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Here's the scenario i don't have a dependent and i'm paying 19k in interest for mortgage.right now i'm claiming 0 on my w2 and i'm only putting 5k in tsp.I'm still paying uncle sam with this kind of setup.Me and my spouse are making 115k combine.My plan for next is year is max out my tsp and claim 2 on my w2.Could somebody give me an advice to get more out of our salary and to avoid uncle sam(irs).
Quote:
Originally Posted by rym2001
Hi rym2001,
As you probably know, you definitely are above the IRS standard deduction amount of $10,600, reference IRS Pub 501. So itemizing is not a problem, if you choose to do so, reference IRS Publication Instructions for Schedule A/B.
As for your TSP contribution the maximum contributions for 2007 is $15,500, and if I remember correctly it increases by $500.00 each year, so, 2008 will be $16,000.
Now the key thing to remember about TSP contributions is that it is tax deferred. Basically it means whatever you put in each month reduces your tax liability for that time period. When you start to take the monies out, then you are taxed, and hopefully in a lower tax bracket.
As an example and using very round numbers.
Monthly incomes are $5000.00 (and does not change throughout the year) and let us assume 5% is taken out for taxes. Therefore, you pay $250 in taxes per month.
Let’s throw the TSP into the equation.
Monthly income is the same, $5000.00 and taxes remain the same 5%, but you elect to have 10% of your monthly income placed into the TSP. Remembering that your TSP deduction is tax-deferred, then your taxable monthly income becomes $4500.00 ($5000.00 x 10% TSP = $500.00).
Therefore, the 5% tax is only applied to the $4500.00, which means $225.00 is taken out for taxes.
Basically you’ve saved $25.00 in taxes per month ($300.00 annual). This is great on this end, but remember that you still have to pay taxes when you take a distribution. What tax planners normally espouse is that when you do starting taking distributions in your retirement years, your annual income will be less and therefore how much you pay in taxes will be less.
Lastly, you mentioned your W-2 and how much should be taken out in taxes. This can be a tough topic, but it happens that the IRS has gotten a bit more customers friendly. They now have the IRS Withholding Calculator (also reference IRS Publication 919): http://www.irs.gov/individuals/article/0,,id=96196,00.html
There are many thoughts that people have to their tax withholdings, and some examples are:
1a. I want more taken out so that I get a big check (refund). Now I can use this money for something I need. My take. Interest free loan to the government, since, they do not give you interest on the excess money you allow them to take. Startup a “Christmas-fund” with your bank, most have something of this sort.
1b. I do not ever want to owe monies, since, if I do it too many times, I may suffer a tax penalty for not having enough withheld. My take. This individual has paid the penalty previously.
2. Each year I make an assessment so that I neither owe nor pay, or, it is within $100.00 either way. My take. Best option, but extremely time-intensive in analyzing your budget.
Finally, I would recommend that if you have the time, to research the information with the source, the IRS. Everything that I’ve mention is based upon source documents from the IRS: http://www.irs.gov
NOTE: I do not work for the IRS. I have no affiliations with IRS. I do volunteer work on my installation as a tax preparer, and our training and certification was by the IRS (not H&R Block).
Remember and use IRS Publication 17. It has almost everything in it and with references to other backup publications.
HOOAH!
thanks for the advice.Can i pm regarding Irs?
Remember, a subscription to the Ebb service is tax deductable.
How so?Quote:
Originally Posted by Birchtree
Even if it is, spending a dollar to save a quarter doesnt exactly make much sense.
Quote:
Originally Posted by Birchtree
Quote:
Originally Posted by ChemEng
Hello rym2001, Birchtree and ChemEng,
I had to do some research on this issue. That is, does a subscription to "Ebb service" allow a taxable deduction?
((Please note my references to "schedules, instructions, or publications" is in reference to the IRS. Please see my references at the bottom.))
If you look at schedule A you'll notice that line 22 states, "Other expenses-investments, safe deposit boxes...."
And, if you read the instructions for schedule A for this specific line item, you’ll have, “Enter the total amount you paid to produce or collect taxable income and manage or protect property held for earning income. But do not include any personal expenses…..”
Therefore, my, estimate is that if the expenses were for the fact of collecting, managing, and protect property (i.e. income), then a subscription service MAYBE an allowable deduction.
ChemEng, I think this is where your comment about the "dollar"/"quarter" issues comes into play and that is about the deductibility amount, since it must be at least 2% of your adjusted gross income (AGI).
Therefore (example):
If you had an AGI of $100,000, and 2% of this amount is $2,000.00. This becomes the threshold you must surpass to take a deduction in this category.
Then you would need expenses above this amount to allow a deduction.
If your expenses were $1,950.00, then it would equate to zero because it was less than threshold.
If your expenses were $2,520.00, then you would be allowed a $520.00 to your itemization.
Finally, I would recommend that you seek the advice of a certified professional in all these matters. Always keep good records (proof) of everything you do, type yourself a memo so that you can explain your (or your CPA/accountants) reason for something. If you are called to the carpet it will help.
NOTE: I’m basing everything on 2006 forms and instructions. Things can/do change.
Recommend resource:
http://www.irs.gov and lookup:
Form Schedules A/B
Instructions for Schedules A/B
Publication 17
HOOAH!
Quote:
Originally Posted by rym2001
Hi rym2001,
I have no problem with a PM. But, realize I'm not a CPA, nor an IRS tax consultant, nor have anything to do with such entities. I have taken the training/certification with the IRS and have volunteered to assist and complete individual tax returns for several years, as a "Volunteer Income Tax Assistor/VITA). In fact, I would recommend this free program to everyone that wants to learn and to help others (the side benefit is to help yourself :D).
I only consider myself knowledgeable in my own personal financial affairs when it comes to the IRS, but, I do experience "surprises" every year. :)
I would recommend that you post "round-about" issues here; because I know there are people on this board who are much more qualified in this arena.
Hooah!
Now you're seeing the importance of trying to reduce you AGI - everything is based on it. Try and think longer term so you can plan your tax situation when the time comes. For example - when a person retires they should live off of savings for a year, then they don't have an adjusted gross income. That's a great time to convert some TSP earnings into a Roth IRA.
I don't worry about the # of exemptions. I use the withhold a fixed dollar amount in employee express to increase the withholding to what I want it to be, for federal and state. So in other words, I have enough exemptions claimed so that I would be under-withholding without the extra fixed dollar amount.
I play with the fixed dollar amount at the beginning of the year until I'm sure I have it so that I am withholding annually at least as much as my total tax liability was the prior year.
Then around September or October, I look at it again to guestimate if I need to have a little more withheld.
I usually end up paying a little with my return, which is fine, I just don't want to be getting a refund. I know as long as I have paid in 100% of my total tax from the prior year, I won't be getting a penalty (which I'm not allowed to have.)
GGAL