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Thread: Paying least amount in taxes possible?

  1. #1
    Senior Member Ultralight's Avatar
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    Paying least amount in taxes possible?

    We all know that the rich have a zillion strategies and loopholes to avoid paying their share of taxes (Iris Lilies and Alan are probably now triggered).

    But what about for the workin' man (perhaps this workin' man)? Are there any strategies for a lowly gubmint employee to legally pay significantly less in taxes?

    I remember hearing that contributing a certain amount to a Roth IRA can make it like you earn less money and therefore possibly pay less tax. Is this true?
    Are there any other ideas people have?

    Thanks!
    ďI came from a real tough neighborhood. I put my hand in some cement and felt another hand." -- Rodney Dangerfield

  2. #2
    Senior Member dmc's Avatar
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    I don’t think a Roth IRA would work. But a reqular IRA or 401k type investment would lower your earned income. You can also lower your taxes a bit if your exemptions are high enough by mortgage interest, charitable deductions, and medical cost. Maybe even school cost and interest.

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    The Roth IRA is pretax savings, but it ties the money up until after a specific age. You then pay taxes at your lower, retired rate on the money when you take it out.

    we have encouraged those of our children who have a company match to put at least the maximum for the match in a 401k each year. Even without a match it is a good vehicle for building wealth.

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    Quote Originally Posted by Chicken lady View Post
    The Roth IRA is pretax savings, but it ties the money up until after a specific age. You then pay taxes at your lower, retired rate on the money when you take it out.

    we have encouraged those of our children who have a company match to put at least the maximum for the match in a 401k each year. Even without a match it is a good vehicle for building wealth.
    This is backwards. A Roth is post-tax money and the withdrawal is tax free. It is tax deductible because it's money already taxed. I don't know if it's deductible if you short form taxes though.

    UL, if you are a government employee you should have access to a retirement plan. Any money taken from your paycheck is pre-tax so lowers your income rate. If you cannot long-form with a schedule A then this is your only tax relief as far as I know.

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    Tax strategy is often a pay-me-now-or-pay-me-later sort of thing. As has been pointed out, Roths fall into the pay me now category. They also offer some advantages for first time home buyers. Since youíre in government, do you have access to a Section 457 plan? There are Roth and Traditional pay me later versions. Depending on your health plan, you may have access to a Health Savings Account. Contributions are pretax and so are withdrawals for health expenses. You need to be in a high deductible plan to be eligible.

    Some public pension systems allow additional contributions if youíre willing to take a long view. Investments outside sheltered accounts can be managed with an eye to tax efficiency. Thatís how a lot of those evil rich guys do it.

    One iron rule: be wary of advice from anonymous internet sources like me.

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    Senior Member Ultralight's Avatar
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    Quote Originally Posted by LDAHL View Post
    Tax strategy is often a pay-me-now-or-pay-me-later sort of thing. As has been pointed out, Roths fall into the pay me now category. They also offer some advantages for first time home buyers. Since you’re in government, do you have access to a Section 457 plan? There are Roth and Traditional pay me later versions. Depending on your health plan, you may have access to a Health Savings Account. Contributions are pretax and so are withdrawals for health expenses. You need to be in a high deductible plan to be eligible.

    Some public pension systems allow additional contributions if you’re willing to take a long view. Investments outside sheltered accounts can be managed with an eye to tax efficiency. That’s how a lot of those evil rich guys do it.

    One iron rule: be wary of advice from anonymous internet sources like me.
    Thanks! I have a 457 supplementary retirement plan already that I contribute to monthly. But it is not Roth Style.

    And yes, I will be wary. I am just looking for ideas here, or experiences others had. Then I will investigate.

    I am also considering asking my tax guy (a Republican MND type) for a suggestion to a financial adviser who would take a look at me as an individual with my own particular aspirations and such. And then advise me -- not some cookie cutter thing.

    Does a Roth change adjusted gross income?
    ďI came from a real tough neighborhood. I put my hand in some cement and felt another hand." -- Rodney Dangerfield

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    Quote Originally Posted by Ultralight View Post
    Thanks! I have a 457 supplementary retirement plan already that I contribute to monthly. But it is not Roth Style.

    And yes, I will be wary. I am just looking for ideas here, or experiences others had. Then I will investigate.

    I am also considering asking my tax guy (a Republican MND type) for a suggestion to a financial adviser who would take a look at me as an individual with my own particular aspirations and such. And then advise me -- not some cookie cutter thing.

    Does a Roth change adjusted gross income?
    I think thatís wise. I would say that in general itís better to work with a fee-only planner than someone who might get commissions for putting you into particular products. No point asking a barber if you need a haircut.

    My understanding was contributions to a Roth would have no impact. It would be withdrawals that have the favorable impact on taxable income.

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    The overall truth is that, really no there are not tax breaks for people like you, you don't have a mortgage, you don't have kids, I mean ... uh no ... by and large the tax code is not set up to give you any breaks, in fact you'll subsidize those with a house and kids etc.. You'll pay your full in taxes.

    Now that said:

    - One thing you might be able to deduct is out of pocket healthcare expenses IF they are significant which they might be (but wouldn't be if you didn't have expensive health problems). In many cases without a mortgage itemizing isn't even worth it (I don't know if the Trump tax changes have made it more or less so), but with significant healthcare expenses it might be. You accountant may already do this but by all means they should be informed if you are paying a significant amount out of pocket for healthcare as that is a tax reduction waiting to be taken.
    - if you itemize due to healthcare expenses you might be able to deduct work related expenses, it's really quite difficult to do so as it requires spending a decent chunk of income on such things, but again your accountant would know.
    - you don't need to think about the premium you pay for health insurance if you have an employee premium as your W2 taxes have already been reduced for that, there is no further reduction to take
    - you might have a "flexible spending account" at work to save up for healthcare expenses which is taking the deduction up front if you have predictable healthcare expenses, read up on "flexible spending accounts" if you have not heard of them (this is assuming your job has this, but it probably does)
    - yes 401k/403bs/traditional IRAs are about the ONLY tax deduction out there for someone in your situation, it's why it's what people are talking about it's kind of what is available period pretty much
    - if you pay for education with your own money there are "lifelong learning" tax credits that may reduce the cost of this education to you. I don't know why you'd need more education, and your employer seems to pay anyway, but if this wasn't the case, this tax break is out there to slightly reduce the hefty cost of classes and textbooks.
    - this is also why people buy houses, to pay less taxes, it doesn't mean you should of course, since the cost of housing is more than just taking the mortgage interest deduction
    Last edited by ApatheticNoMore; 9-17-18 at 10:44am.
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    Apologies for getting that backwards.

  10. #10
    Senior Member dmc's Avatar
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    And with the new tax laws it’s even harder since the standard deduction is much higher. It’s probably better for you to just use the new higher standard deduction and not bother with itemizing.

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