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.
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.