First paycheck - You won't BELIEVE the taxes! Tax optimization?

[halfmoon]

My only advice is to get into the habit now of maintaining all your records as you go. I keep a separate tax file where I copy things I might need and make notations so I remember why I kept them. I'd also suggest keeping medical and dental records/receipts.

Since you have an HSA, Olaz, this is particularly useful. You can use unclaimed medical expenses to avoid taxes on HSA withdrawals far down the road.

Also, just in general it's great to keep current with recording. It's easy to let things slide but hard to recreate what the heck went on half a year later when you're trying to catch up. Not that I have any personal experience with this. Really. I'm an accountant, after all. There is absolutely not a box of paperwork and receipts sitting on the floor in my office.

[TopHatFox]

@halfmoon: I have access to an FSA, not an HSA. Haha, point taken on the record keeping. Apparently scanning and taking pictures of things (?) seems to be sufficient evidence for tax purposes.

I've updated my W-2 and NY state tax forms. Exemptions are now at their appropriate level. I will have to wait until April to get my $$ back from the original over-withholding. Unless if I want to risk under-withholding by filing too many exemptions. Dragline's comments on having no or low tax liability this year because I'm only working half the year made me happy. : ) Technically, I should have written exempt! Should I still do that? lol

My COO said that if I wanted to participate in the SIMPLE IRA, I should give them a filled form. They also said that I'll have to wait until 2019 for a match. So can I start a SIMPLE IRA now or do I have to wait for two years like they originally said? Confusing indeed. Awell, I'll just fill out the salary reduction form and cross my fingers when I walk into their Office.

[Scott 2]

I usually owe several thousand at tax time, I don't recall paying a significant penalty on W2 income. There was a period where I had roughly 10k of annual contractor income. I blew off the quarterly estimated taxes because they were a pain in the ass and just paid the penalty, I don't think it was more than $100. I also just take the standard deductions, because it's close enough to itemizing, and I can't be bothered with the receipt tracking and paperwork BS.

I feel like I already have a job. If I can avoid adding more work on top of it, especially work I hate, I'll pay a little. It's the price of keeping work tolerable.

[chicago81]

New York has high state taxes, so yea I'd believe it. Illinois is catching up, though, they just bumped up their tax rate from 3% to 4.95% and it still doesn't solve anything. So I'm now $110 poorer each month.

If we were smart, once I start my new job we'd move to SD, but alas we are locked to our land. Getting out of Illinois is absolutely on the table long term though, I have no interest in being a part of the first "investment haircut" experiment carried out in the US.

Yeah, I've had about enough of the Chicago/IL bullsh**.

When I have decided I've earned/saved "enough" from my high-paying-job, or if I get laid off, I will be heading for the exit. Fast.

I've been here working nearly 15 years since being out of college.

A handful of these facts about the taxes here wouldn't be so bad, but when you put it all together, it is extremely ridiculous. Let's see... Yeah, not all of these affect me, but the point is, the trend of them to tax anything-and-everything:

- Chicago has the highest sales tax (I think) of any locale in the entire country, 10.25%
- There is a 2.25% sales tax on unprepared/grocery food items even!
- They tax 5 cents per bottle on purchasing bottled water.
- They just recently replaced a (failed) "ban" on plastic shopping bags with a new tax on disposable shopping bags.
- As of today, there is a new tax on any "sweetened beverages" you purchase in the whole county, 1 cent per ounce.
- Property taxes among the highest in the nation (second to only New Jersey I think?)
- Income tax this year jacked up to 4.95% (NOT-PROGRESSIVE, it is a flat rate.) They also hardly let you deduct ANYTHING off of your state taxes, outside property taxes. (From using the numbers on your federal return, IL makes you ADD BACK much of the income you've deducted -- mortgage interest, and most everything else.) Additionally, any dividend income is hit by the full 4.95% rate, as are both the long and short term capital gains.
- The taxes on a pack of cigarettes in Chicago is $7.42
- In addition to the 10.25% sales tax (and in addition to the sweetened beverage tax), there are additional excise taxes on any alcohol purchased (13.5% I think?)
- For my own personal condo, the property taxes went up 60% in 2016 over what they were in 2015. Then this year in 2017, they went up another 10% again on top of the increase from the prior year.
- They enacted a couple special "cloud taxes" and "internet streaming" taxes. So for you cord-cutters, there are taxes on your Netflix and other online streaming video and music subscriptions. Any company offering "cloud" services is also taxed.
- Of my $30 monthly cell phone bill, about 1/3 ($10) of it is taxes
- Fortunately, I don't own a car here... but I can only imagine how ridiculously expensive it must be. I've heard that if you lease a car, you have to pay the full sales tax on it up-front as if you had actually purchased the car. You also need to pay an annual fee to buy a "sticker" for having your car in the city of Chicago (this is in additional to the annual registration fee from the state.) Plus all of the "red light cameras" and "speedtrap cameras" all over the city...

This is too much. There is no way that I will be staying here.
Yeah, I make (what I consider to be) a ridiculously huge salary at a job here -- but once that is over, I'll be heading for the exit.

What is happening here is not sustainable. I'm mostly a liberal, politically speaking. However, these taxes are out of control, and they have been doing very little, if anything, to rein in spending. As a taxpayer (a big taxpayer due to my income) in IL/Chicago, I feel like I'm being used as an ATM for the pensions of the public sector workers... (And don't get me started on how worthless I think some of the public sector workers are here... They take the definition of laziness/uselessness to a whole new level.)

Sorry... I needed to rant.

[SavingWithBabies]

Good rant. Add the city debt and credit rating, funding issue with teachers pensions, regular political pay for play, etc. I didn't come back to Chicago after relocating away and coming back to the Midwest. I just can't do it. I do love the food (way better than SF Bay Area), true neighborhoods, public transit, wide range of housing options and the lake. But the good just isn't enough... As long as I can find employment outside of Chicago, I'm staying away.

@zalo My rule of thumb is to 2/3 taxable income to get a rough idea of actual cash income. That leans towards overly pessimistic which I find handy too.

[Chris]

Hang on for the NYS tax cut coming in 2018 (6.45% bracket drops to 6.33%).

[stayhigh]

I'd love to have such a low taxes in Europe.

[TopHatFox]

Good news everyone - I may have access to the SIMPLE IRA right away. They're asking the accountant about the tax implications~~~

[chicago81]

I'd love to have such a low taxes in Europe.

I'd love to have the social services and public health care options that are available in Europe

Really though, the taxes I cited were only for state/local (and only a subset of them.)

At the federal level, the tax rate is progressive, but for me tops out at 28%. (The effective total federal tax rate for me usually ends up being 20% or so, give or take.) But then also add on 6.2% for Social Security taxes (or 12.4% if you count the employer's portion of the tax too, which would otherwise be employer compensation, presumably.) Same with Medicare, for which 1.45% is taken out of my paycheck, and another 1.45% paid for by employer.

So lets, see... State(4.95%) + Federal_Effective(20%) + SocialSecurity(6.2%) + EmployerSocSecurity(6.2%) + Medicare(1.45%) + EmployerMedicare(1.45%) = 40.25% on just income. Then the various sales and use-taxes that I cited. Oh, and there is no public provided health care for someone who is gainfully employed, so the insurance/deductibles/copays/etc are all paid by the employee (or some of the premiums indirectly paid by the employer, which again, would otherwise be regular compensation...)

Still think the grass is greener?

[Dragline]

You need a different tax preparer (hope its not you) and someone who can advise you how to maximize your deductions and reduce your AGI. Silly people complain, do nothing, and pay more than they have to. Smart ones take action and don't.

And no, your employer will not pay you more if they pay less taxes. This is a 18th/19th century classical economic theory assumption called the "labor theory of value", which culminated in Marx, who was quite correct in his analysis -- if you believe in the labor theory of value. But it is as erroneous now as it was then.

[BRUTE]

but the employer will have more money left over to (potentially) invest in Olaz' productivity

[Stahlmann]

but the employer will have more money left over to (potentially) invest in Olaz' productivity

To hire some interns who will done work faster for lower (total) pay

[stayhigh]

I'd love to have the social services and public health care options that are available in Europe

Grass have same colour.

Public health care is not free, it's deducted from salary every month so you have no choice but to pay it. And once you are out of work, you have to pay for it by yourself. Social services are great, if you are unemployed and have no money at all, or you are a single mother with 3 kids. Otherwise you get nothing. I never get anything.

Once income tax is not a huge thing, I pay 40% income tax + healthcare deductions + pension. The real thing is spending the rest of money. Let's assume you want to buy a car to get to your job, so you can make some cash. You go to Ford dealer in US and you check the prices:



Starts from 25k$, not too bad for nice car.

Now, let's check it out in Europe, same car:
FORD UK £33,645 = 44k$
FORD Germany 38.000 Euro = 45k$
Ford Denmark 569.220 DKK = 91k$
Why such a big difference? Taxes.

Time to fill up the tank:
US gas price 2.414$ per gallon
Western Europe 1.30-1.60 euro per litre. That makes 1.5-1.9$ per litre, which equals to 5.7$-7.2$ per gallon. Three times more.
Why? Taxes.

Ok, maybe take a day of and post some stuff at ERE forums then?
309$ for Intel processor in US
390$ for same processor in UK

Ok, maybe we should have a walk then?
160$ for Nike trainers in US
170$ for Nike trainers in UK

Why? Because sales taxes. Let's compare them: US and EU

Should I mention capital gain tax? Ireland 30%. France 34.5%. Austria 25%. Denmark 42%. Finland 32%. Italy 20%. Germany 28%. Fun, fun, fun.

[BRUTE]

that's just the price of robbery... uh, civilization.

[stayhigh]

that's just the price of robbery... uh, civilization.

Civili... what?
Spot the difference 1 vs 2