Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next
Author: BadlandZ Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121150  
Subject: Minimizing My Tax Damages Date: 4/24/2001 8:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I am looking for some advice on how to pay a little less in taxes next year. Unfortunatly, it doesn't seem to be a simple matter, so this is going to be a little long. Please bare with me:

Obviously I'm a bit naive about taxes, at 30 years old, I got HAMMERED this year. Last year I only made $12k/year as a grad student, and had no idea how to plan. Now my wife and I are both out of school with jobs, and apparently we have made some kind of hideous mistake. I'm in a hole I can't seem to get out of, and taxes seem to be doing it to me. My wife and I make a good living, but we have some rather large debts. The debts are manageable, but the taxes seem to be getting a bit out of hand!

My income is $70k/year, hers is $51k/year, which is good. Our debts are pretty huge though, I own about $34k in student loans, she owes about $28k in student loans, and we owe about $40k outside of that (two new cars we bought when the 10+ year old cars we had finally died, both at about the same time last summer). Although the debts are big, we HAD a plan to pay them off… and were making great progress. Then came the deadly 2000 1040 form, which said, "Pay up another $8,000 for 2000!" (That's state and federal, and apparently there is a form with tables we were supposes to fill out on the back of the W4's because we are a two-income household. Surprisingly, none of my co-workers seemed to even know about this.)

$62k in student loans, and apparently we are over some kind of threshold for income so we can't deduct any student loan payments. There goes our first idea of how to gain some much-needed deductions. I'm still sort of pissed off about that.

So, we had to pay for 2000, but come 2001 I want to be a bit more prepared. 401k's are where we are starting, I'm going to try to hit the $10,500 limit for the year on mine, and my wife won't make it because her company limits her contributions to 15%.

Then I think we need to put $2000/each into an IRA. Although I would prefer a ROTH IRA, I think taxes are going to make us choose the deductible option.

Still, doing the math, it looks like even after doing that, I have to come up with about $3000 next year (at the current tax rates). It seems like I do have to modify my W4 to include an "extra withholding" to make it. But, even without taking the extra withhold out, it's tough to make rent, car payments, student loan payments, and buy groceries. It's going to be really tight when we try to start living on $25k/year less that we put into IRA's and 401k's. I know it will pay off in the long run to put money away now, but it isn't going to be easy.

Next, maybe mortgage interest deduction? Rent is high around here, $1000/month to rent a little place in a pretty rough neighborhood. Since we have to pay rent anyway, I am thinking maybe we should just bite the bullet and buy a house. With little to put down, a huge debt load, and living in New Jersey, that probably means we will be lucky if we can get a loan to get into a $100k house somewhere. I know nothing about mortgages, buying a house, or what this will take, so any advice on that would be great also. But, that's probably the next thing I need to do to help manage my taxes, right?

Is there anything obviously wrong with my plan?

Does anyone have any ideas I may have overlooked?
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Post of the Day:
Value Hounds

Kate Spade's Wild Ride
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement