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Old 02-08-2013, 17:41   #76
jilverthor
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Originally Posted by DanaT View Post
That is most of the time true unless you write something of that has a tax credit as opposed to a deduction.

What you are not seeing is that if you were going to buy an SUV and lets say you found a nice one for $35k, and then you fell in love with the escalde at $70k. You would have $35k more deduction. That $35k deduction may move you to a lower bracket and you may go from a 30% bracket to a 25% bracket. That means that the you save 5% on your entire tax bill and done right that can push the cost of a escalade to the same price as the $35k SUV.
I know of no locations where the taxes work like that. The federal income tax for instance has several tax rates, but the taxes for someone with a taxable income one dollar below the break point are within a dollar of someone making the minimum amount for the higher tax bracket(see caveat below). This is because the brackets are marginal and only apply to the amount above where taxes begin.

As a practical example, from the 2012 tax tables an individual with a taxable income of $99,999 would owe taxes of $21,454. That same person making $100,000 would owe taxes of $21,460. The $6 difference is not going to change the practicality of buying an expensive vehicle.

A deduction will save, at most, 35 cents of federal income taxes on every dollar spent . That would result in an increase in a net increase in expenses. This discussion ignores the possibility of AMT and standard vs. itemized deductions. While tax credits are a $1 for $1 change and can be a good idea it will never cost you less overall, the best you can do is break even but have gotten something "for free". This ignores lower incomes with the possibility of eligibility for refundable credits like EIC.

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So, give $60k to govt or enjoy the $60k?
In your example, you did not make that choice, you either gave the government $60k more in taxes or spent $172k to keep from paying the extra taxes. As much as I hate taxes, it is IMHO not worth spending extra money to save a small portion on taxes.

Caveat: Taxable incomes of less that $100,000 use the table rather than a formula. The table is split into no more than $50 increments which results in differences in taxes larger than would otherwise be the case. Stepping up to the next tax bracket of 33% vs 28% the difference is less than a dollar ($43,482.50 vs. $43,482.49)

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Old 02-08-2013, 17:55   #77
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I'm sure his father would havel laughed, as whoever tried to explain that nonsense to anyone is an idiot. What millionaire has a W-2 as their sole tax document and files a 1040EZ? HH
The comment was not that many millionaires have only a job for income and file a 1040EZ, it was that they are working class individuals. It is much more common to save $1 Million over a lifetime with a lower income job by investing than it is to have a job that pays huge sums of money put into a savings account, win the lottery, or inherit a fortune.

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Old 02-08-2013, 19:42   #78
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I'm sure his father would havel laughed, as whoever tried to explain that nonsense to anyone is an idiot. What millionaire has a W-2 as their sole tax document and files a 1040EZ? HH
What does a person's tax form have to do with anything? You really want to stand there and try to say that most millionaires in the US aren't working people?

Plumbing contractors, dry cleaners, convenience store owners, rental property owners, general contractors, small business owners of every persuasion make up the vast majority of millionaires in this country. They aren't working people in your eyes?

What is it you think they do all day?

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Old 02-08-2013, 20:01   #79
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I've really got no dog in this fight (I was a stay at home mom in a high cost of living area for almost 17 years, and we made it work), but Dennis used the word "bullbutter" back on page 1, and feel the need to say this is my new favorite word, and I plan on using it frequently.

Carry on.
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Old 02-08-2013, 20:06   #80
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Originally Posted by jilverthor View Post
I know of no locations where the taxes work like that. The federal income tax for instance has several tax rates, but the taxes for someone with a taxable income one dollar below the break point are within a dollar of someone making the minimum amount for the higher tax bracket(see caveat below). This is because the brackets are marginal and only apply to the amount above where taxes begin.
You can talk about progressive tax all you want and how is only 1 dollar more.

Your tax rate is very simple.

You take the tax you pay and divide it by your gross income. That is your tax rate.

Someone making $100k could pay a 5% tax rate, they could pay 22%.
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Old 02-08-2013, 20:14   #81
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What does a person's tax form have to do with anything? You really want to stand there and try to say that most millionaires in the US aren't working people?
My apologies, as I was only quoting you. HH
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Old 02-08-2013, 20:22   #82
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My apologies, as I was only quoting you. HH
So no answer?

You're one of the most intelligent people on this forum. What made you stoop to following me around to snipe?
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Old 02-08-2013, 20:27   #83
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So no answer?

You're one of the most intelligent people on this forum. What made you stoop to following me around to snipe?
Thank you for the compliment, but I was only pointing out that I was responding to your sudden substitution for "people who work" for your original "working class people." You and I both know they are vastly different terms. That's really it, nothing more. HH
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Old 02-08-2013, 20:39   #84
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Thank you for the compliment, but I was only pointing out that I was responding to your sudden substitution for "people who work" for your original "working class people." You and I both know they are vastly different terms. That's really it, nothing more. HH
That was unintentional.

I resent the notion of the "working man" and "working class people". In my experience, folks in the various strata of the upper 5% in this country work their butts off. They're very much "working class". The millionaires in this country are largely blue collar business owners with first generation wealth.

Then couple that with the fact that most people who reach a level of success where they no longer work for a living got there by working extremely hard and sacrificing quite a lot.

And that was my point.
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Old 02-08-2013, 21:35   #85
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Continue to party on, America. Your star is definitely on the rise.
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Old 02-08-2013, 22:20   #86
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You just saved almost $60k in taxes for stuff you wanted anyhow.

So, give $60k to govt or enjoy the $60k?
I agree with you on that. We're talking past each other I think. I drive a 10 year old car and don't want a new one. If I wanted a new one I'd do what you're saying. If I wanted cash I'd pay the taxes and not buy a car.
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Old 02-08-2013, 22:22   #87
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That's simply not true. Debt is often wise.

I borrowed close to $100k to get my PhD. I had to pay child support during grad school, among other things, my actual salary on paper was less than the amount of my bills.

Without the PhD, I would never have landed the job I have now.

The $100k was an investment, and by far the best money I ever spent even though I had to borrow it.
Assuming you keep the job and don't become disabled.
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Old 02-08-2013, 22:29   #88
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People on welfare make more than people in the middle class that are paying tax's.


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Old 02-08-2013, 22:31   #89
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I agree with you on that. We're talking past each other I think. I drive a 10 year old car and don't want a new one. If I wanted a new one I'd do what you're saying. If I wanted cash I'd pay the taxes and not buy a car.
Or you put the $60k into tax free or tax deferred funds.

The general point is, once you get to some levels, your decisions are not always "what makes the best economic sense" but "what makes the best tax sense". Sadly, many (i would dare say most) times what is good economic policy is poor tax decisions and vice versa.

I just went through this with my wife with our taxes. It was put this much $$ into a tax deferred investment and tax was X and put half into it and total tax was more.

By taxable income, I should be on food stamps and get a govt phone this year.

PS - if you want to know how to start:

google: Foreign Earned Income Exclusion

first $95,100 is tax free.
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Old 02-08-2013, 22:32   #90
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People on welfare make more than people in the middle class that are paying tax's.


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The idea is to make money and legally pay very little taxes on it.
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Old 02-08-2013, 22:42   #91
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IIRC, you attended medical school. Did you pay cash? HH
I attended medical and dental school. My wife is also a surgeon and has a master's degree. We have/had more student loan debt than probably anyone reading this. It took four years after graduation for our income to be higher than our total debt.

You can go through professional school debt free. I know people who did. We should have.
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Old 02-08-2013, 22:45   #92
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I attended medical and dental school. My wife is also a surgeon and has a master's degree. We have/had more student loan debt than probably anyone reading this. It took four years after graduation for our income to be higher than our total debt.
Will you agree that this was "good" debt? HH
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Old 02-08-2013, 22:55   #93
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Or you put the $60k into tax free or tax deferred funds.

The general point is, once you get to some levels, your decisions are not always "what makes the best economic sense" but "what makes the best tax sense". Sadly, many (i would dare say most) times what is good economic policy is poor tax decisions and vice versa.

I just went through this with my wife with our taxes. It was put this much $$ into a tax deferred investment and tax was X and put half into it and total tax was more.

By taxable income, I should be on food stamps and get a govt phone this year.

PS - if you want to know how to start:

google: Foreign Earned Income Exclusion

first $95,100 is tax free.
Some of this is philosophical, as in what is your end goal and how do you look at life. I assume we're both in high tax brackets. I hate debt and I want cash to pay my debt. I'd rather drive my older vehicle, live a simpler life, pay more taxes, and have more cash in my pocket (or in my case to send to Sallie Mae). If I were in the market for "stuff" then the strategy of buying things to be written off would make sense.
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Old 02-08-2013, 22:57   #94
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Will you agree that this was "good" debt? HH
No. I routinely speak to professional students and advise them to take advantage of military or other scholarships that allow debt free training. My debt has not been a blessing, especially when I could have done it for free.
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Old 02-08-2013, 23:06   #95
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No. I routinely speak to professional students and advise them to take advantage of military or other scholarships that allow debt free training. My debt has not been a blessing, especially when I could have done it for free.
Forgive this layman's ignorance, but do not military MDs become MDs much later in life shaving earnings off the tail-ends of their careers? HH
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Old 02-08-2013, 23:13   #96
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Originally Posted by DanaT View Post
You can talk about progressive tax all you want and how is only 1 dollar more.

Your tax rate is very simple.

You take the tax you pay and divide it by your gross income. That is your tax rate.

Someone making $100k could pay a 5% tax rate, they could pay 22%.
Ignoring investment income, a person with an AGI of $100k will pay a fixed amount. Two different people will get to that AGI in very different ways and will therefore have very different effective tax rates as you discussed above. If you go through the math however, you will find that while your effective rate will decrease with increasing deductions, there is still no magic point where the difference in taxes outweighs the expenditure required for the types of deductions involved in this discussion (again ignoring low incomes and the possibility of becoming eligible for refundable credits).

As for the foreign earned income exclusion, if you are eligible it is a wonderful deduction that translates to a roughly $15,000 tax reduction if married filing jointly and $20,000 if single. Certainly it makes sense to take deductions and credits that don't require expenditures, but others such as the mortgage deduction only adjust the cost of the item and make sense to the extent that you are still spending less money.

Jeff
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Old 02-08-2013, 23:17   #97
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The idea is to make money and legally pay very little taxes on it.
As much as I hate taxes, I have not reached the point that I will spend money just to keep the government from getting a smaller portion. As such, my objective is to have the largest increase in net worth (legally) rather than to minimize the taxes.

At some point I may develop enough spite that I am willing to accept less myself just to keep the government from getting as much.
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Old 02-08-2013, 23:22   #98
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Forgive this layman's ignorance, but do not military MDs become MDs much later in life shaving earnings off the tail-ends of their careers? HH
No. You graduate at the same age and pay the military back a few years. I would have come out ahead in the military. My salary would have been the same in the early years and I wouldn't have had to service the debt.

You do lose on lifetime earning potential if you stay I the military or 20+ years, retire, then go to private practice. Some guys like the military lifestyle and/or don't want to run their own business though.
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Old 02-08-2013, 23:23   #99
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As much as I hate taxes, I have not reached the point that I will spend money just to keep the government from getting a smaller portion. As such, my objective is to have the largest increase in net worth (legally) rather than to minimize the taxes.

At some point I may develop enough spite that I am willing to accept less myself just to keep the government from getting as much.
Agreed
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Old 02-08-2013, 23:47   #100
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A cop and a nurse here would make 120k+.

A cop alone here will make ~$85k!*

*LAPD salary scale after ~8 years if I read this http://www.joinlapd.com/salary.html right is $84,982.
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