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It’s possible to pay $150 in taxes on an income of $150K

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Re: It’s possible to pay $150 in taxes on an income of $150K

#71

Post by stu2b50 »

hiram112 wrote: post #67

For 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 - $3…

Tbf 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.

Re: It’s possible to pay $150 in taxes on an income of $150K

#72

Post by plorkyeran »

Swizec wrote: post #60
andrewmcwatters wrote: post #54

Earlier quoted context omitted.

You can’t just form an LLC and start writing off your home furnishings as a “business expense” because you make $5 a month from a browser extension that some people donate to your Paypal account. That’s tax fraud. That’s literally what that is. It’s incredible that anyone would think otherwise.

Yes it’s generally frowned upon to have more business expenses than revenue for multiple years in a row. But claiming your home office (a part of your home explicitly used for work) as a business expense is definitely not tax fraud. You can’t claim your kitchen tho.

Claiming a home office which you do not use exclusively for business purposes as a business expense is tax fraud. If you have a fake "business" which you spend an hour a month on then this is only useful if you have an extra room in your house that you're fine with effectively just boarding up.

Re: It’s possible to pay $150 in taxes on an income of $150K

#73

Post by andrejguran »

hiram112 wrote: post #67

For 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 - $3…

on $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

Re: It’s possible to pay $150 in taxes on an income of $150K

#74

Post by jokethrowaway »

andrewmcwatters wrote: post #25
Swizec wrote: post #17

The 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. Re…

Yeah, 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.

Opening the LLC and doing a little bit of business is not the fraudulent part.

Claiming expenses not linked to the business activity is.

Re: It’s possible to pay $150 in taxes on an income of $150K

#75

Post by milesvp »

knz_ wrote: post #45
imajoredinecon wrote: post #4

The 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!

It's more than $8000/mo take home. Anyone who can't afford to feed and house 5 people on that budget is probably a degenerate gambler or drug addict.

Childcare for 2 children under the age of 5 in my area will cost roughly $4000. Mortgage for a very modest 4 bedroom house is another $2500. $1500 for all the rest starts to get very tight. Insurance as a category alone can eat half of that. There’s not much left to gamble or drug with.

Re: It’s possible to pay $150 in taxes on an income of $150K

#76

Post by walshemj »

bingidingi wrote: post #23

Holy 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.

The author is a federal employee which does help a lot

Re: It’s possible to pay $150 in taxes on an income of $150K

#77

Post by jokethrowaway »

hiram112 wrote: post #67

For 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 - $3…

In the UK, I calculated I paid roughly 22% on a similar employee salary by putting enough money in pension contributions (+ employer match and government match). I also have a limited company where I do occasional work (without having to increase my income taxed at 40%) and that I use to draw dividends from (up to free allowance) yearly and get some other advantages, which was a decent way to get extra untaxed income. These days the allowance is 2k so there is not much to get.

The disadvantage of using a pension is that I won't get that money until I'm 60 (and they keep increasing the age where you can withdraw money). I'm kinda forced to do that and maximise I'd rather invest the money in buy-to-lets than the weird ETF a pension is, but then I would lose 40% of my money to the government.

Being employed in the UK is not very convenient over 50-70k (and it becomes especially painful at 100-120). You are always better as a contractor outside of IR35 with your own limited company, unless some of the benefits make it worth it (eg. long paid m/paternity leave, stock options you really care about).

Unfortunately being outside IR35 is getting more complicated, corporate tax rate is increasing and buy-to-lets lost some of the tax advantages they had.

Overall if I had to pick a country with bad weather to make money in, I'd go with Switzerland instead of the UK.

Re: It’s possible to pay $150 in taxes on an income of $150K

#78

Post by jokethrowaway »

stu2b50 wrote: post #28
SavantIdiot wrote: post #13

The 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 exp…

>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.

Sure, but if you're paying taxes you're defeating the purpose of the post of minimising taxes.

Re: It’s possible to pay $150 in taxes on an income of $150K

#79

Post by walshemj »

stu2b50 wrote: post #71
hiram112 wrote: post #67

For 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 - $3…

Tbf 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…

My 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

Re: It’s possible to pay $150 in taxes on an income of $150K

#80

Post by stu2b50 »

jokethrowaway wrote: post #78
stu2b50 wrote: post #28

Earlier quoted context omitted.

>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.

Sure, but if you're paying taxes you're defeating the purpose of the post of minimising taxes.

You're always going to pay taxes on 401k, even if you wait. The point is to contribute to it tax free while you're still working and have a high personal income.

You do the Roth ladder when you've going into early retirement - your personal income will be low because you're no longer actively working.

And because taxes are progressive you are minimizing taxes.

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