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Taxes - Do you ever REALLY pay attention to how much you pay?

March 9th, 2017 at 04:16 pm

So last night I dropped off my taxes to a professional. The very first time that I have not done our taxes. This year, we bought a house, put our townhouse up for rent, had non-payment from renter and a few other out of the norm financial items that led us to take the advice of a professional for this year's taxes.

I know from talking to friends and family and from reading blogs, that a lot of people focus on the amount they owe or are being refunded when they file their taxes. I know I am guilty of it, but I really want to take a hard look as the dollar amounts we pay in taxes ā€“ Federal, State, Local (if applicable), Social Security and Medicare.

We do pay attention to what is withheld versus what is estimated to be owed. Our refunds have usually been within $500 or so. Last year, we had a slightly larger refund. This year, Iā€™m not sure how its going to turn out.

I am also looking hard at any way to lower my AGI to pay the least amount of tax as possible. Right now, my husband & I contribute to our 401ks, but not to the max for both of us. We contribute to a H.S.A, and a Childcare FSA. My goal this year is to try to contribute to IRAs for both of us and this year I am hoping to max out on my 401k at least.

Still ā€“ seeing the hard #s of what we gross, what we pay in taxes and what we actually net is eye ā€“ opening.

Do any of your take a hard look at the dollar amount and/or percentages paid?

8 Responses to “Taxes - Do you ever REALLY pay attention to how much you pay?”

  1. MonkeyMama Says:

    Great post!

    Yes, for sure, we pay very close attention to these things. I don't post much about it because we pay so little taxes given our situation. So it's not a big emphasis for us, right now. But tax knowledge has certainly factored very heavily into our life choices and financial decisions. I don't know that it will ever make any financial sense whatsoever for us to both work full-time; that's the area where it most specifically comes up. Early retirement is significantly more tax efficient, and seems a natural extension of that.

    {To be clear, I am in no way shape or form preaching the one-income or early retirement thing. I just think it's important to realize if you can work 1/2 or 1/4 less hard to reach the exact same financial position}.

  2. creditcardfree Says:

    Yes! I definitely am aware.

  3. HouseHopeful Says:

    I definitely would be interested ways people lower their tax obligations. The usual ways, I am aware of, but there is always more to learn. I plan on taking some time to learn!

  4. Dido Says:

    I'm a CPA so yes, Form 1040 line 63 (Total Tax) divided by Line 43 (Taxable Income) = Effective Tax Rate is really what matters! If you can afford it, yes, max out your 401K, the Childcare FSA (as long as you'll use that, because it's "use it or lose it") and the HSA (which is "use it or KEEP it, triple tax free on contributions, earnings, and withdrawals as long as it is used to pay for qualified medical expenses), and contribute to an IRA (as long as you are under the income thresholds--since you also have a 401K you might run into income limitations) are all good ways to reduce taxable income. Using a professional tax preparer and having a rental property should also net you other deductions. Making an appointment to talk to your tax preparer out of busy season about ways to lower your tax bill might be worthwhile. As a tax pro, what can be frustrating is seeing people incur unnecessary taxes because they failed to call me BEFORE making a big financial decision and only after it was already done when I know that a small change in the way the transaction was conducted could lead to big tax savings.

  5. PatientSaver Says:

    I may just have to move to PA so Dido can do my taxes for me. Smile

  6. snafu Says:

    I am painfully aware of taxes as we pay quarterly on the previous tax year's data which is not similar to the current tax year's sums. Meanwhile the tax rates have changed and I'm rarely accurate. I've paid an extra payment for the December instalment in hopes of eliminating the annual April 'squeeze.'

    I really like our medical system but every April I am faced with how much tax I have to pony up to pay for our services to all our myriad of programs

  7. PatientSaver Says:

    Using Dido's easy reference above (line 63 divided by line 43 on the 1040), I've just determined I paid an 18.8% effective tax rate. Does that sound high?

  8. Dido Says:

    PS, no, 18.8% is not horrendously high. It could be lower but singles without dependents tend to have somewhat higher rates.

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