OT: Suggestions on reducing taxable income

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Submitted by flu on April 21, 2012 - 9:11am

Ok. Having done my taxes, I just realize how pathetic it is. My federal tax rate ended up being 16.9% and my state ended up being 9.5% I got to pay a $7000 AMT. Thank you....

Assuming a lot of this got special dividend tax rate treatment (which probably goes away next year), what else are folks doing to lower their tax bills for next year?

*Rental property expenses only go to $0, you can't report a lose above a certain AGI.
* I guess I can take out a bigger loan on deduct the mortgage interest, and use the bigger loan for investments or other things.
* Charitable contributions...Yes, I made some, and next year with donations to DMUSD and other things, this should go up, but not significant.
* Business expenses: I guess this will go up next year as I become more active again
* Medical expenses: Can't report most of them because despite my crazy medical bills, they don't total > 10%
* Energy tax credits/deductions: Anyone taking advantage of these?

*Moving out of CA. Not an option.

The problem is that a lot of the deductions are tied to spending. I don't spend. Hence I can't take them....

Submitted by sdrealtor on April 21, 2012 - 9:43am.

Work less?

Submitted by Hobie on April 21, 2012 - 9:50am.

Self Employed SEP.

Submitted by no_such_reality on April 21, 2012 - 9:54am.

Since we're still carrying losses forward are effective rates were higher than yours.

It will be the last year of loss carry (hopefully). Currently sitting on unrealized gains but things could go south.

We installed new hvac and heat with tax credits. Installed a 7.5 kw solar syste
With credits but still higher rates than you.

The only we can dO is make more. Or have my wife quite her job as a syste
Engineer. It's truly sad. She's and engineer and if we consider her income at the marginal rate, after payin taxes and the nanny, little is left. If brown raises taxes and Obama rolls taxes back it will literally. Oat us money to have her work

All typos are mine and my iphone

Submitted by UCGal on April 21, 2012 - 9:51am.

Hold stocks longer for longterm cap gains rates? Change careers to be a hedge fund manager so your entire income is taxed at cap gain rates?

Submitted by no_such_reality on April 21, 2012 - 10:03am.

Actually UCGal, you're close. If he hasn't, he needs to spend the $700 to incorporate out of state. Contract through the corporation and pay himself and meager but reasonable salary and have the corporation distribute the bulk of his earnings as dividends for the stock he holds in the corporation.

(Note, I'm not a tax attorney so you need to verify)

And I would suggest getting much more serious but deducting your business expenses and identiying them as such.

Submitted by AN on April 21, 2012 - 1:24pm.

Single income to lower your agi. Then take your cash and buy a bunch of rentals and claim losses to bring down your agi even further. Contribute to only deductible 401k and ira. Have the stay at home spouse be the property manager of those investment properties.

Submitted by SD Realtor on April 21, 2012 - 2:49pm.

Do whatever the tax code says in order to qualify yourself as a real estate professional. You can do this and keep your day job. Then you will not have the 100k agi limit on your real estate losses. At the same time your small business that you create for the real estate professional will also help create more deductions.

The hours you post on Piggington can go towards your hourly total as a real estate professional.

Presto!

Submitted by bearishgurl on April 21, 2012 - 2:51pm.

SD Realtor wrote:
. . . The hours you post on Piggington can go towards your hourly total as a real estate professional.

Presto!

LOL!

Submitted by all on April 21, 2012 - 3:05pm.

Home office?

Submitted by flu on April 21, 2012 - 4:35pm.

SD Realtor wrote:
Do whatever the tax code says in order to qualify yourself as a real estate professional. You can do this and keep your day job. Then you will not have the 100k agi limit on your real estate losses. At the same time your small business that you create for the real estate professional will also help create more deductions.

The hours you post on Piggington can go towards your hourly total as a real estate professional.

Presto!

Genius...now getting a tax benefit for being a LETDLITA really got my attention. Or better yet getting a tax benefit for being an a hole. Well gee then it won't be hard to get a big benefit for that one.

Sent from an android phone. Typos included.

Submitted by flu on April 21, 2012 - 4:35pm.

captcha wrote:
Home office?

Too risky of a deduction imho

Submitted by Hobie on April 21, 2012 - 7:46pm.

diddo. don't need an audit

Submitted by flu on April 21, 2012 - 10:52pm.

UCGal wrote:
Hold stocks longer for longterm cap gains rates? Change careers to be a hedge fund manager so your entire income is taxed at cap gain rates?

My personal historical data when I did this was that I ended up losing money more than just doing the short term thing.

Submitted by flu on April 21, 2012 - 10:56pm.

no_such_reality wrote:
Actually UCGal, you're close. If he hasn't, he needs to spend the $700 to incorporate out of state. Contract through the corporation and pay himself and meager but reasonable salary and have the corporation distribute the bulk of his earnings as dividends for the stock he holds in the corporation.

(Note, I'm not a tax attorney so you need to verify)

And I would suggest getting much more serious but deducting your business expenses and identiying them as such.

I'm confused. If we're talking about an s-corp, the dividend paid to shareholders, I believe still gets treated as ordinary income. (What it can do I believe is getting you out of paying self-employment taxes that you would pay receiving instead a salary), But then, even this, you have to pay yourself a reasonable rate.. Also, if you pay out a dividend, it goes to every shareholder.

Maybe I'm missing something.

Submitted by ocrenter on April 22, 2012 - 7:03am.

After reaching a certain level of income, it just makes sense to go to a CPA/tax attorney. To me, something are just best left to the pros. Certainly, today if you are pulling in just a W2 wihin a five figure salary, turbo tax it. But given you already have to pay this much AMT and at total rate of 27%, I have to assume your income is well above the $300k mark. If you are not above $300k then you are most likely paying way too much.

At the level of income I'm assuming, the Art of Itemized Deduction becomes extremely critical. This is where a live body is needed to provide solid advice and redirect if you are too aggressive and provide hints if you are "underestimating."

Plus the fee itself is a deductible expense!

Addendum: in regard to the not spending part. If you are an individual propriator, there are things that you spend that are 100% deductible, right off the top. Maximize those to get you down to a lower bracket, otherwise you lose it to the government.

Submitted by meadandale on April 22, 2012 - 8:29am.

flu wrote:
no_such_reality wrote:
Actually UCGal, you're close. If he hasn't, he needs to spend the $700 to incorporate out of state. Contract through the corporation and pay himself and meager but reasonable salary and have the corporation distribute the bulk of his earnings as dividends for the stock he holds in the corporation.

(Note, I'm not a tax attorney so you need to verify)

And I would suggest getting much more serious but deducting your business expenses and identiying them as such.

I'm confused. If we're talking about an s-corp, the dividend paid to shareholders, I believe still gets treated as ordinary income. (What it can do I believe is getting you out of paying self-employment taxes that you would pay receiving instead a salary), But then, even this, you have to pay yourself a reasonable rate.. Also, if you pay out a dividend, it goes to every shareholder.

Maybe I'm missing something.

I don't know about the dividend angle...

However what I do with my S-corp:

* Pay myself a modest salary to limit payroll taxes. I pay myself about what an Indian here on an h1b visa would be paid to do my work. Completely legit as far as I am concerned.
* Contribute the max of that modest salary to my 401k (Keogh).
* Have the company contribute the max to my 401k as a profit sharing bonus.

The second two allow me to divert over $30k annually for retirement, tax free. The first saves me about $7-10k in direct taxes.

Note that there is virtually no tax advantage to incorporating out of state if you live in CA. CA will still tax you even if you are incorporated in NV or DE. There may be other advantages but this isn't one of them.

For the home office deduction...it's virtually worthless. However you should have your S-corp purchase everything IN the office.

As to why the home office deduction isn't really that big of a deal. I have an 1100 sq ft house. My office is 100 sq ft. Let's round up and call that 10% of the square footage. Let's say I have a $3000 mortgage so the most I could 'write off' a month is $300. However, most of that $3000 is interest which I'm already writing off and I can't double dip. Say $500 is principle. That means I can write off $50 a month. The same math applies to utilities (cable, electricity): I can write off 10%.

I've added everything up and found that the total subject to write off, for me, is only a couple of thousand a year...with a real tax savings of only a couple hundred dollars. The risk of an audit is very high IMO and the bookkeeping/paperwork to support this isn't worth the effort.

However, I do have my company pay the cell phone bill (and buy the phones) and it pays my medical insurance premiums.

Submitted by flu on April 22, 2012 - 12:20pm.

Ok folks. Since ocrenter mentioned this that 27% is too high tax rate. What are you folks seeing really? The irony is this doesn't even include the social security, medicare, sdi,etc portion. So, yah I don't want to hear about folks suggesting we should pay more taxes.

Submitted by moneymaker on April 22, 2012 - 7:27pm.

Are you talking taxable rate or actual taxes paid?
Recently heard a person tell me that they paid themselves minimum wage and socked the rest into a retirement account that is not taxable until taken out. Please consult an expert on this as I have no idea how this is done. In my opinion tax rates will be going up so might as well take the hit now.

Submitted by surveyor on April 23, 2012 - 1:26pm.

flu wrote:
So, yah I don't want to hear about folks suggesting we should pay more taxes.

Congratulations on joining us, fellow conservative.

Submitted by flu on April 23, 2012 - 7:17pm.

surveyor wrote:
flu wrote:
So, yah I don't want to hear about folks suggesting we should pay more taxes.

Congratulations on joining us, fellow conservative.

Dude. I didnt just join the overtaxed party. I've been the host of it for years.
It's there's been so much bending over that it hurts to sit down so I'd rather just stand up.

Submitted by flu on April 23, 2012 - 7:18pm.

Tax deferral strategies are really going to be interesting

Submitted by flu on April 23, 2012 - 7:18pm.

Tax deferral strategies are really going to be interesting

Submitted by carlsbadworker on April 24, 2012 - 7:41am.

You should be able to contribute to pre-tax income to HSA/FSA...it would lower your AGI. Then it doesn't matter whether your medical expense >10% or not.

Submitted by no_such_reality on April 25, 2012 - 9:52pm.

I was thinking LLC or C-Corp. I think the LLC is taxed like a LLP which in turn is still taxed like an S-Corp, just more forms.

As for our rate, I don't know it. I know the rough amount, and I'll stop there because the raw dollar figure is just RAW...

Submitted by SK in CV on April 26, 2012 - 6:46am.

Don't take amature advice. Much of it is wrong, stupid, worthless, costly or dangerous.

Submitted by scaredyclassic on April 26, 2012 - 6:53am.

Professional advice is sometimes bad too. But at least you can sue them and collect.

Submitted by AN on April 26, 2012 - 7:27am.

walterwhite wrote:
Professional advice is sometimes bad too. But at least you can sue them and collect.

How many people successfully sue their professional real estate agent for suggesting them to buy in 2005 and collect?

Submitted by FormerSanDiegan on April 26, 2012 - 3:03pm.

SK in CV wrote:
Don't take amature advice. Much of it is wrong, stupid, worthless, costly or dangerous.

Isn't the suggestion above amateur advice ?

10 If I take your advice it tells me not to take your advice. Then again, if I don't take your advice, it doesn't tell me not to take your advice, so I guess it's safe to take it.

20 GOTO 10

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