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

[TopHatFox]

I got my first pay check today! 2.3K bi-monthly + 4K relocation stipend = 6.3K! LOL JK - 4.5k total after federal and NY state taxes.

HOLY !@$%

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W-4 ERROR

I think it goes without saying that taxes suck. I'd prefer to keep as much of my hard-earned paycheck thank you very much.

I do know that I didn't fill out the W-4 completely correctly. I have yet to fill the second page. This is the page where I can claim a 2.5K FSA and 5.5K IRA as deductions. That's 2 additional deductions right there. If I itemize the deductions to include braces, that should get me one more. This is for a total of 5 deductions, not 2.

Messing up the W-4 is probably common. If I fill out the W-4 incorrectly, I'll get my money in a refund after tax-time next April, right? Loaning it to the govt. free of charge for a year?

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A SIMPLE (IRA) REQUEST

I also read online that it's possible for companies to reduce the restriction for their SIMPLE IRA retirement plan. My company has a 2-year wait-period before I can use it. That's way too long in my opinion. I'm not sure if I should bring up lowering the waiting time. I don't really care about the match, I get 2 years for that. I just want the deduction. Does it cost them anything to let me use the plan w/o the match?

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TAX CODE

There doesn't seem to be that many tax recourses for accumulation-stage W-2 employees besides tax deferred accounts, getting married, having kids, or owning a business. Fuck that. That's totally alright for other folks, but I want to be not-married, child free, and probably business free. It seems the tax code favors married capitalist families. Interesting.

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RESOURCE : )

Helpful video with the lists the W-4 references: https://www.youtube.com/watch?v=JOViist3HzU

[halfmoon]

The second page of your W-4 is a guideline. You can claim more or fewer exemptions as you choose. Any excess after annual filing will be refunded without interest, and a shortage must be paid with possible penalty for underpayment. See how that works?

The bar is high for claiming a tax deduction from your braces, depending on what they'll cost in any given year. Your total medical expenses are deductible only to the extent that they exceed 10% of your AGI. That excess (if any) is added to other itemized deductions such as state income tax. Total itemized deductions must exceed your standard deduction, which for a single person in 2017 is $6350. Any excess is a benefit only at the margin.

Incidentally: I do believe the taxes. I've been a believer for about 40 years.

[OTCW]

Welcome to the club. Part of having a civilization.

[BRUTE]

Welcome to the club. Part of having a civilization.

brown humans aren't going to bomb themselves.

[slowtraveler]

401k is the biggest easy deduction but it seems you'll get a simple ira instead in a year or 2(still nice).

FEIE is massive but it may take some time to negotiate working abroad

Welcome to the club.

Note of caution on the W-4
*If you reduce your deductions to the point that you owe over $1000 in taxes you will have an extra penalty.

[Generation-X]

IRS has a page (some may apply): https://www.irs.gov/credits-deductions/individuals

Types of income: https://www.irs.gov/taxtopics/tc400.html

[Kriegsspiel]

Welcome to the club. Part of having a civilization.

brown humans aren't going to bomb themselves.

False.

[Stahlmann]

Welcome to the club. Part of having a civilization.

brown humans aren't going to bomb themselves.

False.

How about (not impressive) American SE growth without cheaper resources from "terrorists" lands?

Anyway, these taxes aren't high ;D compared to European...

[IlliniDave]

Yeah, I would believe it. When I was at your stage of my career, it was worse. It's likely that the relo stipend was taxed a little higher than it should have been, sometimes one-off lump sums like that are. That's my guess at what the issue is: it looks on that first check like your income is ~3x what it really is, and it spoofed the tax calculations. There's also a chance your W4s are wrong. There's a series of questions with on the federal form that will guide you. Without something like a mortgage, high state/local taxes (which you have), or tax-deferred savings contributions made outside your employer, that will give you pretty close to the right answer. So you could try to figure out if your total state/local taxes are enough to equate to another exemption. If too much is withheld you will get it as a refund. Underpay too much and you pay a penalty. Free everything for everyone looks pretty expensive when you are looking at your pay stub!

The low fruit for minimizing taxes is to look at starting an individual IRA. If you are careful you could adjust your W4 to balance that (just don't forget to readjust once you can participate in the workplace plan if you choose to do so). Otherwise, the stipend aside issue, it is what it is.

Yes, childless individual filers pay higher taxes per unit income compared to just about anyone else.

[cmonkey]

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.

[Dragline]

You will probably pay little or no federal income taxes for this year, because they will withhold as if you worked the job for a full year and you are only working half. Just file your return as soon as you get your W-2 in February -- do not wait until April. You should have the money back in a month after filing if you file a 1040-EZ or 1040-A.

You are correct that there are not many options for W-2 earners other that retirement vehicles. The tax code is written to favor businesses, investors and people who earn more than the annual FICA limit over your average janes earning $50-100K in employee income.

Trying to change the company's retirement plan policies is probably a fools errand, as they must set them and apply the same rules to everyone and provide notice of those rules to everyone. These are highly regulated and can only be changed annually. I would expect that their two year rule saves them a lot of headaches and management fees.

Just open a Roth IRA and fund it for 2017 with the tax refund you'll get in 2018 if you get your return in fast enough (or sooner if you have the budget). You should be able to project what the refund will be.

[IlliniDave]

cmonkey, been thinking a lot about the situation in Illinois too. It's pretty tax favorable for retirees (currently no tax on 1099R income or SS), but I dunno how long that can last. Property taxes are already among the highest rate-wise. Since I'll be (voluntarily) somewhat tethered to the Rockford area in early ER, I'm starting to look at south-central Wisconsin as an alternate. It is worse tax-wise right now, but it may look like a bargain in 10 years.

[BRUTE]

Welcome to the club. Part of having a civilization.

brown humans aren't going to bomb themselves.

False.

^^

[OTCW]

Humans love bombing one another, but that takes high tax rates, and humans don't like that. What a catch 22.

[7Wannabe5]

I have had the thought that there ought to be a permanent thread on this forum entitled something like The 1040: Every Line and Schedule. Reason being that the IRS has already thoroughly researched every dim recess in which the web of the financial system hangs. For instance, if you are seeking a very exact definition of Barter, Gift, Dependent, Loss or Farm, the tax code will provide. When the process causes you to provide answer concerning whether or not you earned income this year from seafaring activity, you can use this as opportunity to ask yourself "Why don't I have income from seafaring activity?" And you could learn how to calculate how many brown babies you would have to adopt rather than bomb in order to zero out your tax burden.

[cmonkey]

(currently no tax on 1099R income or SS)

Didn't know about this. My roth conversion ladder will be favorable then.

[bryan]

Can't Olaz just submit a new W4? He can add more allowances such that by the end of 2017 it will have compensated for what has been over-withheld so far. Come January he can submit the "this time for real" W4. Unless Olaz prefers getting a refund check.

[jennypenny]

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. The threshold for deducting them is pretty high but you never know when something might happen, even late in the year, and you suddenly end up with enough bills that it's worth deducting them. Dental is included and that can be really expensive.

Don't forget to check to see if your local township has an income or per capita tax. You might have to pay that one yourself.

[IlliniDave]

Didn't know about this. My roth conversion ladder will be favorable then.

That's one thing I haven't figured out. I probably shouldn't have said "1099R income"--I just meant it as shorthand for pensions and IRA/401(k)/etc withdrawals. Even though gains from a conversion gets reported on 1099R, I don't know if the state counts that as retirement income for tax purposes or not. Seems like they would but the phrase "making sense of tax codes" is an oxymoron.

[IlliniDave]

Can't Olaz just submit a new W4? He can add more allowances such that by the end of 2017 it will have compensated for what has been over-withheld so far. Come January he can submit the "this time for real" W4. Unless Olaz prefers getting a refund check.

He could if he knows how much his tax *should* be, which is something that he could figure out a pretty good estimate for using turbotax or something, what his marginal rate will be, and how much income an exemption offsets. I've never done that myself. In my youth I used overpayment as a way to trick myself into saving more money, and then as I got older irregular taxable investment income made the buffer of overpaying desirable as much of it would get chewed up from taxes owed on distributions and keep me from hitting an underpayment penalty in April (which did happen once anyway).