The author has 3 children, and that's a _household_ income of $150000. 150 grand is not a huge family income to support 2 adults and 3 kids; as a country, we give people tax breaks to encourage having children and to help support people who make that choice.<p>Calling this "Houdini-like" (author's words) tax hacking seems like a bit of a misunderstanding of deliberate social policy!
The two biggest reducers he cites are 401k contributions and tax-loss harvesting.<p>#1. 401k.<p>While this is a great idea, if he's trying to retire at 33, putting 17.5k away from his 70k paycheck is not going to help because he can't touch it until he is 59.5 (w/o penalty).<p>#2. Capital losses<p>Tax-loss harvesting means selling securities that are underwater to get a capital-loss deduction. I don't know where to start explaining why this is such a bad idea. I'll pick the two most compelling reasons why this is dumb. First, you can only do this so many times before you've whittled your investment to zero. Second, you are violating the most basic principle of standard-person (non-rich) investing: buy and hold.<p>That's all he's got in his back o' tricks.<p>What an awful post.
This is for a couple with kids, so both can max-out 401(k)s, IRAs are still a thing wen you make <$124k, so they could make out both, and because of the kids, you can use pre-tax money for dependent care, and there are tax credits for kids.<p>The other giant caveat is they merely <i>deferred</i> taxes on $46,000.
For any of our friends outside the US, this is not normal. As someone with a similar income (single - not married couple) but 0 children, 0 "special" government deductions, etc, here's a breakdown of my 2020 numbers:<p>- Income from employer: $168K<p>- Investment income: $41K<p>- Total income: $209K<p>Deductions (rounded numbers):<p>- $19.5K (private retirement 401k)<p>- $12.5K standard deduction<p>- $3.5K health care savings<p>- $3K MEME stonks losses :(<p>Approximate taxable income after deductions: $170K<p>Taxes paid:<p>- Federal Income tax: $32K<p>- Federal Social security (gov't pension / disability insurance): $8500<p>- Federal Medicare (gov't old age health care): $2500<p>- State Taxes: $10K<p>Total taxes: $53K<p>So I'm looking at about 25% taxes due. Also, my employer had to match my federal Social Security and Medicare (which is essentially taken out of my pay), so it's closer to about 31%.<p>That's certainly better than what (it sounds like) you guys pay over in the UK, EU, etc, especially as my salary over there would be taxed in one of the higher brackets, while in the US, I'm in the "middle", though I have very few deductions that larger families will have (especially if they own a very big house in an expensive state).<p>In high tax states like California, you would add another 4-5% or so - you'd end up at 35%.
> Taxes. It is our duty as patriotic Americans to keep our individual taxes as low as possible.<p>Can someone explain that sentence? What's "patriotic" about paying less taxes?
Holy shit, $500 a year for health insurance? I pay twice that <i>a month</i> and don't even get an HSA option.<p>Seems weird to put so much into retirement funds if your plan is to retire in your 30s, the penalties of touching that before 60 are pretty substantial.<p>I suspect there's some sort of inheritance of property or something they're not disclosing.
Good on the author for making use of these tax benefits. I don't see anything out of the ordinary here. For govt workers, the 457 benefit seems really nice. Having kids in an LCOL area seems to be very doable. I imagine the same article but for 10x the income would be "interesting".<p>As a side note, it's worth indicating that if you work at FAANGs and other types of companies, you can use the mega backdoor Roth IRA method [1] to put up to $38k away in retirement accounts a year.<p>[1] <a href="https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work" rel="nofollow">https://www.nerdwallet.com/article/investing/mega-backdoor-r...</a>
I’m always amazed that people think 401(k)s are a great idea. Yeah, that’s exactly what I want, the government telling me how I can spend my money, until I’m almost ready to die, with no guarantee the laws governing 401(k)s won’t change along the way, or that some moron politician won’t siphon from my retirement.
They are just deferring taxes. Taxes will be paid anyway in the future.<p>In some ways I prefer to pay taxes now because you are free with your money and that is wealth in itself. A new crazy Bernie comes and changes the rules and you are f*ck$d with 30-40% of your savings disappearing in days by inflation, formal currency devaluation, new taxes and so on.<p>E.g If I were living in Peru today I will fly with my money as soon as possible with the new communistic guy in charge. Just hearing him talk in the past would be enough to take the decision.
I mean why is this that surprising? Almost half the country doesn't even pay federal income tax.<p>Contrary to a lot of narratives at-least at the federal level it is almost completely funded by the "rich".<p>Now at the local level we can have a different discussion about regressive taxes like sales, gas, etc.
Yup.. you don't really start to get hit by federal taxes bad until after that 150k mark. You'd still be getting wrecked by property taxes or rent and sales tax in my state though.
The best tax optimization trick you can do is to open an LLC.<p>Costs $800/year to maintain in California, enables you to claim business expenses for a looot of things. Sometimes surprisingly.<p>You don’t even need a whole lot of revenue. Just sell something, anything, and go for it.<p>The penalty for going overboard is to pay back taxes with a bit of interest. As long as you don’t do anything crazy, you should be fine.<p>Remember: USA uses taxes to encourage you to spend money on approved activities. Like running a business, having kids, or buying your primary residence.