 5y ago(2013)
- bumbada 5y agoThey are just deferring taxes. Taxes will be paid anyway in the future. In some ways I prefer to pay taxes now because you are free with your money and that is wealth in itself. A new crazy Bernie comes and changes the rules and you are f*ck$d with 30-40% of your savings disappearing in days by inflation, formal currency devaluation, new taxes and so on. E.g If I were living in Peru today I will fly with my money as soon as possible with the new communistic guy in charge. Just hearing him talk in the past would be enough to take the decision.
- hiram112 5y agoFor any of our friends outside the US, this is not normal. As someone with a similar income (single - not married couple) but 0 children, 0 "special" government deductions, etc, here's a breakdown of my 2020 numbers: - Income from employer: $168K - Investment income: $41K - Total income: $209K Deductions (rounded numbers): - $19.5K (private retirement 401k) - $12.5K standard deduction - $3.5K health care savings - $3K MEME stonks losses :( Approximate taxable income after deductions: $170K Taxes paid: - Federal Income tax: $32K - Federal Social security (gov't pension / disability insurance): $8500 - Federal Medicare (gov't old age health care): $2500 - State Taxes: $10K Total taxes: $53K So I'm looking at about 25% taxes due. Also, my employer had to match my federal Social Security and Medicare (which is essentially taken out of my pay), so it's closer to about 31%. That's certainly better than what (it sounds like) you guys pay over in the UK, EU, etc, especially as my salary over there would be taxed in one of the higher brackets, while in the US, I'm in the "middle", though I have very few deductions that larger families will have (especially if they own a very big house in an expensive state). In high tax states like California, you would add another 4-5% or so - you'd end up at 35%.
- stu2b50 5y agoTbf your income is also very not normal. The article is a much more typically family income - their combined income is still less than your individual income by 50k! Because they are two people, they’re doubling up on things like the 401k deduction. You make far, far more than them. The “average” American would be able to get pretty close to what the article is doing. But probably shouldn’t and won’t because you can also see they’re leaving a pitiful amount for themselves to live on in the moment.
- walshemj 5y agoMy thought too 41k in income would need more than than $1,500,000 asuming your takin a sensible yield. I get about £4k on the 180k in my ISA her in the UK
- andrejguran 5y agoon $209k salary or £148k, here in UK the total tax is £46,632 and £6,838 for National Insurance. So about 36% which is almost the same as California. Source: https://www.thesalarycalculator.co.uk/salary.php https://www.thesalarycalculator.co.uk/salary.php
- tingletech 5y ago2013
- deleted 5y ago[deleted]
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