To-Do’s and Taxes

We had quite the “to-do” list when we got back to Minnesota from our Winter Summerland adventures in Florida last month. We don’t usually keep a list, but we had an unusual number of important things to get done.

We got our bills paid (a few a bit late), helped our son move into the new townhouse, helped my father-in-law with estate documents, decluttered/organized a bunch of rooms, got the Christmas lights down, and pulled our income taxes together. (If it seems strange to take your Christmas lights down in April, you haven’t lived in MN).

All together, 45 items got checked off our list.

The income taxes – joyfully mailed in on my birthday – were a pleasant surprise. We didn’t get all of the deductions I hoped for, but did better on the bottom-line than I planned.

Last year our overall federal tax rate was 28%. That’s about as high as you can pay. With the tax planning I did with our accountant this past year, I hoped to get down to 10% this year. We actually got down to 7%! Fantastic.

That said, our 2021 tax scheme will only work once for us. I’m sure next year we will be back to whatever the maximum the Congress & President can stick us with. Hopefully continuing gridlock will keep them from any sort of tax increases.

How did your tax planning turn out for your 2021 returns?

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9 thoughts on “To-Do’s and Taxes

  1. My wife and I panicked during 2020, and continued working despite commencement of my pension. We received our salaries in addition to the pension. Our Federal Overall Tax Rate came in at 16.3%.

    This past year my wife and worked part time. In my case, I mostly ran out the clock on vacation and sick days. Our income was down and the Federal Overall Tax Rate came down to 8.9%.

    I do an additional calculation to estimate the Overall Government Taking Rate. This adds up Federal, State, Real Estate, Sales, Gas, FICA, Medicare, and CA State Disability Taxes. For 2020 versus 2021, the overall Government Taking Rate was 31.7% versus 26.1%.

    Note how little the overall Government Taking Rate went down. This is mostly because CASDI, FICA, Medicare, and Sales Taxes are not graduated.

    Liked by 1 person

    1. That’s good to keep the perspective on TOTAL “Government Taking”. It likely will stay pretty steady until it reduced by your own “taking” of SSI & Medicare at some point. FICA & Medicare “taking” was included in my 7% figure, although they are quite small. Somehow, we avoided paying any State taxes in 2021. I was pretty surprised by that. Given the huge unspent federal relief dollars they have, they don’t need anything more from me!

      Liked by 1 person

      1. That is an amazing low government taking. Does your figure include RE and Sales taxes?

        My killer was consulting income which despite mostly being used to pay for Health Insurance Premiums and a Solo 401-K which I maxed out the personal contribution and also made a 20% employer (me) profit share contribution, was still heavily taxed by the Social Security Self-Employment Tax rate.

        I modeled living off my pension and dividends with no earned income, and the overall rate reduced to 21.1%.

        Liked by 1 person

  2. 15% on Fed 1040-SR. My challenge is too much income, a first world problem. My pension and consulting income plus dividend and RMD of inherited IRA. No deductions to speak of beyond standard.

    We live on less than my pension. The kicker will be age 72 when I have to pull money from IRA and 457 plans. Those of us who planned well support everyone else. I prefer that to being supported at a lower standard of living.

    The question is, at what point does one start gifting estate to children. I’m thinking when the youngest turns 30. We already fund grandchildren 529 plans.

    Liked by 1 person

    1. Sounds like we are in about the same boat. One number I calculate is the tax hit on each incremental dollar I bring in. Because of tax credit phase outs and Medicare Part B Premiums, the amount lost to taxes can approach 90%.

      Here are a couple tax credit thresholds to look out for:
      Last year the stimulus credit started phasing out at $150K and was fully phased out at $160K. $2,800 for a married couple filing jointly.
      The AOTC starts phasing out at $160K and is fully phased out at $180K. $2,500 per student more.
      At $182K, Medicare Part B premiums increase $68 monthly per insurance.
      Bake in Self-Employment Tax, your marginal Federal Tax rate, and CA State Income Tax, and the numbers really add up.

      One area I am investigating is having my children participate in my consulting business and pay them as subcontractors. This would be a way to deliver dollars to them more tax efficiently and have them learn some new skills in the process.

      Liked by 1 person

  3. Interesting thought on “hiring “ children in consulting business to transfer wealth and minimize tax while assisting them.

    I find my consulting to be a fun hobby that funds taxes on investment income and higher level (business class flights) travel.

    When my children were young, photos of them were used in advertising in my ex-wife’s business. We paid them for the photos and they started an IRA at a very early age.

    Liked by 1 person

  4. As I a Canadian I find your tax rates amazingly low. I am happy to pay higher taxes for our medical care and other government provided services. I still complain about governments not do a great job and wasting tax dollars, so it’s not prefect but nothing ever is.

    Taking down Christmas lights in April/May is normal here. Staying off the roof until the ice and snow is gone extends your life!

    Liked by 1 person

    1. I think the USA does have lower than average taxes, when you add them all together … local, state/province, federal. This table shows US at 27% of GDP, while Canada is at 32%. As you said, our employer & individual health insurance probably explains a lot of the gap.


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