[quote=cvmom]My sibling living in rural US has bought 20-ish super-cheap rental properties. Therefore, with depreciation, has approximately zero taxable income. Lives in 4000+ sq ft mansion with mountain views. Drives nice car, etc. Only one parent working. While their kids qualify for free lunch, scholarships, etc.
I on the other hand live in SD in two-income household. Work like crazy in order to live in our 1300 sq ft. Kids will not qualify for Questbridge (scholarship program for Ivies)…but at least we can sleep at night.
Paying our fair share of taxes feels like the right thing to do. And after living in Europe, having less than 30% effective federal+state tax rate feels downright luxurious. There we paid nearly 50% (of course health care was included.)[/quote]
This is probably because your sibling does real estate / property management as his business so all income gets deducted with his expenses before he gets taxed…Again, the tax code is against w-2 wage earners. This is why many people don’t get rich worker and people start to realize this as they get higher up on the income scale to notice some 10-20% raise didn’t seem to do much in take home pay…
Not to mention benefits such as setting up a private defined benefit plan (pension) allowing your sibling to shelter literally hundreds of thousands of dollars a year in retirement benefits as well. Even without that, a self employed person can do 51k now it looks like: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Contributions
Think about someone who is asset rich and say two spouses can put aside 102k in retirement income a year so if they just “paid” themselves a salary of 51k a year, their taxable income is now 0…Unfortunately, there’s still FICA, but that’s still lower if they can manage to afford that.
Overall, just more options to minimize your tax each year.
UCGal, definitely keep your tax rate at 15% for any conversions since 25% is such a big jump (and add in near 10% state as well)…
I’m a big advocate of actually deferring any taxable income to future years. Of course, this is biased since I took time off work (0 income, got laid off, etc…) so had years where income is low to do roth ira conversions, etc…
