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13 Smart Money-Saving Year-End Tax Moves To Make

Updated: 01/02/2023 by Financial Samurai 82 Comments

Taxes are our largest ongoing liability. As a result, it behooves us to optimize our taxes as much as possible. This post will discuss all the smart money-saving tax moves to make by year-end. It gets updated once a year to follow new tax laws.

After fake retiring in 2012, my desire to make maximum income went away. Instead, I wanted to shield as much income from taxes as legally possible. Paying six figures in taxes a year for more than a decade felt good enough. My goal was to limit total individual income to under $200,000.

After ~$200,000 per person and $250,000 per married couple, the Alternative Minimum Tax kicks in. Meanwhile, deductions start aggressively phasing out. Even in expensive San Francisco, there’s no need to make more than $200,000 a year to live a comfortable lifestyle.

2023 federal income tax rates for singles and married couples filing jointly
2023 federal income tax rates

Income Target And Tax Optimization After Kids

Thanks to lifestyle inflation, economic inflation, and the need to now support a family of four, I’ve got a new household income target of up to $400,000.

$400,000 is certainly not a necessary household income to live well. It’s just my ideal income level where you earn enough to do what you want, but aren’t getting crushed by taxes.

A 25% – 30% effective tax rate is high enough to feel like you’re contributing to society. But it’s also not so high where you’re feeling robbed by the government.

After about $200,000 per person or $400,000 for a family of up to four, I’ve noticed there is no incremental increase in happiness. Instead, making more money often creates more misery due to more work and more stress.

For hardcore tax optimizers, the ideal household income may be closer to a MAGI of $340,100 based on 2022 income tax rates. Up to $340,100, a married household’s marginal income tax rate is a reasonable 24%.

The majority of actions to reduce your taxes must take place during the calendar year. So if you want to pay less taxes, it’s time to get cracking.



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Downgrade Your Property Statistics Online To Lower Your Property Taxes

Updated: 10/28/2022 by Financial Samurai 38 Comments

During the global financial crisis in 2008 – 2009, I expected the San Francisco Property Assessor Office to automatically lower my property tax bill. After all, home prices had topped out at the end of 2006 and had declined about 5% a year for three consecutive years.

Instead of receiving a property tax bill reduction, the city increased my assessed value, thereby increasing my property tax bill!

As millions of people were losing their jobs and seeing their net worths get crushed, San Francisco didn’t seem to care. It wanted its money, regardless of the economic circumstance.

During the financial crisis, I ended up spending hours of my time fighting my property tax bill. I was rejected the first year, but won my case for three subsequent years. It was a maddening process to have to fight against such an obvious wrong.

The government expects its denizens to meekly accept all punishments and like them too. There was no way I wasn’t going to stand up against tyranny and a department known for its corruption.

Sadly, you can’t trust the property assesor’s office to do the right thing in a recession. As a result, homeowners should be proactive and protect themselves from unfair property tax hikes. A storm may be coming.



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Accidentally Paid Your Estimated Taxes Twice? Don’t Worry!

Published: 09/08/2022 by Financial Samurai 9 Comments

For the first time in my life, I accidentally paid my estimated taxes twice. If you ever do the same, I want to share with you what happens next and when you’ll get your overpayment back.

Bottom line: Don’t worry too much. You’ll eventually get your money back within six weeks.



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How To Feel Less Guilty About Paying No Federal Income Taxes

Published: 04/18/2022 by Financial Samurai 56 Comments

For the longest time, I’ve been a proponent of paying federal income taxes. Federal income taxes among all other taxes collected are used to pay for Social Security (~23% of budget), defense and security (~16% of budget), major health programs such as Medicaid and Medicare (~25% of budget), and other social safety nets. Somebody has to pay income taxes so it might as well be us!

However, when faced with having to do my taxes, I get bummed out that it takes so long. On average, I spend around four to six hours doing my taxes because I’ve got various assets to report. It’s important that I check and recheck all my entries before filing to avoid as many mistakes as possible.

If only we could spend 30 minutes or less doing our taxes. Think about how much more productive our country would be! After six hours, then having to fork over a six-figure tax bill isn’t the most pleasant experience. It’s like getting kicked in the crotch after you’ve been kicked in the face!

Given everything is rational, I have a desire to take things down a notch by the end of the year. I would rather make less money to have more freedom and experience less stress. Tax rates are going up and social safety nets are increasing.

However, there’s still a weird part of me that feels guilty about paying less federal income taxes! It’s almost as if I have Stockholm Syndrome with the government. Therefore, I decided to interview some millionaires who feel little-to-no guilt about paying any federal income taxes at all. Maybe you are one of them and can share your perspective as well.



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Fighting My Property Taxes And Losing: Key Lessons For Battle

Updated: 04/11/2022 by Financial Samurai 34 Comments

Seeing your property’s value go up feels good, especially if it goes up more than what you made from your day job. However, the biggest downside is your property taxes will likely go up as well.

For as long as I can remember, I’ve always stood up for myself. Whether it was getting bullied at school or getting ripped off by a vendor, you best not try to take advantage of me or else. But after three years of fighting my property taxes, I’ve given up.

This is actually my first time losing a property tax appeal. Yet, I feel it should have been the easiest property tax appeal to win.

Back in 2009, 2010, and 2011, I successfully got the city to lower my property’s assessed value so I could save on property taxes. If I had not appealed, the city would have kept charging me higher and higher property taxes during the global financial crisis.

Let me explain how this whole property tax ordeal started and some lessons learned if you also want to get your property taxes lowered. I want to save you time, money, and stress. I also want to record my experience in order to let go.

In the end, you must do a cost / benefit analysis on the property tax you could potentially save and the value of your time.



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2022 Income Tax Brackets And The New Ideal Income For Maximum Happiness

Updated: 09/08/2022 by Financial Samurai 70 Comments

The 2022 income tax brackets and standard deductions are out! Although the actual income tax brackets have not changed, the taxable income range per tax bracket has adjusted upward slightly to account for inflation. That’s nice of the IRS, but at the end of the day, the government still wants our money!.

Here are four charts I created for the 2022 income tax brackets for singles and for married couples. In these charts, I also include the long-term capital gains tax rates. The short-term capital gains tax rate equals the federal income tax rate.



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Historical Gift Tax Exclusion Amounts: Be A Rich Strategic Giver

Updated: 11/14/2022 by Financial Samurai 23 Comments

The historical gift tax exclusion amount is $16,000 for 2022. But the amount goes up to $17,000 in 2023.

Despite paying taxes your entire life, even when you die, the government still wants something from you! As a financially savvy individual, it behooves you to understand as much about the tax rules as possible. At the very least, you need to know about the historical gift tax exclusion amount. After all, tax is likely your largest ongoing expense.

The Internal Revenue Code imposes a gift tax on property or cash you give to any one person, but only if the value of the gift exceeds a certain threshold called the annual gift tax exclusion. For 2022, that annual gift tax exclusion amount is $16,000, up from $15,000 in 2021. The historical gift tax exclusion amount tends to increase by $1,000 increments every three to five years.

Historical Gift Tax Exclusion Amounts

That’s right, you’re not allowed to give more than the annual gift tax exclusion without incurring a tax. This is despite having already paid taxes on the $16,000!

For example, let’s say you earn $200,000 a year and pay a 20% effective tax rate. Your take home pay is $160,000 and you save 20% a year, or $32,000 a year.

If you wanted to give 100% of your hard-earned savings to someone, you may have to eventually pay an additional tax on $32,000 – $16,000 = $16,000 if your estate ends up over the estate tax exemption amount.

Thankfully, the estate tax exemption amount is $11,700,000 per person in 2021 and going up to $12,060,000 per person in 2022. But the estate tax exemption amount is at risk of going down under the Biden administration. President Biden wants to raise income taxes, raise capital gains taxes, and do away with the stepped-up basis as well.



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Most Working Americans Don’t Pay Federal Income Taxes – A Problem?

Updated: 09/08/2022 by Financial Samurai 43 Comments

The Tax Policy Center recently calculated most working Americans didn’t pay federal income taxes in 2020. According to the chart below, supposedly 106.8 million out of 176.2 million total income tax filers did not pay federal income taxes. That amounts to 60.6 of Americans don’t pay federal income tax!

Given there are roughly 332 million Americans, what happened to the other 156 million “tax units”? Well, the other 156 million are either children, retired, or too old to work.

Have a look at the data for yourself and tell me if you’re seeing what I’m seeing. The forecast for the percentage of Americans who pay federal income taxes increases in 2022. But we won’t know until 2023.

Percentage of Americans who pay no income taxes in America

The Tax Policy Center also estimates that 57.1% of working Americans in 2021 won’t have to pay federal income taxes either. The reasons for the surge in non-federal income taxes payers are obviously COVID and the many tax credits the government introduced to help rescue our workers.

More than 20 million workers lost their jobs in 2020 with low-income workers hardest hit. When you add on refundable tax credits, such as the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and stimulus checks, it’s easier to understand why 40% more working Americans in 2020 paid no federal income taxes.



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Never Sell Assets And Pay Less In Taxes Like Billionaires

Updated: 02/08/2022 by Financial Samurai 37 Comments

ProPublica published an article highlighting how 25 of the wealthiest Americans paid a tiny fraction of their wealth in taxes. This makes sense because the type of tax that is often discussed is levied on income, not wealth. If you pay yourself a low income and never sell assets, then your tax bill won’t be high relative to your wealth.

According to Forbes, 25 of the wealthiest Americans saw their net worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years based on IRS data. However, $13.6 billion only amounts to a “true tax rate” of only 3.4%.

The article goes on to say Warren Buffet is a hypocrite for encouraging the rich to pay more taxes. Yet he only paid a true tax rate of 0.1% of the wealth he garnered over the 4-year period. We all know that actions speak louder than words. Given Warren is an ultra-capitalist, his actions shouldn’t come as a surprise.



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How To Pay No Capital Gains Tax After Selling Your House For Big Profits

Updated: 01/31/2022 by Financial Samurai 123 Comments

If you decide to sell your house to simplify life, lock in gains, downsize, or relocate for a job, this article will help you minimize your capital gains tax bill. You may even be able to pay no capital gains tax after selling your house for big bucks.

According to the IRS, most home sellers do not incur capital gains due to the $250,000 and $500,000 exclusion for single and married couples. This makes sense since the median home price is roughly $350,000 in 2021.

If you make more than $250,000 – $500,000 on a median-priced home, it is extremely rare. However, as the housing market continues to go up, more people may potentially face a capital gains tax bill.

Conditions To Sell A Home Using The Tax-Free Exclusion

To be eligible for tax-free profits up to $250,000 / $500,000 for singles / married couples, there are three conditions that need to be met.

  • Ownership. You must have owned the home for at least two years during the five years prior to the date of your sale. It doesn’t have to be continuous, nor does it have to be the two years immediately preceding the sale.
  • Use. You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
  • Timing. You have not excluded the gain on the sale of another home within two years prior to this sale.

But let’s say you plan to sell a property where your gains are much greater than $250,000 / $500,000. Fear not! There’s still a good chance you still won’t owe much in capital gains tax if any. Let’s go through how with an example.



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