How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Anne Your Own Question

Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1735
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
5242771
Type Your Tax Question Here...
Anne is online now
A new question is answered every 9 seconds

My wife and I have a gross combined income of approximately

Resolved Question:

My wife and I have a gross combined income of approximately $210,000.00 which includes bonuses and my military retirement. I have 20% of my gross going into my 401K and claim 0 exemptions during the year. My wife claims 1 exemption and contributes 2% to her 401K. We have a mortgage and 2 kids in college. Why is it that we consistently owe taxes at the end of the year, approximately $6K every year and what can we do to mitigate owing at the end of the year?
Submitted: 4 years ago.
Category: Tax
Expert:  Anne replied 4 years ago.
HICustomerbr />
Thank you for using justanswer. Although you should probably increase your Federal withholdings, that should NEVER be your "first line of defense". Your first line of defense should always be to lower your taxable income, not just give our government more of your money as an interest free loan to them.

You stated you gave 20% of your income to your 401K. That's wonderful. You should ALWAYS pay yourself first. You stated your wife gave 2% of her income to her 401K. One of the best ways to lower your taxable income is to take advantage of all of the pre tax programs your employer offers, such as a 401K. Many employers also offer other pre tax programs, such as pre tax health insurance for instance.

Increasing your wife's 401K contribution from 2% to 20% will make a HUGE dfference in her take home pay. I often tell people to take it up in increments. (Maybe increase it to 5%, then in about 6 months increase it to 7%, etc) This helps prevent "shell shock" from having such a huge take home pay difference, and gives you time to adjust your living/spending habits while still lowering your tax liability.

You mentioned that you had a mortgage. If your home mortgage interest, real estate taxes, state taxes withheld are more than $11,400 (standard deduction for joint filers for 2009), then I'm assuming that you are filing Form 1040 (Schedules A) Itemized deductions. If you are, then make sure that you keep track of any charitable deductions, since those will also help lower your taxable income. Maybe this would be a good year to clean out your closets and donate your clothing/household items, even old tools to places like a church, salvation army, etc.

If you and your wife have ever talked about having vacation home, or looking for a place to retire, this might be a good time to purchase that retirement or vacation home. This is certainly a buyer's market, and you may write off mortgage interest on 2 homes on your Schedule A itmeized deductions, and real estate taxes from ALL property you own.

A 2nd home doesn't have to be a home in the traditional sense either. It can be an RV, even a house boat, as long as it has a separate kitchen and bathroom facilities.

You mentioned that you had 2 children in college. Your income is too high to take advantage of any education credits, but hopefully you are aware that you may claim your daughters as exemptions on your tax rerturn up to age 24 as long as they are full time students. (Full time students for IRS purposes are students who attend an accredited college for any part of 5 months)


Some tax pros will suggest that you purchase a home that you can rent out, as the mortgage interest, real estate taxes, depreciation, etc etc will often cause a paper loss. I don't often suggest this unless this was something you might have been interested in anyway, because there's no guarantee that you will show a loss, although that is the most common scenario, especially in the beginning years.If this is something you might be interested in, you might want to look at property where your daughter's go to college. Having them live in the home might be less expensive if they are currently living in the dorm, but you will have rent at least part of the home to paying renters (and you would have to pro rate the expenses based on square footage rented/vs total square footage since you would not be able to deduct any expenses relating your your children livng there unless they are paying rent at the same rate as the others.) However, you have to deal with capital gains when you sell it.

You should probably also talk to a financial advisor. There are numerous vehicles to invest your money in, such as tax free bonds, etc. Although investing in these type of tax free investments will not improve your immediate tax situation, it will allow those investments to grow tax free for the future.

If you do some or all of these steps AND increase your tax withholdings, I think you will see a difference in your tax liability. Again, your best bet, and the place you will see the most dramatic difference is reducing your taxable income by having your wife increase her 401K contributions, and making sure that both of you are taking advantage of all of the pre tax programs (health insurance, 401K, etc) that your employer offers.

I hope that this helps.
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1735
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 8 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.