Thursday, February 23, 2012

My Tax Bill

11% That is the number that has recently befuddled and amazed me recently. For mega nerds like myself across the United States, most of our 2011 financial information has been finalized and received, and we’ve gotten an excellent jump on starting and finishing filing our taxes.

In our household, my super awesome wife compiles the data and self files for us. Seriously, she has a Master’s Degree, sings, dances, works in her specialty, cooks AND files taxes: there’s seriously nothing this woman can’t do. So when she finalized our return we sat down to recap numbers so I can be on the same page with our year end data. My wife, looking back at me with a loving and heartfelt smile, just about made me choke on my vegetarian crock-pot spinach lasagna when she said the following:

“With all of our deductions accounted for, our tax bill for 2011 is 11% of our combined salary.”

She had a look on her face that said, “I’ve been expecting this the entire time,” the look on my face screamed, “How in the hell did we pull that off?” So I find it fitting to share with you just how in the hell we pulled this off:

Pre-tax contributions
While it’s true that we utilize Roth IRA’s for our retirement vehicles, there are still plenty of other resources we use to lower our tax bill with pre-taxed income. We both participate in our respected company’s 401(k) and each contributed 6% of our gross income in 2011. Also through my employer I pay for my medical insurance and commuter transit pass with pre-tax income, apparently this adds up during the course of a year J

Health Savings Account
 As a precursor my wife and I are both in pretty good physical health and do not have any form of ongoing chronic illnesses. Given this information, we utilize a High Deductible health plan to keep our premiums low and generally go to our physicians for annual checkups. With a high-deductible, we make sure we only go to the doctor when we are border line death J (just kidding, but not by much). But with this health plan we opened and use a health savings account. The HSA rolls over from year to year and thankfully my employer pays the monthly fee. Funds in the HSA can be used to pay for what the KGB US Government defines as “qualified medical expenses.” Contributions to the account up to $6,150, the ceiling for families in 2011, are deductible from your income. This guy may have single handedly helped us keep D.C from stealing our hard earned income, but please, let’s let this be our little secret because they might take it away.

Charitable Contributions
Although dollar for dollar charitable contributions do not lower your taxable income as much as the HSA, it’s still a great tool to use in our plan to lower our taxes. We budget every month our charitable contributions and they too add up.

I was thoroughly appalled when my wife informed me of the belligerent badgering of questions that she got from the Fed when completing the filing process. Are you sure you don’t have interest paid on a mortgage? Student loans? Interest paid on a car? Not only have mega-banks and credit card companies put billions of dollars to work to teach us to use their products, but our culture can’t envision a home without a mortgage and (surprise surprise) the KGB US Government ENCOURAGES AND ENDORSES STUPIDITY. I’d rather have (which I do) my student loan paid off and write a $3,000 check to a charitable organization and myself through an HSA, than PAY SALLIE MAE INTEREST AND A MONTHLY PAYMENT FOR THE “PRIVELEGE” OF CALLING IT A TAX DEDUCTION.

Can you tell I’m slightly upset?! Happy tax filing to everyone!

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