We're paying a boat load in taxes, need tips

[Fern]

Re: We're paying a boat load in taxes, need tips

variable annuities often come with high fees attached, and you can't deduct contributions. the only situation they're appropriate is if you've maxed out your 401k and your IRA contributions.

I wouldn't recommend a variable annuity for everyone, but if you're high income earners and are looking for a tax shelter, this is it. Their main attraction, of course, is that they can provide you with a stream of income you can't outlive.

[CJsoccerchic]

Re: We're paying a boat load in taxes, need tips

You could lower your state taxes by investing your short-term savings in T-Bills. Or you can lower both federal and state taxes by investing in certain municipal bonds, or as Fern pointed out, a tax-free money market fund.

Hey just wondering - how does buying T-bills lower your state taxes? ABy making revenue, are you not increasing taxes on yourself? Lost....

[sweeps]

Re: We're paying a boat load in taxes, need tips

Hey just wondering - how does buying T-bills lower your state taxes? ABy making revenue, are you not increasing taxes on yourself? Lost....

You're correct. The assumption I'm making is that Russell has money invested in taxable savings accounts or CDs. If he transfers that money to tax-friendly investments like T-Bills, the interest would not be taxed, and his reported income at the end of the year would be lower.

[CJsoccerchic]

Re: We're paying a boat load in taxes, need tips

T-bill interest is not taxed?!?!?!?!?!?!?!!?!?!?!?!?!?!?!?? How do you report the additional revenue when it comes to tax time?

[sweeps]

Re: We're paying a boat load in taxes, need tips

T-Bills are not subject to state and local tax. You do pay federal tax on the interest. If you're in a state with income tax, you should have a line on your tax form that lets you deduct interest from T-Bills.

Municipal bonds (and funds that hold municipal bonds) are usually not subject to federal, state and local tax. If you look at the 1040 tax form, there is a line item for tax-exempt interest. That amount does not get added into your total income.

The tricky part is comparing taxable yields to tax-free yields... You have to figure in your own tax rate to find out which investment is worth it to you.

[CJsoccerchic]

Re: We're paying a boat load in taxes, need tips

Do you get some kind of form from the treasurydirect at the end of the year like you do with your banks for the interest accrued thru the year?

[sweeps]

Re: We're paying a boat load in taxes, need tips

Good question. Yes.

[CJsoccerchic]

Re: We're paying a boat load in taxes, need tips

You are wonderful - thanks sweeps!

[Russell]

Re: We're paying a boat load in taxes, need tips

Guys, thanks for all the suggestions. Sorry, I'm behind checking the forums due to my new job.

We do have some interest earnings from the savings but the taxes we pay on those earnings are very low so they're not the root cause. However, T-Bills and I-Bonds are usually worth looking into anyway.

boefixepa's second idea at first didn't seem worth the effort if I got hit by the penalties since we already underpaid our state taxes this year. However, as I thought more about it I'm thinking I could save money almost through out the year and in the last 3 months have them take out a lot of additional amount so I don't get hit with the penalties ? That way in concept I earn interest on the saved amount for 7-9 months and in the last months I make up the difference ?

[weiwentg]

Re: We're paying a boat load in taxes, need tips

I wouldn't recommend a variable annuity for everyone, but if you're high income earners and are looking for a tax shelter, this is it. Their main attraction, of course, is that they can provide you with a stream of income you can't outlive.

well, I believe you're actually talking about a fixed annuity. a variable annuity is invested in a bunch of stocks/bonds whose allocation you and your advisor control. it works kind of like a 401k. I think, though, that you can probably annuitize it when you're coming to retirement.

[34saving]

Re: We're paying a boat load in taxes, need tips

Obviously buying a house will help . . .kind of extreme though

[stngymama]

Re: We're paying a boat load in taxes, need tips

Obviously buying a house will help . . .kind of extreme though

or how about investment property, somewhere were it actually makes sense (I recently heard a SF Financial Advisor recommend Charlottesville, Va.!!!)

[cicy33]

Re: We're paying a boat load in taxes, need tips

Start a small home business, a real one of course! then you can deduct mileage, cell phone, supplies, etc. and a portion of your home utilities.

[Fern]

Re: We're paying a boat load in taxes, need tips

well, I believe you're actually talking about a fixed annuity. a variable annuity is invested in a bunch of stocks/bonds whose allocation you and your advisor control. it works kind of like a 401k. I think, though, that you can probably annuitize it when you're coming to retirement.

No, i'm talking about a variable annuity. With a VA, you can choose to receive payments at regular time intervals; that's what "annuitizing" means. There are more than one option for payout, but one of them is to opt for a life annuity entitling you to a monthly payment for as long as you live, even if you deplete the total accumulated value of your annuity investment

[jmjj215]

Re: We're paying a boat load in taxes, need tips

Start a small home business, a real one of course! then you can deduct mileage, cell phone, supplies, etc. and a portion of your home utilities.

It'd be even better to be profitable at your small business. The IRS starts to get suspicious when you have a small business producing consistent losses.

To the other point regarding saving your money and loading up on payments at the end of the year: lots of Self-employed people do that as well. It makes perfect sense to me and the IRS sees it as "received in 20XX" - they don't break it out into quarters or anything.