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correction: W-2 software engineers that don’t do anything else are pretty screwed 1099 software engineers have some of the best tax deductions, and that earnin

correction: W-2 software engineers that don’t do anything else are pretty screwed 1099 software engineers have some of the best tax deductions, and that earnings range is the sweet spot one of my favorite things to do is contribute $66,000 to a 401k for that tax deduction (thats how high the employer match limit really is), immediately borrow $50,000 from the 401k and donate that same money to a donor advised fund for a charitable donation. $116,000 tax deduction before looking at actual expenses. its not advice, its one of my favorite things to do, you have to pay back the 401k over time off $265,000 in earnings (number chosen because thats the minimum to max out a self directed 401k) the AGI would be $199,000 and the MAGI would be $149,000. keep going and get it as low as possible. I would typically try to do a FMV charitable deduction from my existing portfolio. Combined cash+asset charitable deductions can lower that year’s earnings by 60%. if you achieve that the government is only looking for taxes on $106,000 and again this is before you look for expenses. But if there are pre-existing externalities like a mortgage and home depreciation, then you’re pushing your AGI (and subsequently MAGI) down further and further. you can get to Warren Buffett %’s pretty easily even without having long term capital gains tax treatment.

coldpie 3y ago
Oofda. I just pay my taxes and live my life. Whatever makes you happy, I guess.
- yieldcrv 3y ago
  any system design question has a harder solution gov gets zero, gov agrees, gov helps
PopAlongKid 3y ago
>you have to pay back the 401k over time And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level. And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI. Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.
- yieldcrv 3y ago
  money not really out of your control if you have a donor advised fund or private foundation or both my comment mentions MAGI specifically for someone like you, I’m aware this thread started off with being able to use the IRS’ free filing software and now is talking about not paying the government much or anything in taxes
  - PopAlongKid 3y ago
    >money not really out of your control if you have a donor advised fund or private foundation or both Not sure what you mean by "control", but you are not getting it back. In one year, you have blown a $50K hole in your budget that you will never be able to spend on anything else.
    - yieldcrv 3y ago
      it really depends on how you get value out of it. tax deferred and tax exempt are still ammunition. and its important to load them up with as much money as possible, and then they grow tax free from there on. by your hyperbolic word choice, I understand its important for you to be right about your view. don't do it then.
    - ndriscoll 3y ago
      Presumably the idea is that you can use that "donated" money to buy influence, e.g. buying your kids' way into fancy schools. I don't know whether $50k/year is enough to do that though.
      - yieldcrv 3y ago
        now you’re talking, the other side of this is that this is just year 1 years 2 - n the tax exempt nonprofit account grows tax free, after its balance is large enough it can independently be an investor in VC/PE/Hedge Funds and have an infinite time horizon. just keep funding it until the homerun. the same goes for the tax deferred retirement accounts, they are separate entities and can eventually become investors for higher risk higher growth things they can be generational wealth things as well that allow for influence from your family, without the complications around ex-spouses, inheritance tax, cost basis adjustments, liability. just everything at your discretion while remaining judgement proof.
gamblor956 3y ago
I always find it amusing that people will give up tens of thousands or hundreds of thousands of dollars so they can save a few thousand in taxes.
- yieldcrv 3y ago
  populating tax deferred and tax exempt accounts is more important for me if its not for you then employ a different strategy
  - gamblor956 3y ago
    I'm not referring to your use of your retirement accounts. I'm referring to your choice to donate hundreds of thousands to charity so you can save a few thousand on your taxes.
    - yieldcrv 3y ago
      donor advised funds are under your control your own private foundation would be under your control as well and can pay a salary - taxed as normal ordinary income - whenever that becomes important to you

coldpie 3y ago

Oofda. I just pay my taxes and live my life. Whatever makes you happy, I guess.

yieldcrv 3y ago
any system design question has a harder solution gov gets zero, gov agrees, gov helps

PopAlongKid 3y ago

>you have to pay back the 401k over time And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level. And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI. Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.

yieldcrv 3y ago
money not really out of your control if you have a donor advised fund or private foundation or both my comment mentions MAGI specifically for someone like you, I’m aware this thread started off with being able to use the IRS’ free filing software and now is talking about not paying the government much or anything in taxes
- PopAlongKid 3y ago
  >money not really out of your control if you have a donor advised fund or private foundation or both Not sure what you mean by "control", but you are not getting it back. In one year, you have blown a $50K hole in your budget that you will never be able to spend on anything else.
  - yieldcrv 3y ago
    it really depends on how you get value out of it. tax deferred and tax exempt are still ammunition. and its important to load them up with as much money as possible, and then they grow tax free from there on. by your hyperbolic word choice, I understand its important for you to be right about your view. don't do it then.
  - ndriscoll 3y ago
    Presumably the idea is that you can use that "donated" money to buy influence, e.g. buying your kids' way into fancy schools. I don't know whether $50k/year is enough to do that though.
    - yieldcrv 3y ago
      now you’re talking, the other side of this is that this is just year 1 years 2 - n the tax exempt nonprofit account grows tax free, after its balance is large enough it can independently be an investor in VC/PE/Hedge Funds and have an infinite time horizon. just keep funding it until the homerun. the same goes for the tax deferred retirement accounts, they are separate entities and can eventually become investors for higher risk higher growth things they can be generational wealth things as well that allow for influence from your family, without the complications around ex-spouses, inheritance tax, cost basis adjustments, liability. just everything at your discretion while remaining judgement proof.

gamblor956 3y ago

I always find it amusing that people will give up tens of thousands or hundreds of thousands of dollars so they can save a few thousand in taxes.

yieldcrv 3y ago
populating tax deferred and tax exempt accounts is more important for me if its not for you then employ a different strategy
- gamblor956 3y ago
  I'm not referring to your use of your retirement accounts. I'm referring to your choice to donate hundreds of thousands to charity so you can save a few thousand on your taxes.
  - yieldcrv 3y ago
    donor advised funds are under your control your own private foundation would be under your control as well and can pay a salary - taxed as normal ordinary income - whenever that becomes important to you