One More Year – Income Tax Bite

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We just finished paying our taxes for 2014. We spent the last month working with our new accountant on the ugliness.  I like to think that our taxes are pretty simple – I only work for one company – but yet they always end up being a lot more complicated that I want.  And expensive…
 
I am blessed to have a good job and sound investments, but that means that we pay an awful lot in taxes each year. Additionally, we live in a relatively high tax state, which means that not only are we on the top bracket for federal tax, we also get a big bill at a state level.
 
I haven’t really been able to ascertain any good strategies for substantially lowering our taxes. I read about folks who run small businesses, and can deduct expenses from their income before they pay taxes, but I don’t have the time to really start a business. Perhaps the best approach would be to invest in real estate. By neighbor has invested in a number of townhouses and tells me that he is doing very well with his investments, both through appreciation of the properties he owns and through the deductions he is able to take.  These are areas that I would like to get a lot smarter at, but that will have to wait until I am done working.
 
The worst part of our tax preparation this year is finding out that the tax withholding hasn’t been high enough. We have a huge bill to pay to both the federal government and state. It also means that in 2015 we have to increase the amount of our withholding.  That makes a double hit to income in 2015, when I have been planning on closing out strong and saving our income as a philanthropic fund to be given away in early retirement (see POST here).  Now I have to calculate the tax implications across the years.
 
Yes, as I told my DW, these are high-quality problems.  Nonetheless, they are still problems that have to be thought through and that’s taking time and energy. 
 
Regardless of your politics, when you are paying your taxes you are never happy with your government. Isn’t that true?

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