What are some strategies to lower taxes for young couple?

[Leo]

My wife and I are both employed. Our household income is around $140k a year, and possible to increase to around $140-155k very soon. I am at 100k, she is 40k. I'm expecting a promotion to 110-115k by end of year.

I am currently maxing out ROTH IRA and she is currently maxing out her Traditional IRA. I have 401k at work but no match for now so I am only contributing around 4% every paycheck. My wife doesn't have 401k. I have medical insurance through employer and she has individual medical insurance outside employer but not HSA.

I feel like we are paying a lot of taxes every pay check (At least I am. I am only taking home 70% of my income) but during the tax return this year, we have to pay around $2000-3000 after filing jointly. I am guessing next year would be the same or probably more to pay.

What can we do to lower our taxes?

[tripods68]

What's your withholding look like? You want to adjust that, if not already at zero.

You are already doing the right thing by maxing 401k & traditional IRA for your wife. Do you have HSA, if you are in high deductible insurance.

[kork13]

1) Max your 401k, regardless of the match. I don't get a match on my TSP (401k equivalent) either, but we still max it out for both my wife & I. Especially at your income level, the tax benefit of maxing it out is significant. Besides, it's only boosting your retirement savings.
2) Support your favorite charity, or church if you attend one. Consider that charitable contributions are one of the favorite tax strategies of the wealthy.
3) Start a side business. Owning a business is another common tax strategy used by the wealthy. Both of these options offer significant opportunity to write off expenditures to reduce your tax bill.
4) Be careful of how you deal with your investments, to ensure you minimize short term capital gains. Also, keep bonds in tax advantaged accounts, because their distributions are almost always short term gains.
5) Have any kids? They're a bundle of joy, and a healthy tax reduction to boot.

Alternately... Don't worry about it. You're paying more taxes because you're making more money. And in most cases, the only way you save money on taxes is to spend more money elsewhere (retirement, business, charities, kids, etc).

[clatoden99]

Far and away the most important strategies are:

Hire a qualified tax professional and provide her with the necessary information to advise you; and

Follow her advice.

Everyone has a unique tax situation. There isn't some magic formula universally applicable to all married couples.

[GoodSteward]

Ask for a pay reduction

[scfr]

I like what kork13 said. I'd add that you might want to look in to municipal bonds, especially if you pay state income tax.

[autoxer]

1) Max your 401k, regardless of the match. I don't get a match on my TSP (401k equivalent) either, but we still max it out for both my wife & I. Especially at your income level, the tax benefit of maxing it out is significant. Besides, it's only boosting your retirement savings.

I agree max the 401k!!!

[Fishindude77]

High class problems. Use a good CPA and count your blessings.

[Jluke]

Your salaries are lopsided so you are not in the same tax brackets (15% vs 25%). Your wife has less taken out at 15% and that hurts come tax time when you combine incomes.

You need to max your 401k first or come pretty close to 18k- like others have said. Think of it as giving yourself the money rather than the IRS.

Verify your W-4 selections. Married 0 or single 0? This is how you can control how much you owe at the end of the year. You won't reduce your overall tax amount.

Finally figure out ways to reduce your AGI. Google search could help with that

[Singuy]

I feel like there are some miss information from the answers above so lets clear a few misconceptions up.

1. You don't have bring your taxes down to a specific "bracket". Just because you brought your taxable income down to a 25% bracket from 28% doesn't mean you saved 3% for ALL of your taxable income. Taxes are charged in a progressive manner...meaning if the tax bracket for 112k is 28%..only money made that is above 112k that year is taxed at 28%. Think of the brackets as portions of money. Only from x amount earned to y amount is charged at 25%, and then x amount to y amount is charged at 15% and etc.

2. There's really not a whole lot you can do as income earners to reduce your tax burden. Besides the usual HSA, 401k, health insurance, home mortgage interest, student loan interest, donations, and property tax..there's really not much you can do. Take the standard deduction if you feel that your total expenses from donations, property tax, and interest doesn't add up to $12,600 or elect to itemize your deductions if all those expenses were above $12,600.

3. Filing jointly will 99% of the time save you on taxes. Because your earn a lot and your wife earns less than half of what you earn, the math actually comes out ahead vs if you two were not married.

4. Because you are married, you can't claim head of the household unless your wife DID NOT live with you the second half of the year, but if you have parents who live with you and they make no income, you can take their personal exemptions.

5. Having kids will yield you a 1000 dollar tax credit per kid PLUS their personal exemption(Trump may take away the person exemption part).

6. Don't get a CPA if you guys are income earners..use Turbo tax and pay the 39 bucks. A CPA charges 200 and can't create magic with your earnings.

7. Donating just for the purpose of lowering your tax burden is nonsensical if your purpose is to see more $$$ in your pocket. As mentioned above, taxes are charged in a progressive manner. Thinking that you can donate to be in a lower tax bracket to save on your overall taxes is WRONG. Corporations do a lot of donations because yes they pay less taxes but more importantly it's for advertising purposes(uphold the image of the company for higher future profit and growth).

8. Buying a house and keeping a mortgage just for the purpose of lowering your taxes is also nonsensical. You pay WAY more in interest and property taxes than the tax savings you get(if you are in the 28% taxable income bracket, you save 28% on your property tax and mortgage interest..which means you still paid 72%!).

9. Once you open up a business, then we can talk about ways to lower your tax burden.

10. Not only reduce your federal allowance to 0, but also look into being taxed as if you are single(this is another option you can pick). Dual earners who make similar amounts of money ends up with a marriage tax penalty. When you elect to be taxed as if you are married, this option assumes that your spouse makes no money for the year.

[Captain Save]

Taxes are relatively low compared to yeras past .. you're better off paying the tax now instead of maxing your 401k .. and pay a lot more down the line .. the US debt is high compared to our GDP .. so soon enough taxes will need to be raised.. and that's how they took care of the debt in the 40's through the 70's... remember 401k became popular in the 70's when taxes were sky high .. best believe back then it was a great investment.. but don't make that mistake now especiallly since you don't even get a match.. I'm down with maxing the Roth though

pay your taxes now .. then put it in a tax deferred vehicle that gives you tax free distribution .. otherwise find something you're passionate about .and start a business where you can write off many of your current expenses ..

[TexasHusker]

Rental property is an excellent way to pay little to no income tax if you do it right.

I know a guy who earns over $250,000 a year, but he's depreciating about $250,000 a year in houses. So his net income is effectively zero, and so is his tax bill.

Not bad.