Real Estate Investor · Member since 2013 · 866 posts · 487 votes
I'm curious to learn who here looks at income taxes they way I do.
I want to reduce my tax burden as much as I can but increase my tax liability as much as I can.
If that seems to be a conflicting position to you, let me explain.
By tax burden, I am referring to my marginal tax rate from the IRS and my states. By tax liability I am referring to the total amount of money I have to pay in taxes.
Once I get my effective marginal tax rate (the burden) down as low as I can, I want to owe as much tax at that rate as I can.
Why?
Because that means I am maximizing the total amount of money I keep after paying that tax!
As I wrote on my blog today, "tax" is not a four letter word.
can you share an example or two on how you would do this?
Employing a strategy to change as much of your income as possible from non-passive to passive is a good first step. If you are self employed, that will save you 15% right off the top.
A big part of my strategy is to maximize the use of long term capital gains. I hit the highest effective marginal tax rate by this time each year on my earned and passive income. However, since I aggressively work to make sure the lion share of my income is long term capital gains, my effective rate goes WAY down.
Having passive, instead of earned, income is great too. But once you cross the point subject to FICA the marginal rates on your passive income are actually higher due to the 3.9% Obamacare tax.
"I hit the highest effective marginal tax rate by this time each year on my earned and passive income. However, since I aggressively work to make sure the lion share of my income is long term capital gains, my effective rate goes WAY down."
If you truly as you claim, hit the highest marginal tax rate by this time each year, then you must be pretty well off.
What would someone with your net worth and income doing seeking tax advice on BP for? Is it lack of judgmenet or just entertainment? are you rubbing it in?
Ok I am impressed... Now here is my advice, if that is what you were seeking: You need to get yourself some serious professional help (tax wise and other help)
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What would someone with your net worth and income doing seeking tax advice on BP for? ...
I didn't ask for any tax advice. I have a CPA for that.
I was pointing out that broke people worry about the taxes they pay while successful people work to minimize the rate and then are happy to pay as much in taxes at that minimzed rate as possible.
Remember, it is not what you earn, it is what you keep that counts.