Paying least amount in taxes possible?

[Ultralight]

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!

[dmc]

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.

[Chicken lady]

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.

[Gardnr]

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.

[LDAHL]

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.

[Ultralight]

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?

[LDAHL]

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 that’s wise. I would say that in general it’s 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.

[ApatheticNoMore]

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

[Chicken lady]

Apologies for getting that backwards.

[dmc]

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.

[LDAHL]

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.

That’s true. I’m also wondering if the current rates are so low right now that strategies assuming being in a lower bracket after retiring might need reconsideration. Especially if a blue wave materializes that requires tax revenue for all that expensive free stuff.

[iris lilies]

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.
I know! Isnt it $12,000 now, the standard deduction? Yowza does thatb simplify things.

[Alan]

I know! Isnt it $12,000 now, the standard deduction? Yowza does thatb simplify things.$13,000 I think.

[Gardnr]

In 2018, it's $12,000 for single filers and married filers filing separately, $24,000 for married filers filing jointly and $18,000 for heads of household.

For frame of reference: The standard deduction for single taxpayers and married couples filing separately is$6,350 in 2017, up from $6,300 in 2016; for married couples filing jointly, the standard deduction is $12,700, up $100 from the prior year; and for heads of households, the standard deduction is $9,350 for 2017, up from $9,300.

[Rogar]

I have seen some recommend putting interest bearing investments into tax deferred retirement accounts since interest compounds and is taxed as regular income, with investments in regular accounts in equities where capital gains are taxed at a lower rate. I can vaguely follow the logic, but not practical for everyone. It seems to assume a person has a lot of money to invest.

[San Onofre Guy]

I like a lot of services provided by government and I feel that it is my responsibility to pay my share. I could understand an anti tax perspective if I lived in New Jersey as I spent almost $9.00 on tolls to drive from NYC to New Brunswick and they have extremely high property and income tax. Paying the high tolls makes this California dweller feel not so bad about taxes

[Gardnr]

I like a lot of services provided by government and I feel that it is my responsibility to pay my share.

I'm with you. I want emergency services, fire services, police services, the roads, the parks.....I can't imagine there are many people in this country that would prefer that NONE of these exist. Too bad so many do not want to help pay for them:(

[SteveinMN]

Paying the high tolls makes this California dweller feel not so bad about taxes
In my experience there's nothing like living someplace else to make one appreciate elements of where one lives. When I moved from New York to Minnesota, I was moving from one high-tax locale to another. But, in Minnesota, I actually got to see my taxes at work. Beautiful clean parks with amenities; a Department of Motor Vehicles at which the employees were not surly and (gasp!) were available at largely-retail hours so I didn't have to take time off work to renew my driver's license; nicely-equipped libraries; well-maintained streets (well, at the time) considering the punishment they get each winter;...

Not that high taxes should go unchallenged. Property taxes in our city have gone up about one third over the last two years. Part of that is a result of a court decision that declared a previous mayoralty's "fees" ("We've never raised taxes! Hooray for us!! Vote Quimby!") really should have been collected as taxes. But part of it is due to a level of spending on municipal gazingus pins (streetcars, city-wide garbage collection [rather than regulated private haulers]) that I and many other residents have fought against as being chosen without due diligence. I don't mind writing big checks when I feel I'm getting my money's worth; I don't like to write blank checks.

[Gardenarian]

I just went to a workshop on this. As the personal deduction is higher, it no longer makes sense for most people to itemize. I generally avoid financial stuff, so this was a surprise to me. I'm looking at creating a donor advised fund this year.

[iris lilies]

I just went to a workshop on this. As the personal deduction is higher, it no longer makes sense for most people to itemize. I generally avoid financial stuff, so this was a surprise to me. I'm looking at creating a donor advised fund this year.

We wont itemize when we file. But I am guessing DH will continue with our protocol for identifying deductible expenses because 1) habit 2) what ifs as in what if the tax law,changes down the road.

[ApatheticNoMore]

I'm not always convinced we really get our money's worth, taxes in California, uh I really don't think we do, I think we get a bad deal in many ways and they only pay for barely functioning systems, ugh so many states can build stuff that actually works but not here (could be even worse though).

There are some things like the lifelong learning credit (if it's still there post tax changes) you didn't have to itemize for. I took that one nearly every other year or something, so I had a special fondness for it. Well if you end up taking classes anyway ..