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 Post subject: Tax Advice
PostPosted: Sun Apr 08, 2012 4:32 am 

Joined: Mon Apr 02, 2012 2:06 pm
Posts: 9
I'm new to this site, but I've been looking around for a few weeks and I like what I see! With that being said, I may be posting this is the wrong section! Mods feel free to herd me along to the correct pasture.

So here is my situation: I'm a new professional who landed a pretty nice salary of $120k. I have a two finger grasp on what my saving options are. I'm also afraid I'm going to get raked over the coals this year when it comes to tax season! I'm single (not married), no house (deductable mortgage interest), and I have no children (again no deduction). I immediately started putting 4%(company match) in my before-tax 401k hoping. it may help. However, I just looked at the tax brackets and I don't see any relief in sight. I doubt I could set aside the full $17K that I'm allotted and even if I could, I don't know if it would help me. The only deduction I will have is some student loan interest.

What options do I have to help me this tax season?
(Besides settling down and squeezing out a few pups!)


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 Post subject: Re: Tax Advice
PostPosted: Sun Apr 08, 2012 5:33 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1149
Location: Illinois
Unfortunately, you're income is going to be to be to high to deduct student loan interest, so you won't even have that as a deduction. Your MAGI has to be $75,000 or less (for single filers) to take the deduction.

Why can't you contribute the full $17,000 to your 401(k)?


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 Post subject: Re: Tax Advice
PostPosted: Sun Apr 08, 2012 6:38 am 

Joined: Fri Mar 16, 2012 7:33 am
Posts: 107
What exactly is the problem? I'd rather have fewer expenses and pay more tax. There is no situation where your deductions Exceed the tax saved.

Owning a home would help since your non deductible rent would be turned into tax and interest deductions. Contributing to your 401k lowers your income.


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 Post subject: Re: Tax Advice
PostPosted: Sun Apr 08, 2012 7:52 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
bill o wrote:
There is no situation where your deductions Exceed the tax saved.


Actually that is not entirely true. There are some situations where there is a tax credit at one level for an expense and also a deduction at another level. My state, for example, gives a couple of tax credits that are also deductible at the federal level. But those are limited situations of course.

OP: Even is you are not ready to settle down and crank out a couple of pups, you could consider buying a house even if you only rent it out. The rent could likely cover your costs and you'd get a deduction for the interest. It's tough to make the numbers work completely in your favor but if you get a little long term depreciation you will come out ahead.

But truthfully, get used to it. You are probably paying lower taxes now than you ever will again.


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 Post subject: Re: Tax Advice
PostPosted: Sun Apr 08, 2012 5:20 pm 

Joined: Fri Mar 16, 2012 7:33 am
Posts: 107
DoingHomework wrote:

Actually that is not entirely true. There are some situations where there is a tax credit at one level for an expense and also a deduction at another level. My state, for example, gives a couple of tax credits that are also deductible at the federal level. But those are limited situations of course.



Yeah, CT has a ridiculous tax credit for property tax paid, and if you itemize you'd get to deduct the expense on your return as well. In the OPs case at his income level he would not get the full benefit.


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 Post subject: Re: Tax Advice
PostPosted: Mon Apr 09, 2012 11:24 am 

Joined: Mon Jan 02, 2012 3:21 pm
Posts: 89
Congrats on the job! I'm with bpgui... why can't you put in the full $17,000?

My income is similar to yours and I can't imagine a scenario where I'd be unable to put in the full $17,000, a full $5,000 for Roth IRA, and still have piles of cash left over. And I'm married, so theoretically my expenses should be higher than yours.

Unless you live in Manhattan, or have an entire extended family relying on your income, it's hard to understand how you could spend all that money!


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 Post subject: Re: Tax Advice
PostPosted: Mon Apr 09, 2012 11:29 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
In Arizona there are credits for donating to schools, private schools, working poor charities and I think a couple of other things. Together you can give a around $3000 a year that directly subtracts from your state taxes. Then since these things are deductible at the Federal level you actually gain. In the 25% bracket you actually come out $750 ahead.

But oddly, not that many people take advantage of the credits!


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 Post subject: Re: Tax Advice
PostPosted: Sat Apr 14, 2012 5:12 am 

Joined: Tue Sep 20, 2011 2:20 am
Posts: 196
Retirement savings in your 401k would be my first choice... consider a Roth IRA also, though that won't help you on taxes. If you think your taxes will go up in the future (they might, considering your starting salary), certainly consider contributing to a Roth.


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 Post subject: Re: Tax Advice
PostPosted: Fri Jun 01, 2012 4:48 am 

Joined: Mon Apr 02, 2012 2:06 pm
Posts: 9
A long awaited reply, I'm sure.

I don't want to come off as though I'm trying to not pay my due taxes or I'm not grateful for the financial situation I have. I truly am. My situation is easier than most of my friends and I'm doing much better than my parents were together at my age. I'm simply trying to find the smartest way to prepare for tax season.

As a new(er) graduate, my student loan debt is pretty intense. Unfortunately my doctorate wasn't cheap. My parents really couldn't provide any assistance and I had a difficult time finding grants and scholarships that would help a white male. Those that would help me required a GPA that I just couldn't provide, usually >3.85. After 8 years I accumulated $135,000 in student loan debt consolidated at 6.00%, or 5.75% after auto-pay. My payment for the next 30 years is lowered to $865 monthly from the original $1,500+ monthly over 10 years. Although I have lowered my payments, I plan to pay it off ASAP. My goal is to shove $2,000 monthly toward it and pay it completely in roughly 6-7 years.

On top of this, I financially (and morally!) support my girlfriend and her two children. She is going through school now and works as much as possible, but this barely covers daycare, her driving expenses, her cell phone, and the occasional $60 groceries. I cover living expenses for now; rent, utilities, food, and entertainment.

After reading all of your posts I decided to start hammering away at my 401k. I'm doing my best to meet the maximum of $17,000. Since my 401K Profit Sharing options have dipped considerably low in price, it seemed like an excellent time to invest. I started investing 90% of each pay check the past three pay periods. But to reach my goal I'll need to dip 90% out to my 401K one last time, then roughly 4% for the rest of the year. This hasn't been easy though. I had to move $2,000 from savings to meet living expenses and I only payed the minimum $865 toward my student loan instead of my goal $2,000.

Once the 401K is fully furnished, I plan to get back on track to pay off my student loan as quickly as possible.

All kidding aside, I need to make a saving for an engagement ring and a house down payment a major priority.

Thank you all for the replies! Any and all information is much appreciated.


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 Post subject: Re: Tax Advice
PostPosted: Fri Jun 01, 2012 5:06 am 

Joined: Tue Sep 20, 2011 2:20 am
Posts: 196
My advice to you:

Max out your 401k and an IRA. Deduct everything you can.

Pay your loans down as fast as possible, highest interest rates first.

Consider buying a house.


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 Post subject: Re: Tax Advice
PostPosted: Mon Jun 04, 2012 12:20 am 

Joined: Mon Apr 02, 2012 2:06 pm
Posts: 9
I'm working on my 401k right now. It should be completely maxed out by the end of this month. I haven't looked into an IRA yet. Any suggestions for key things a person in my situation should look for?

I plan on both, paying off high interest loans and buying a house, in the near future. I'm trying to find the balance between paying off debt and saving for a down payment. The house probably won't be a possibility until next year. Actually I'm trying to save for an engagement ring, a wedding, and a house down payment all before the end of 2013. Looks like I'll need to be extra frugal this year to achieve my goals. Or maybe I'm just took ambitious.

Thank you for your input!


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 Post subject: Re: Tax Advice
PostPosted: Mon Jun 04, 2012 11:37 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
You might not want to max out your 401(k) so fast. Just because some employers only pay the match once per pay check, and if you don't contribute that paycheck you don't get the match. Or maybe you already considered that, based on your "90% out to my 401K one last time, then roughly 4% for the rest of the year" comment.


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 Post subject: Re: Tax Advice
PostPosted: Mon Jun 04, 2012 12:26 pm 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
I think I would put the money against your student loan before maxing out the 401(k). You will probably not earn better than 5.85% in your 401(k) given the current economic climate, and since the interest isnt tax deductible there is no reason to drag out the payments any long than you have to.

I would also rather put at least the $5K into an IRA rather than the 401(k), since you will have more investment options in the IRA. Making $120K now makes me think you will pay less in taxes upon retirment, thus the IRA rather than the ROTH IRA.


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 Post subject: Re: Tax Advice
PostPosted: Tue Jun 05, 2012 11:54 am 

Joined: Sat Oct 22, 2011 8:19 am
Posts: 80
Ok I don't think you're truly assessing the entire situation. Yes the numbers play out one way but I would honestly put the 401k up to the match and then attack the hell out of the students loans. Your student loans are more than my mortgage payment. 6% guaranteed return on your money and it is RISK FREE. You owe the money no matter what so if things fall apart you are at least having less a bill in front of you.

It may be tempting to have the IRA and 401k deductions but they are most helpful IF you are able to itemzine. Even then you will have to pay the taxes LATER and if you withdraw prior to 59.5 you are getting socked with taxes AND a 10% penalty.

Don't know your living expenses, but that will come into play.

$4800 toward the 401k up to the company match for the year.

knock out student loans as early as possible. The earlier the payments the more the return. Any possibility you can knock these down to 50% within a year?

For the downpayment why not just put 10% of net income into a safe account. There are credit unions that pay 3.5% interest on fully insured liquid money. I doubt mortgage rates are going to climb significantly anytime soon. So if you're paying 6% on student loans your mortgage might be below 4%, so less emphasis on having more than 20% down payment. Plus this gives you plenty of time to shop.


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 Post subject: Re: Tax Advice
PostPosted: Wed Jun 06, 2012 12:37 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
TheDude4no1 wrote:
All kidding aside, I need to make a saving for an engagement ring and a house down payment a major priority.


Why on earth would you spend a bunch of money on an engagement ring when you are that deep in debt and already supporting the woman? Seriously. Buy a $30 nickle ring that has sentimental value and be done with it. If she's not happy with that then move on.


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