Or tell me I’m wrong please. I’d like that better because then I’d get money back from the IRS! I assert the answer is No, unless you spend more than about 8k.
Is it possible to get a refund from the IRS without spending money?
I’m a professional with a large paycheck but my take home pay is 50% of the gross like everyone else in my department. Let’s assume I spend none to begin with. No rent, no mortgage, no kids, no charities, no business expenses. Only food and trips to S.America for paragliding. About 5k per year total.
How can I save more than 50% of my gross? Is it possible?
How can I shelter my income without spending it?
The IRS doesn’t care that much about what you spend, they care about the difference between your tax liability and your withheld taxes. Spending on a mortgage (specifically the interest on a mortgage,) charitable donations, etc. can change your total tax liability, but if your goal is to get a refund you want to have your withholding higher than your tax liability.
It’s not clear to me what good this does you, since it’s essentially an interest-free loan to the government. It doesn’t get you extra money you wouldn’t have had anyway.
If your concern is saving more money to set aside 50% of your income, then have your withholding set to match your tax liability, don’t get a refund, and just put 50% of your income into a savings account or brokerage account (depending on how quickly you want to be able to have access to it and/or your expectations of risk) you won’t touch until you need to. If your tax liability is 20% of your income and you can live off 30% of your income, just save the 50% and don’t worry about whether you get a refund from the IRS or not.
Doesn’t putting money into a 401K achieve this? I know that tax is deferred in Canada when one contributes to an RRSP account (Registered Retirement Savings Plan).
You can put up to $17500 in 2013 into 401k plan, and instead of paying taxes on it this year, you pay taxes on it when you withdraw the money at some point in the future.
You misunderstood. It doesn’t matter much to me whether I pay now from my paycheck. Or later when I file taxes. I want the total amount of those 2 to be less. You’re right, it’s an interest free loan. How do I lower my tax liability without spending money? Or earning less? I guess I should add that to be clear.
A 401k is a great idea. I’ve maxed that out. I’d like to save more than 50% of my gross, which is not possible because of taxes. For now it’s a theoretical discussion. But it will have an impact on my future if you think of a way?
Still confused? My take home pay is about 50% including SSFICA. I don’t get much of a refund in April. How can I change this without spending the money I would get refunded?
I don’t know how to ask this properly. I could buy a house. But then I’d have to pay for it. I could have kids. I could give to charity.
How about a way to lower my tax liability WITHOUT spending the amount I lowered it by?
I don’t itemize unless I have more than about $8k. Let’s say I can itemize more than that. Of course I would, so long as I can do it without spending that same amount. Otherwise it’s better to spend near zero and take the standard deduction.
I can’t help either, but I’m curious what you do in life such that you a) earn a lot of money, b) have 50% of it withheld for some reason, and c) apparently have no living expenses whatsoever.
Software. It’s the same for everyone in my department who claims 0 dependents. If they have a house, of course they get a refund. But they had to spend the money for the house. Do you see what I’m asking and wishing for?
I don’t have any living expenses. I live on a boat anchored in the bay. For most of my life I’ve been able to save 95% of my take home pay. Which is only 47% of my gross. You see the “problem”?
Wevets, of course I’ve asked many tax professionals. You can’t get a deductions without a receipt showing you spent the money on something deductible. They all say the same thing. I’m hoping you can think outside the box with me?
This is a theoretical discussion. OK it’s 48%. Let’s keep 401k and insurance deductions out of it to simplify. I know about those. Pretend I’m not using them.
I want to lower my tax liability LEGALLY. Any ideas?
Not really, unless you are involved in profit sharing or a cash balance plan at work. Otherwise, you can make charitable donations, buy a house, have kids, or find a way to write off various work expenses. The usual stuff.
This is a theoretical discussion. OK it’s 48%. Let’s keep 401k and insurance deductions out of it to simplify. I know about those. Pretend I’m not using them.
I want to lower my tax liability (+ the amount I spend on deductions) LEGALLY. Any ideas?
Since it’s theoretical, I guess it doesn’t really matter.
If it were real, I’d say there’s something way off in the withholding, because … let’s say you make $420,000 per year to expose you to the maximum federal tax bracket.
Your income tax liability would be $123,654.80
Your SS/FICA would be $15,119.40
Assuming living on a “boat anchored in the bay” means California to maximize exposure to a state income tax, California’s state income tax would be: $36,769.76
Ignoring the deductability of the state income tax, total of the $420,000 is $175,543.90, or 41.7%. Most salaries are less than $420,000, and most withholding percentages are also lower. The problem would be the 50% withholding - clearly something is very wrong in the withholding calculation, and that is what would need to be addressed.
If the question is how to legally get income reclassified in such a way to not be subject to income tax, that’s something for a tax professional - all I can say is that capital gains are taxed differently from income, which is very helpful for those wealthy enough to need to worry about 42% withholding.
Being that the point of deductions is to partially compensate you for specific expenses you have incurred, it certainly seems like you’re asking for the impossible. If not, I’d certainly also like to know how I can have my tax liability reduced for no particular reason, and I imagine every other taxpayer would too. I’d also like to know how I can earn a salary without working, and enjoy huge returns without making any investments.
You should be getting at least one withholding allowance for yourself. You could then have two kids but not feed them anymore than you currently eat yourself, i.e. divide your current meals among the three of you.
That would reduce your taxes without spending anything.
This is the same thought I was having. If the IRS is taking more than 50% of your paycheck, you are reporting something wrong to them. Nobody has a tax rate that high in the US. (maybe if you include sales taxes and your city has an income tax, but it’s very unlikely).
So my suggestion to keep more than 50% of your income is to actually do your taxes and get the correct rate. My wife and I made about $150k last year, and our tax rate was under 20%.