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If you are going to live cheaply, you need to save on your taxes. There's a little part of the income spectrum where the more you make the less you pay in taxes. Once you have hit $106,800 in income, you stop paying Social Security tax of 6.2%. 6.2% is a huge amount of the taxes that you pay Federally. In fact, when you combine your Federal and Social Security taxes, you pay 34.2% on ever dollar over $82,250 of taxable income before hitting the cap and 28% afterwards until you hit $171,550 (Single filers). You would have to have nearly $373,000 in taxable income before you paid a higher marginal rate (35%).
So how can the Cheapster take advantage of the tax laws? If you have any income from bonuses, commissions, etc that comes in January, try to get them paid out on December 31st. Alternatively, you can shift money from the current year into next year. It's far better to earn $130,000 one year and $90,000 the next than to earn $110,000 both years. Barring any other deduction phaseouts, you will save over $1,000 in taxes if you can shift your income. If you can do that, it's like getting a HDTV for free!
Read more Year End Tax Tips.
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