income taxes

[breakdirt916]

anyone know about taxes?

I'm trying to understand it enough to optimize my tax situation - I'm in the middle class. I don't make so little that I'm in a low tax bracket with gov't benefits, but I don't make so much that it doesn't matter. I work my ass off, and most of it goes to taxes

googling, the only things I've found are:

1.) mortgage interest, kids, and charitable contributions are tax deductible
2.) contribute to a retirement account
3.) adjust your W4
4.) continuing education costs to maintain my professional license are tax deductible

I always hear about rich people paying 16& capital gains taxes, while the rest of us pay 40-45%. So I trade stocks, but my stock portfolio just wavers...some days good, some days bad. I more consistently make more money just getting a paycheck

what else can I do? start a business and get write offs?

[aldend123]

I heard insider trading is a great way to help those capital gains, which also allows you to take advantage of any benifits associated with it

I'm no CPA, but even if you start a business and write stuff off, that just seems like it's a nicke-and-dime method. I don't think the returns would be worth the effort. I'm sure some people will have better suggestions than my worthless post, but, I think the big controversey stems from the fact that a lot of the ways to wiggle around taxes really can only benifit upper income people. Right now, I think your chances of getting audited are close to zero. You start a 'small business', and I think you're going to dramatically increase your attention level with the IRS.

[idratherberidin]

Right now, I think your chances of getting audited are close to zero

I don't own a business but I've still been audited twice in the last three years, to the tune of $3,800 and some change. I do NOT recommend Turbo Tax to do you're taxes.

[maxim_X]

Turbo tax is alright. You just need to have all of the documentation to back up the deductions in case of an audit. I feel like I pay so much in taxes its crazy. I just tell myself that I'm paying firefighters and building roads.

[daviid]

I always hear about rich people paying 16& capital gains taxes, while the rest of us pay 40-45%.

as for as your personal taxes go, you are either including medicare, ss, and state taxes. no one has a 40-45% tax rate right now on Income Tax alone.

What you are not grasping about the Capital Gains on stock is that by the time the money hits your pocket, it has been taxed 50%. The corporation pays i think 35% on the highest portion of income.then when you get your hands on it you pay a additional 15%. So its not as if they are only paying 15%.

[SteveM]

The other thing to remember about capital gains taxes is that the investments that appreciated were purchased with after tax dollars.

Let me suggest that the real issue is not the tax system, but the struggle to build wealth and financial security. In that regard, most middle class families have greater opportunities to change spending than income.

Creating a detailed monthly budget, maximizing retirement contributions and then setting aside additional money for savings BEFORE spending is a good way to go. Lifestyle spending should be determined by what is left after saving money, not the opposite.

No credit card balances, minimize debt across the board and watch the "little" stuff, as it can add up.

[breakdirt916]

as for as your personal taxes go, you are either including medicare, ss, and state taxes. no one has a 40-45% tax rate right now on Income Tax alone.

What you are not grasping about the Capital Gains on stock is that by the time the money hits your pocket, it has been taxed 50%. The corporation pays i think 35% on the highest portion of income.then when you get your hands on it you pay a additional 15%. So its not as if they are only paying 15%.

yep, that's everything...post 401k, insurance, ss...and I live in sunny cali. 55% take home is frustrating. So really less of it is an income tax, but it still seems like a lot.

The other thing to remember about capital gains taxes is that the investments that appreciated were purchased with after tax dollars.

Let me suggest that the real issue is not the tax system, but the struggle to build wealth and financial security. In that regard, most middle class families have greater opportunities to change spending than income.

Creating a detailed monthly budget, maximizing retirement contributions and then setting aside additional money for savings BEFORE spending is a good way to go. Lifestyle spending should be determined by what is left after saving money, not the opposite.

No credit card balances, minimize debt across the board and watch the "little" stuff, as it can add up.

both guys - good point - I usually don't consider investments as being post-tax, so there's little benefit of the lower capital gains tax.

but steve, the saving/planning strategy is what I consider to be the first step of personal finance. I already track all my expenses on paper and have it all minimized. I have zero CC balance and only owe student loans (which I make higher payments to pay off earlier). The rest, I save, and working 60+ hours/week in healthcare, being single/no house adds up nice and quickly. Retirement accounts are maxed out, I have a trading portfolio setup and I put a fair contribution there to "start early".

[aldend123]

You're maxing out your 401k contributions, but then saying you have a 55% post-tax take home, which is post-401k contributions?

[breakdirt916]

I was unclear

ok here's the breakdown:
---------------------------------
8% - 401k
1% - legal, health insurance, life insurance
21% - federal taxes
5.6% - federal social security, medicare
7.4% - state taxes
<1% - CA medicaid
------------------------------
44.xx%

takehome ~55.xx%

so yeah, taxes only really make up ~28%, but it's the majority of the money taken out of my paycheck, so I'm just trying to find ways to optimize this

[oVTo]

as for as your personal taxes go, you are either including medicare, ss, and state taxes. no one has a 40-45% tax rate right now on Income Tax alone.

What you are not grasping about the Capital Gains on stock is that by the time the money hits your pocket, it has been taxed 50%. The corporation pays i think 35% on the highest portion of income.then when you get your hands on it you pay a additional 15%. So its not as if they are only paying 15%.

Sorry for the thread highjack, but I don't understand the second point -

Capital gains on stock are taxed at 15%, not 15% plus anything (at least for long-term gains). Capital gains on stock have absolutely nothing to do with corporate income or corporate taxes. An investor has capital gains when they sell stock for more than they paid for it. That's it. The company can pay a billion in taxes on a trillion dollars profit or they can have a gazillion dollar loss. It doesn't matter. All that matters is buy low, sell high, pay 15% tax on the difference.

Gains on dividends is a bit different, but I'd still argue that corporate taxes on their profit and individual taxes on a dividend are independent financial transactions and trying to compound the interest on the two transactions doesn't make sense.

But I'm not an expert in this area, so I don't mind being corrected if what I said above is bullshit...

[NPDCPA]

I'm a CPA and will say asking for specific, personalized financial advice here is probably going to deliver confusing answers. Find a CPA you can trust and sit with them for your best shot at wrapping your arms around your questions.

IM me if you need direction or a referral.