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To be fair I'm not quite sure how the deductions/exemptions work, I know they are there but never understood exemptions in addition to standard deduction with no kids.
They decrease your total income. You don't pay taxes on your total income, you pay it on your taxable income, which is net a bunch of deductions for things like 401k, IRA, or health savings accounts, which the government allows because they want to drive certain behavior or because richer people lobbied for it. It's not that complex. And 401k deductions and IRAs are way more valuable than the EITC or whatever you get with kids. And you get deductions for savings on top of your standard deduction, or your itemized deductions.
They decrease your total income. You don't pay taxes on your total income, you pay it on your taxable income, which is net a bunch of deductions for things like 401k, IRA, or health savings accounts, which the government allows because they want to drive certain behavior or because richer people lobbied for it. It's not that complex. And 401k deductions and IRAs are way more valuable than the EITC or whatever you get with kids. And you get deductions for savings on top of your standard deduction, or your itemized deductions.
Yes I understand that. However what I mean is every other time I have done my W4 I've included "0" for allowances and still get hit with yearly taxes owed. In theory if I did married filing jointly, withhold at higher single rate, with 1 allowance I should be nuts on but when I did that I owed thousands (around $3k-$4k after all said and done).
The only thing we can deduct is 401k and my personal business expenses, along with mortgage interest and property taxes. That's about it. It's not much. I guess that is why our audit risk, according to TurboTax, is so low. Because we have such a low deduction amount compared to our peers. Having kids would really help.
Yes I understand that. However what I mean is every other time I have done my W4 I've included "0" for allowances and still get hit with yearly taxes owed. In theory if I did married filing jointly, withhold at higher single rate, with 1 allowance I should be nuts on but when I did that I owed thousands (around $3k-$4k after all said and done).
The only thing we can deduct is 401k and my personal business expenses, along with mortgage interest and property taxes. That's about it. It's not much. I guess that is why our audit risk, according to TurboTax, is so low. Because we have such a low deduction amount compared to our peers. Having kids would really help.
If your goal is to minimize your taxes? Sure. If your goal is to maximize your wealth? Nope. You spend far, far more on kids than you would save in taxes.
If your goal is to minimize your taxes? Sure. If your goal is to maximize your wealth? Nope. You spend far, far more on kids than you would save in taxes.
Yes I would agree with that. Between forgoing income/jobs and spending on the kids, yes you are probably far behind. My wife and I have waited and now are talking about it in our mid-30's, where our nest egg can grow for years instead of putting off saving for the first 10 years of our lives while raising kids.
Yes I understand that. However what I mean is every other time I have done my W4 I've included "0" for allowances and still get hit with yearly taxes owed. In theory if I did married filing jointly, withhold at higher single rate, with 1 allowance I should be nuts on but when I did that I owed thousands (around $3k-$4k after all said and done).
The only thing we can deduct is 401k and my personal business expenses, along with mortgage interest and property taxes. That's about it. It's not much. I guess that is why our audit risk, according to TurboTax, is so low. Because we have such a low deduction amount compared to our peers. Having kids would really help.
We have mortgage interest, property tax, sales tax and charitable donations. Also your health insurance, dental and vision lower your taxable income as well. Your 401k contributions could be much higher and that would help with current liabilities
We are nowhere close. Of course, was in grad school until late 20s, so we weren't able to save then. My wife and my salary has doubled over the past 10 years (we are now around 40), so its nearly impossible to keep up at that pace. We have about 2x our annual income (should be at 3x).
However, I think that looking at ones expenses is a better measure. While we are maxing out our 401ks and both have aggressive company matches, we can only save a little more right now. We're living in the SF Bay Area (high mortgage but a lot of equity accrual), we have two young kids (high daycare costs + 529 plan contributions), etc.
I think it is completely reasonable to assume that our monthly expenses will drop upon retirement and we can still live comfortably. We should be able to cash in our equity for somewhere to downsize. We won't have the high costs for raising kids and we won't be still making 401k contributions. The only things I can foresee rising would be travel and medical expenses, but I cannot imagine we are not saving enough. Also, when our kids are out of daycare, we do plan to contribute even more and we'll take advantage of the catch up retirement contributions at age 50.
We have mortgage interest, property tax, sales tax and charitable donations. Also your health insurance, dental and vision lower your taxable income as well. Your 401k contributions could be much higher and that would help with current liabilities
401k contributions have a maximum limit of $18k per person. We are doing that this year. Can't do any more than that. Last year I did the max and my wife did $7k as she was only at her job with 401k for half a year. Another $11,000 in pretax earnings saved would be what, around $2k-$3k in federal taxes saved I guess using your rates.
Health insurance is actually a pretty low amount thankfully. Those come out of your check pre-tax so you can't do anything with them on your taxes.
We are nowhere close. Of course, was in grad school until late 20s, so we weren't able to save then. My wife and my salary has doubled over the past 10 years (we are now around 40), so its nearly impossible to keep up at that pace. We have about 2x our annual income (should be at 3x).
However, I think that looking at ones expenses is a better measure. While we are maxing out our 401ks and both have aggressive company matches, we can only save a little more right now. We're living in the SF Bay Area (high mortgage but a lot of equity accrual), we have two young kids (high daycare costs + 529 plan contributions), etc.
I think it is completely reasonable to assume that our monthly expenses will drop upon retirement and we can still live comfortably. We should be able to cash in our equity for somewhere to downsize. We won't have the high costs for raising kids and we won't be still making 401k contributions. The only things I can foresee rising would be travel and medical expenses, but I cannot imagine we are not saving enough. Also, when our kids are out of daycare, we do plan to contribute even more and we'll take advantage of the catch up retirement contributions at age 50.
What does everyone else think?
I think as long as you have a plan you'll be fine. You've reserved yourself to working for a long time to come it sounds like. I wanted to be done saving by my mid-late 30's with the ability to walk away. That is why we've put so much away ourselves and kept cost of living very low as incomes grew. I just like the feeling. There are many ways to skin a cat.
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