Income tax quandary: I make $320,000. Can I cut my taxes?
Income tax weighs on the mind of this high-earner. For a solution to a high income tax, see question No. 3 in the reader mailbag.
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Basically, his spending habits demand a high-paying job, yet he gets bored at work (and thus his performance slips – anyone who is bored in the workplace isn’t performing up to their ability). In this economy, the latter signals job risks and the former signals huge financial problems in the event of a job loss.Skip to next paragraph
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I would be nervous about making this move. If I did do it, I would insist on having a very healthy emergency fund that doesn’t get touched to pay for the move.
Q3: Easing an income tax burden
I’m 26 years old, work in advertising sales, and in 2011 will make anywhere from $320K – $360K (my overall compensation includes base, commission, and equity [my company was recently acquired]). I have roughly $120K in a savings account, and another $110K in a 401K and Rollover IRA. I own an investment property in Southern California and am going to buy a place to live in in my current city (top 2 most expensive in the US sadly).
Here’s where it gets tricky. I have a 2 year old son from a previous relationship (his mom and I were never married). I pay roughly $1300 a month in child support unofficially, but since we never married, have not received any tax breaks for having a kid.
Being in this bracket is daunting, and I’m looking at paying over $100K in taxes if I don’t improve my tax diversification strategy. I will max out my 401K this year and will most likely buy a home so that should help. I am also planning on putting at least $5K in my son’s 529. What else can I do, all things considered, to help ease the tax burden?
For starters, unless you are buying a very expensive home and putting most of the cost of it on a mortgage, buying a home won’t help much with the income tax issue. To have a mortgage big enough to really provide tax assistance is a significant financial risk in itself.
Your best bet, honestly, is to start a business and sink a lot of that money into the business. This is the reason people often become silent partners in businesses – the business is a tax sink for them in the short term and ends up returning a lot to them further on down the road.
What that business is is up to you. I have a friend who owns a significant interest in a comic book shop and the only operations he’s involved with is that he occasionally goes in there and browses through the wares just as a nostalgia thing.
Q4: Financial wedding propriety
I recently accepted the invitation to be the Maid of Honor at a close friend’s wedding, which will take place in about a year. I am very excited about this, but on the financial side I am also very nervous. The wedding takes place in England (I live in California), so I know that I will already be spending a chunk of money on the plane ticket and lodging, which is ok because I have a Travel Account that I put money into monthly. I’m more concerned about the other expenses– My frugality matches my mediocre paycheck, so I live well within my means, so the idea of spending money on my bridesmaid dress, the Bachelorette Party, gifts to the bride and groom, and all the other unexpected expenses are not only outside of my budget but outside my personality!
My friend, the bride, makes significantly more that I do, and knows that I am on a tight budget. How should I approach the financial issue here? Would it be appropriate to ask her to pay for my dress, at least?
I’d sit down with the bride and talk to her about what she wants or expects from the wedding. Ask her what you can do to make it great, with the obvious understanding that you don’t earn a lot of money.