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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7527
Experience:  15years with H & R Block. Divisional leader, Instructor
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Im a young working professional and I get a large part of

Resolved Question:

I'm a young working professional and I get a large part of my income taxed by various sources (federal, state, social security.. etc), and I'm wondering what are ways to pay less taxes?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D. :

Hello and thank you for using Just Answer,
You basically would not be able to lower your SS and Medicare but if you wish to lower the tax on the state and federal amounts you should look first to having your wages reduced before they are taxed.

Robin D. :

You can do this by enrolling first in your company's 401K or retirement plan.

Robin D. :

The amount you have contributed is generally matched by your employer and is not included for tax on federal and state.

Robin D. :

Medical costs that you have are most likely not enough to claim relief by itemizing on the Schedule A but if your company has a Flexible Account for medical, that money comes out pre-taxed too. You do need to make sure you only put in the true amounts you know you will spend on medical but it is a way to reduce your tax.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

Hi Robin

Customer:

thanks for your reply

Customer:

So I do know about 401k, IRA, FSA, etc, but I guess I'm looking for bigger ideas.

Customer:

like

Customer:

buying a home

Customer:

is one people often suggest

Customer:

and maybe starting a business as some sort and deduct expenses?

Customer:

of*

Robin D. :

When you buy a home you would be allowed the Interest and real estate taxes but you would have to know that those would be more than your standard deduction to really assist because that is on the Schedule A as well.

Robin D. :

As far as a business, you are allowed to claim losses but only for a short while

Robin D. :

If your business does not show a profit in 3 out of 5 years then your losses can be disallowed.

Robin D. :

A business may be successful and if it is then you have more tax including Self Employment tax

Robin D. :

If an activity is not for profit, losses from that activity may not be used to offset other income.

Robin D. :

Starting a business that is not set out to earn a profit is short term tax benefit

Customer:

I see

Customer:

so how much is the standard deduction again?

Robin D. :

You are single

Customer:

and how much would the home have to be (with let's assume no downpayment) to make the deduction worth it?

Customer:

yes, single

Robin D. :

$6100

Robin D. :

Your mortgage interest (not principal) and real estate taxes would need to be more than that to benefit from itemizing

Customer:

got it

Robin D. :

Then all your other items on the Schedule (charitable and employee expenses) would be added

Customer:

I see.. I'm wondering if you have any other possible ideas?

Robin D. :

That still does not lower your withholding but could mean lower fed and state tax

Customer:

I'm not worried about the withholding, but just the total amount taxed at the end of the year.

Robin D. :

You could invest in items that may be taxable to state or federal but not both. Muni bonds

Robin D. :

That would allow for income that is not taxable to everything

Robin D. :

has nothing to do with wages but..........

Robin D. :

You could also possibly look at IRA

Robin D. :

that may allow for dedcution and lower tax but has restrictions

Customer:

ah

Customer:

that brings up what is probably my last confusion

Customer:

is IRA or 401k more flexible in terms of allowed cases for early withdrawal?

Robin D. :

In a way, not for tax but to be able to withdraw yes

Customer:

say, if i want to buy a house or go to grad school after a few years, how much money can I take out from each for those purposes?

Customer:

(without penalty, of course)

Robin D. :

As much as you want but only the first $10000 would not have a penalty

Customer:

so if i have roth ira + trad ira + 401k, does that mean I can withdraw $10k from each, for a total of $30k?

Robin D. :

Exceptions for Early Distributions from an IRA:



  • You had a "direct rollover" to your new retirement account,

  • You received a lump-sum payment but rolled over the money to a qualified retirement account within 60 days,

  • You were permanently or totally disabled,

  • You were unemployed and paid for health insurance premiums,

  • You paid for college expenses for yourself or a dependent (No limit),

  • You bought a house (first $10000)*,

  • You paid for medical expenses exceeding 7.5% of your adjusted gross income

Robin D. :

Yes

Robin D. :

You would be taxed on IRA and 401k and Roth earnings (if less than 5 year held)

Customer:

You paid for college expenses for yourself or a dependent (No limit) : oh so no limit at all for college then. That includes graduate school, right?

Robin D. :

Yes, higher education

Customer:

got it

Customer:

thanks

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7527
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and other Tax Specialists are ready to help you

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