Feb 13

Fun with Taxes

One of the things with taxes that annoy the shit out of me is when people don’t consider it an expense. A government agency takes 1/3 of your income and it’s not an expense? And then we get all excited about a potential refund, because the government is “giving” us money. No they are not. What happened was, you loaned the government 1/3 of your income interest-free. Then, when it turns out they took too much of that income into their hands, they give back just a dollar amount that has nothing to do with how much the money was actually worth when they took it. My savings account gives a better rate.

If this were a better economy with a better market, I would rather register as exempt so that no taxes were taken, shuffle off 1/3 of my income per month into an Index Fund, and in April pay the whole thing off in one go, because I would have earned interest on some of that money in the meantime and I’d be better off.

Anyway, this year I am in a brand new tax bracket for me. This bracket means that I not only am I paying a greater percentage to the government, I also cannot take the same kind of deductions as a lot of people I know. For example, I’m not getting anything for having student loans. Of course, if I were living anywhere else but The Most Expensive City in the US, I wouldn’t care, because I would have enough scratch that my loans would have been paid off for the most part. (I calculated this out, and if I lived in PA and not NY, I would be saving $1000 per month alone, all other things being equal.)

So, I’ve been trying to see a bit more clearly what I can save on my taxes. And good news, I’ve already done a couple of smart things such as put money on my HSA, send out pre-tax income out in transportation costs (my subway pass) and my 401k. I’m not Mitt Romney, but I guess I can shelter my income a little bit. But, there are some things I could be doing better. I’ve been watching the Tax Insight Course on You Tube to understand my taxes a bit better and also see what I can do going forward to pay less. I also bought a book that I think helped me a little bit going forward, although not for my 2011 taxes.

One thing I was surprised by was that the income from the Roth IRA and municipal bonds were not considered taxable income, so I may be using that next year. Furthermore, I think my strategy is going to be getting more unearned income than earned, because the tax is so much less on that income. I can’t really own property here in New York right now, so that’s out. It really comes down to reducing taxable income for me.  But, I suggest everyone try to learn more about reducing their tax burden.


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