Real mega Roth conversion (not backdoor Roth) 2010/2011

[chessknt]

And what state are you in? That’s the money ball.

If you are in New York City with it’s 11% state/city income tax or California with its 9.25/11.25/13.25% state income tax. Than taking the pretax 401k is better choice since it’s an immediate savings

I get no savings in Florida.

My understanding of the tax code is tremendous and I correct my own accountants and others accountants as well.

Tremendous eh? I am going to repost what I put above. Explain to me where my math errors are to justify your position for Roth 401 over a pretax. Stop mentioning backdoor Roth it makes no sense at all in this context since it isn't in a 401 but rather an IRA.

20 year horizon
$100 in 401 + $35 in taxable both with 4% returns annually=$219 pre tax (186 after taxes) + $77 ( maybe call it 60 to be generous for taxes) tax free=$246 post tax

Vs

$100 in roth 401 with 4% annually= $219 post tax.

That's approx 12% net difference in free yield.

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[aneftp]

Tremendous eh? I am going to repost what I put above. Explain to me where my math errors are to justify your position for Roth 401 over a pretax. Stop mentioning backdoor Roth it makes no sense at all in this context since it isn't in a 401 but rather an IRA.

$100 in 401 + $35 in taxable both with 4% returns annually=$219 pre tax (186 after taxes) + $77 ( maybe call it 60 to be generous for taxes) tax free=$246 post tax

Vs

$100 in roth 401 with 4% annually= $219 post tax.

That's approx 12% net difference in free yield.

My effective tax rate is 21% as w2 the past 6 years pretty consistent

Now plug that in

I mention back door Roth because people consider that post tax money. 401k/403b Roth option is equally considered post tax money as well. That’s why i mentioned it

Now I routinely put away 50-70k pretax money in any combination of my previous or current solo 401k or sep Ira accounts in addition to Roth 403b post tax account for a total of close to around 100k each year. I am not exclusively post tax Roth. As well as state or county 457b pre tax

I also have maxed out 529 account for the kids and now have 529 accounts for future grand kids who don’t even exists. I had 529 accounts before I was even married.

I am not a novice.

My points of discussion is it’s so contradictory of people to keep pushing for post tax backdoor Roth while bashing post tax Roth 403b option as well. I’m doing a combination of everything

 

[chessknt]

My effective tax rate is 21% as w2 the past 6 years pretty consistent

Now plug that in

I mention back door Roth because people consider that post tax money. 401k/403b Roth option is equally considered post tax money as well. That’s why i mentioned it

Now I routinely put away 50-70k pretax money in any combination of my previous or current solo 401k or sep Ira accounts in addition to Roth 403b post tax account for a total of close to around 100k each year. I am not exclusively post tax Roth. As well as state or county 457b pre tax

I also have maxed out 529 account for the kids and now have 529 accounts for future grand kids who don’t even exists. I had 529 accounts before I was even married.

I am not a novice.

My points of discussion is it’s so contradictory of people to keep pushing for post tax backdoor Roth while bashing post tax Roth 403b option as well. I’m doing a combination of everything

Wow...... You know an IRA and a 401 are different right? And IRA contributions aren't pre tax deductible at physician income levels whereas 401 contributions are right?

Also a 21% marginal tax rate is not achievable for physicians who follow tax laws but it's great that you get taxed at the level I was when I worked in a grocery store.

 

[abolt18]

My effective tax rate is 21% as w2 the past 6 years pretty consistent

Now plug that in

I mention back door Roth because people consider that post tax money. 401k/403b Roth option is equally considered post tax money as well. That’s why i mentioned it

Now I routinely put away 50-70k pretax money in any combination of my previous or current solo 401k or sep Ira accounts in addition to Roth 403b post tax account for a total of close to around 100k each year. I am not exclusively post tax Roth. As well as state or county 457b pre tax

I also have maxed out 529 account for the kids and now have 529 accounts for future grand kids who don’t even exists. I had 529 accounts before I was even married.

I am not a novice.

My points of discussion is it’s so contradictory of people to keep pushing for post tax backdoor Roth while bashing post tax Roth 403b option as well. I’m doing a combination of everything

It's not contradictory.

401k vs Roth 401k is only a question of pre-tax vs post-tax contributions.

At our income levels, you cannot make a deductible (aka pre-tax) traditional IRA contribution. Traditional IRA Deductibility Limits

Because of this, no one is saying "do a backdoor Roth IRA instead of pre-tax". It's not even an option. The argument in favor of the backdoor Roth IRA is that it's far superior to its alternatives:

- non-deductible (aka post tax) contribution to a traditional IRA, which will grow tax free, but require that you pay taxes upon withdrawing the money.

- taxable account (obviously also post tax) contribution, whose growth is taxable via capital gains and dividends.

So really it's an apples and sandwiches comparison (completely different considerations). Doing a backdoor Roth IRA simply expands our access to tax/asset protected retirement accounts.

IF it was possible to do pre-tax traditional IRA contributions at our income levels (it's not), then this would become a pre-tax vs post-tax discussion and the answer would once again be "everything pre-tax that you can during higher earning years, so you can withdraw it during retirement at a lower tax bracket"

 

[aneftp]

Wow...... You know an IRA and a 401 are different right? And IRA contributions aren't pre tax deductible at physician income levels whereas 401 contributions are right?

Also a 21% marginal tax rate is not achievable for physicians who follow tax laws but it's great that you get taxed at the level I was when I worked in a grocery store.

Wow...... You know an IRA and a 401 are different right? And IRA contributions aren't pre tax deductible at physician income levels whereas 401 contributions are right?

Also a 21% marginal tax rate is not achievable for physicians who follow tax laws but it's great that you get taxed at the level I was when I worked in a grocery store.

Effective tax rate is what I’m talking about.

“Your marginal tax rate is the rate corresponding with the highest bracket your income falls into. An effective tax rate-is the actual percentage you pay on the entirety of your taxable income. This gives a more accurate picture of your actual tax burden”

That is why 40% of Americans owe no federal income taxes.

Many of you guys fail to understand marginal and effective tax rate. Look up the definition.

If you are married. With access to multiple pretax accounts 401a/403b/457b over age 50 catch up, hsa , cafeteria healthcare pretax plans etc.

Keeping your taxable income below 350k with deductions (which applies to 70% plus of physicians) your effective tax rate should get you to at min a 23% effective tax rate.

 

[GravelRider]

My points of discussion is it’s so contradictory of people to keep pushing for post tax backdoor Roth while bashing post tax Roth 403b option as well. I’m doing a combination of everything

This thread has sort of “jumped the shark” long ago, but the above might be the most puzzling quote in the entire thread.

My (rudimentary) understanding of why a Roth 401k might be beneficial to some people is if your employer does not contribute to your 401k, you can then make after-tax contributions to your 401k up to the IRS maximum ($69k if below 50 for 2024). In that scenario, you would put $46k ($69k-$23k) in your 401k as an after-tax contribution. A reasonable strategy could be to convert that $46k to a Roth account. The caveat to that is your employer’s plan must allow after-tax contributions and allow the conversion.

The OP started this thread guns blazing talking about converting millions of pre-tax dollars saved since 2010 to Roth accounts and paying the highest marginal tax rate on that money over 2 years. The original scenario seemed kind of insane and applicable to only a tiny niche of people.

 

[aneftp]

This thread has sort of “jumped the shark” long ago, but the above might be the most puzzling quote in the entire thread.

My (rudimentary) understanding of why a Roth 401k might be beneficial to some people is if your employer does not contribute to your 401k, you can then make after-tax contributions to your 401k up to the IRS maximum ($69k if below 50 for 2024). In that scenario, you would put $46k ($69k-$23k) in your 401k as an after-tax contribution. A reasonable strategy could be to convert that $46k to a Roth account. The caveat to that is your employer’s plan must allow after-tax contributions and allow the conversion.

The OP started this thread guns blazing talking about converting millions of pre-tax dollars saved since 2010 to Roth accounts and paying the highest marginal tax rate on that money over 2 years. The original scenario seemed kind of insane and applicable to only a tiny niche of people.

Yes. I originally start the thread about the mega conversion because very few people didn’t outside of mega rich people. If you were in practice before 2000. Your financial advisor or friends would have advised you about this mega conversion by 2007 when ir would have come into effect in (one time) 2010 (with 2 years to pay off the taxes owed)


This was before backdoor roths were allowable for everyone. Before there were income limits on backdoor Roth. (I think tax law changed around 2010 allowing backdoor Roth without income limits)

So the backdoor Roth has only been around for 13 years itself for high income earners. Who knows how long the backdoor Roth will last. Everyone who laughs at me saying I don’t know the tax laws is out of their minds. I know more about accounting than 99% of people. The backdoor Roth limit limits were on the chopping block with Biden build back better plan initially as well. The dems want to impose income limits of 450k so anyone making more than that cannot do backdoor Roth.

That just shows you the govt thinking. They want wealthy income earners not only to pay taxes in today’s money (no backdoor Roth allowed) but make sure wealthy people pay more taxes in the future. This is the wealthy I push for Roth ira (if available to a lot of people unless they are nearing retirement age)

We will agree to disagree on this matter.

 

[GravelRider]

Yes. I originally start the thread about the mega conversion because very few people didn’t outside of mega rich people. If you were in practice before 2000. Your financial advisor or friends would have advised you about this mega conversion by 2007 when ir would have come into effect in (one time) 2010 (with 2 years to pay off the taxes owed)


This was before backdoor roths were allowable for everyone. Before there were income limits on backdoor Roth. (I think tax law changed around 2010 allowing backdoor Roth without income limits)

So the backdoor Roth has only been around for 13 years itself for high income earners. Who knows how long the backdoor Roth will last. Everyone who laughs at me saying I don’t know the tax laws is out of their minds. I know more about accounting than 99% of people. The backdoor Roth limit limits were on the chopping block with Biden build back better plan initially as well. The dems want to impose income limits of 450k so anyone making more than that cannot do backdoor Roth.

That just shows you the govt thinking. They want wealthy income earners not only to pay taxes in today’s money (no backdoor Roth allowed) but make sure wealthy people pay more taxes in the future. This is the wealthy I push for Roth ira (if available to a lot of people unless they are nearing retirement age)

We will agree to disagree on this matter.

Agree to disagree on what? As an aside, I often wonder if English is not your primary language. It’s ok if it isn’t, but I find your posts hard to follow at times.

You seem to moderating your initial stance towards the Roth 401k since your initial post. As almost everyone here stated, converting millions of dollars saved pre-tax over the past 20-30 years to a Roth account is a pretty niche moved reserved mainly for the very wealthy looking to leave a lower taxed inheritance or to people in lower tax brackets in the early phases of their career. Now you seem (?) to be settling on the strategy that I mentioned where you contribute some after tax money to an employer sponsored 401k plan and convert that portion to a Roth. If that option is available to you (it often isn’t) then it is a perfectly reasonable strategy.

The backdoor Roth IRA is so popular because it is available to everyone. The Roth 401k conversions (mega Roths) are not available to everyone and highly dependent on your employer sponsored plan. Furthermore, converting pre-tax money to a Roth is probably the wrong decision for most people earning physician income who don’t have the kind of generational wealth that makes footing a tax bill for your future heirs sensible.

But if you want to convert millions of pre-tax dollars saved since 2010, go for it.

 

[aneftp]

Agree to disagree on what? As an aside, I often wonder if English is not your primary language. It’s ok if it isn’t, but I find your posts hard to follow at times.

You seem to moderating your initial stance towards the Roth 401k since your initial post. As almost everyone here stated, converting millions of dollars saved pre-tax over the past 20-30 years to a Roth account is a pretty niche moved reserved mainly for the very wealthy looking to leave a lower taxed inheritance or to people in lower tax brackets in the early phases of their career. Now you seem (?) to be settling on the strategy that I mentioned where you contribute some after tax money to an employer sponsored 401k plan and convert that portion to a Roth. If that option is available to you (it often isn’t) then it is a perfectly reasonable strategy.

The backdoor Roth IRA is so popular because it is available to everyone. The Roth 401k conversions (mega Roths) are not available to everyone and highly dependent on your employer sponsored plan. Furthermore, converting pre-tax money to a Roth is probably the wrong decision for most people earning physician income who don’t have the kind of generational wealth that makes footing a tax bill for your future heirs sensible.

But if you want to convert millions of pre-tax dollars saved since 2010, go for it.

Dude. I’m American. Just as American as my idols bill Clinton and Donald trump.

Edit. Backdoor Roth isn’t available to everyone pre 2010 backdoor Roth income limits rules since many like my sister put money into non deductible IRA from 2001-2009 and as it grew. She’s subjected to pro rata rules

Yes. People also put money into non deductible IRA without doing the backdoor Roth because it wasn’t allowable in their tax bracket until 2010. So it’s messy for them. Pay the taxes on the 100k plus gains on the non deductible IRA before converting it over. So now all that money is subject to pro rata irs rules.

 

[GassYous]

Dude. I’m American. Just as American as my idols bill Clinton and Donald trump.

Edit. Backdoor Roth isn’t available to everyone pre 2010 backdoor Roth income limits rules since many like my sister put money into non deductible IRA from 2001-2009 and as it grew. She’s subjected to pro rata rules

Yes. People also put money into non deductible IRA without doing the backdoor Roth because it wasn’t allowable in their tax bracket until 2010. So it’s messy for them. Pay the taxes on the 100k plus gains on the non deductible IRA before converting it over. So now all that money is subject to pro rata irs rules.

Being american doesn't mean that your primary language is english

 

[aneftp]

Being american doesn't mean that your primary language is english

My only language is English. I just type of my iPhone a lot.

 

[GravelRider]

Dude. I’m American. Just as American as my idols bill Clinton and Donald trump.

Edit. Backdoor Roth isn’t available to everyone pre 2010 backdoor Roth income limits rules since many like my sister put money into non deductible IRA from 2001-2009 and as it grew. She’s subjected to pro rata rules

Yes. People also put money into non deductible IRA without doing the backdoor Roth because it wasn’t allowable in their tax bracket until 2010. So it’s messy for them. Pay the taxes on the 100k plus gains on the non deductible IRA before converting it over. So now all that money is subject to pro rata irs rules.

So…did you do it yet? Are you going to covert all that pre-tax money to a Roth?

 

[aneftp]

So…did you do it yet? Are you going to covert all that pre-tax money to a Roth?

No. I said this was back in 2010 maneuver (the original tax law change was announced in 2006 for this one time mega conversion with a 2 year period to pay the taxes). I had the cash to cover it before the crash of 2008 but didn’t after

I was asking if anyone had done it in tax year 2010. So the answer seems to be no

So many people are so focus on backdoor Roth $6000-7000 maneuver it’s such a small amount But the backdoor Roth no income limit was the brain child of the original mega Roth conversion of tax year 2010

I’m only 5 years from retirement so really cant take full advantage but that’s why I advise those with 15 years plus working to put as much in any Roth account as they can including Roth IRA $22/30k if they are planning to work longer. But seems like most everyone here is against it.

 

[Coffee PRN]

I'm going to be at 37% marginal rate next year. Only reason I do backdoor Roth is for the extra tax advantaged space, otherwise why would I choose to pay a 37% rate by contribution to post tax accounts when I could do a lower marginal rate in retirement by contributing pretax? For my 401k it's all going to be pretax.

 

[aneftp]

I'm going to be at 37% marginal rate next year. Only reason I do backdoor Roth is for the extra tax advantaged space, otherwise why would I choose to pay a 37% rate by contribution to post tax accounts when I could do a lower marginal rate in retirement by contributing pretax? For my 401k it's all going to be pretax.

Stop thinking marginal tax rate. What is ur effective tax rate?

And do you live in a high state income tax state like California or New York anyone cities that also impost city or county income tax.

Anyways. It’s only $6500/7500 you put on ur 8606 form. I’ve been doing this myself since it was $4000 limit back in 2006. It’s just a very small portion of my portfolio.

 

[triggermaster]

Stop thinking marginal tax rate. What is ur effective tax rate?

And do you live in a high state income tax state like California or New York anyone cities that also impost city or county income tax.

Anyways. It’s only $6500/7500 you put on ur 8606 form. I’ve been doing this myself since it was $4000 limit back in 2006. It’s just a very small portion of my portfolio.

Your mega Roth conversion would be taxed at your marginal tax rate or higher, not at your effective tax rate, so yeah, think about your marginal tax rate.

 

[aneftp]

Your mega Roth conversion would be taxed at your marginal tax rate or higher, not at your effective tax rate, so yeah, think about your marginal tax rate.

I’m talking about 2010 year the mega Roth conversion. Where you had 2 years to pay the taxes. Seems like no one ever did it that year. I had just moved from high state income tax state (thus getting a 9-10% state tax deduction on pre tax money from 401k/sep for year) down to no state income tax state Florida.

I’m way past that idea now 13 years from that tax year. That ship has sailed.

Do you or do you not live in a state that imposes state income taxes? Being in a no state income tax state. I don’t get any advantage of pretax deduction from taxes. Thus another reason for regular Roth from employer

 

[chessknt]

401/403 have the same limits and can't be combined. 457 is only safely usable for governmental entities and applies to a narrow population (I have access to one but do not use it because the sponsoring organization has a junk bond rating).

The effective tax rate is not generally helpful because it will change as you add more income to it. Sure it might be X% but if you add another $Y to it now it will be Z%. You get to your effective tax rate with tax deferral anyways which is what a pre tax 401 does.

Assuming you are the SDN median anesthesiologist earing $585/hr and 56k per weekend that puts you at 750k (this is probably <5% SDN) for argument. In order to get to your mythical 21% effective tax rate you would need to be married to a spouse with no income and find a way to disappear $500k. Even if you can take advantage of a full 457 (22.5k) + 401/403 (66k) that still leaves you with 400k to disappear. Maybe you spend 4k/month on healthcare pretax and put a another 7.5k in to an HSA? Ok still sitting on 350k. Even if you buy a new business lambo you still need to make another 100k disappear before that post tax contribution looks remotely attractive (and of course do this every year). Even as a 1099 it would take incredible accounting gymnastics to write off >60% of your income every year.

 

[Arch Guillotti]

I Seems like no one ever did it that year.

I did.

 

[NITRAS]

I

I'm going to be at 37% marginal rate next year. Only reason I do backdoor Roth is for the extra tax advantaged space, otherwise why would I choose to pay a 37% rate by contribution to post tax accounts when I could do a lower marginal rate in retirement by contributing pretax? For my 401k it's all going to be pretax.

I’m just a dumb Hospitalist who isn’t a baller who has a non-working wife, and I’m planning on having a net worth somewhere in the 15-20 million if I work till my mid 60’s. The more ROTH I have the better.

I honestly have no idea what my tax rate will be when I retire. Could be same, could be less, could be higher. I honestly think its a mistake to make long term plans based on what the government might do.

I love ROTH. That being said, even I would only do a 7 figure conversion if I was in the 30’s/ early 40’s, was likely to hit the top tax bracket for the foreseeable future, and had the cash to pay the taxes.

I did a ~$150K Conversation a few years ago.

 

[aneftp]

401/403 have the same limits and can't be combined. 457 is only safely usable for governmental entities and applies to a narrow population (I have access to one but do not use it because the sponsoring organization has a junk bond rating).

The effective tax rate is not generally helpful because it will change as you add more income to it. Sure it might be X% but if you add another $Y to it now it will be Z%. You get to your effective tax rate with tax deferral anyways which is what a pre tax 401 does.

Assuming you are the SDN median anesthesiologist earing $585/hr and 56k per weekend that puts you at 750k (this is probably <5% SDN) for argument. In order to get to your mythical 21% effective tax rate you would need to be married to a spouse with no income and find a way to disappear $500k. Even if you can take advantage of a full 457 (22.5k) + 401/403 (66k) that still leaves you with 400k to disappear. Maybe you spend 4k/month on healthcare pretax and put an another 7.5k in to an HSA? Ok still sitting on 350k. Even if you buy a new business lambo you still need to make another 100k disappear before that post tax contribution looks remotely attractive (and of course do this every year). Even as a 1099 it would take incredible accounting gymnastics to write off >60% of your income every year.

Actually my effective tax rate is is 20/23%. Just rechecked. And this is with a real w2 job. I’m not lying about it. As pure 1099. It can be around 15% effective tax rate.

I’m gonna to make a tad under 700k this year gross combined w2 and 1099.

The key is to keep the real w2 income below the threshold. That’s why an amc 650k w2 job is no good. My w2 job is 450k before deductions

I


I’m just a dumb Hospitalist who isn’t a baller who has a non-working wife, and I’m planning on having a net worth somewhere in the 15-20 million if I work till my mid 60’s. The more ROTH I have the better.

I honestly have no idea what my tax rate will be when I retire. Could be same, could be less, could be higher. I honestly think its a mistake to make long term plans based on what the government might do.

I love ROTH. That being said, even I would only do a 7 figure conversion if I was in the 30’s/ early 40’s, was likely to hit the top tax bracket for the foreseeable future, and had the cash to pay the taxes.

I did a ~$150K Conversation a few years ago.

yes the conversion makes sense to a select few people who have a ton of cash at their disposal cover the taxes due on a big conversion plus the time frame (10-15 years to let it grow)

Due to the economy downturn and me losing so much money in housing cash as well. I didn’t have the cash to cover the conversion without liquidation of other assets which made it not a wise move.

I do think we got side track (I’m at fault also) with this discussion on 401k Roth and backdoor Roth.

 

[triggermaster]

You don’t need to stay under any income threshold. It’s never better to make less to avoid going into a higher tax bracket. That just isn’t how tax calculations work. For someone who knows more about accounting than 99% of people, you sure seem to be wrong 100% of the time.

 

[GravelRider]

Actually my effective tax rate is is 20/23%. Just rechecked. And this is with a real w2 job. I’m not lying about it. As pure 1099. It can be around 15% effective tax rate.

I’m gonna to make a tad under 700k this year gross combined w2 and 1099.

The key is to keep the real w2 income below the threshold. That’s why an amc 650k w2 job is no good. My w2 job is 450k before deductions

yes the conversion makes sense to a select few people who have a ton of cash at their disposal cover the taxes due on a big conversion plus the time frame (10-15 years to let it grow)

Due to the economy downturn and me losing so much money in housing cash as well. I didn’t have the cash to cover the conversion without liquidation of other assets which made it not a wise move.

I do think we got side track (I’m at fault also) with this discussion on 401k Roth and backdoor Roth.

For all the bluster and bombast in your posts, you don’t seem to understand marginal taxes very well. If your W2 job offered you a raise, would you turn it down based on your tax rate?

 

[aneftp]

For all the bluster and bombast in your posts, you don’t seem to understand marginal taxes very well. If your W2 job offered you a raise, would you turn it down based on your tax rate?

I can do internal overtime at my place for extra pay. But I don’t It actually makes more sense for me to pay someone $2k cash and go make 10k 1099

I understand the tax code very well. It’s called having my cake and eating it to. The security of day job w2 with great benefits and no required calls and going out and doing 1099 work elsewhere to lower my tax rate

So yes. I can make even more (like covering weekends at my place

Marginal tax is how long and how much u want to stay in that Top range

IRS provides tax inflation adjustments for tax year 2023 | Internal Revenue Service

IR-2022-182, October 18, 2022 — The Internal Revenue Service today announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2022-38 provides details about these annual adjustments.

www.irs.gov

So for married couple. U can make around 530-550k w2 and hover down to 462k “taxable income”
Standard deduction is 27k (or more if itemized say 30-50k) obviously some limited with salt 10k in high income tax states
457k is 30k pretax
401a is 10k-15k pretax
Healthcare is another 5k-7k pretax
Hsa is another 5-7k pretax.

So that 550k w2 can be driven down to 450k pretty easy and even be at 32% “marginal tax rate”.

So someone who makes say 463k taxable income can be 35% “marginal tax rate” but only 1k of that is really taxed at the 35% rate. Thus they can have “effective tax rate of 23%”

So I fully understand the tax code. Marginal and effective tax rate. The key is to keep urself below 35% as taxable income. Having 22-30k post tax Roth 401k is feasible even at 24% marginal tax rate. That’s why it’s hard for me to work as a w2 for an amc. But as state or county employee I have much more options.

The other rates are:

• 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
• 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
• 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
• 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
• 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
  

The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

 

[BLADEMDA]

You don’t need to stay under any income threshold. It’s never better to make less to avoid going into a higher tax bracket. That just isn’t how tax calculations work. For someone who knows more about accounting than 99% of people, you sure seem to be wrong 100% of the time.

For me personally the idea of working additional W-2 jobs above my regular job isn't that appealing. Yes, I get to keep 60% of the additional money but is it worth it? For example, let's say my employer pays me $250 per hour for extra work. My take home is around $150 per hour. Do I refer to be at home or on the job for $150 per hour? That decision is up to you but at some point that additional money is simply not worth the effort. However, when I do 1099 work at $300 per hour my "take home" is $240 per hour. That's much more appealing for additional work.

 

[triggermaster]

You can (and should) limit your work hours for work-life balance. You are absolutely right! The reason that’s a good decision is to be able to live a good life outside of work, not “to keep the real w2 income below the threshold”.

You can even choose to work 1099 on the side rather than doing extra work at your W-2 job for a variety of reasons, but “to keep the real w2 income below the threshold” isn’t a valid reason.

 

[GravelRider]

I can do internal overtime at my place for extra pay. But I don’t It actually makes more sense for me to pay someone $2k cash and go make 10k 1099

I understand the tax code very well. It’s called having my cake and eating it to. The security of day job w2 with great benefits and no required calls and going out and doing 1099 work elsewhere to lower my tax rate

So yes. I can make even more (like covering weekends at my place

Marginal tax is how long and how much u want to stay in that Top range

IRS provides tax inflation adjustments for tax year 2023 | Internal Revenue Service

IR-2022-182, October 18, 2022 — The Internal Revenue Service today announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2022-38 provides details about these annual adjustments.

www.irs.gov

So for married couple. U can make around 530-550k w2 and hover down to 462k “taxable income”
Standard deduction is 27k (or more if itemized say 30-50k) obviously some limited with salt 10k in high income tax states
457k is 30k pretax
401a is 10k-15k pretax
Healthcare is another 5k-7k pretax
Hsa is another 5-7k pretax.

So that 550k w2 can be driven down to 450k pretty easy and even be at 32% “marginal tax rate”.

So someone who makes say 463k taxable income can be 35% “marginal tax rate” but only 1k of that is really taxed at the 35% rate. Thus they can have “effective tax rate of 23%”

So I fully understand the tax code. Marginal and effective tax rate. The key is to keep urself below 35% as taxable income. Having 22-30k post tax Roth 401k is feasible even at 24% marginal tax rate. That’s why it’s hard for me to work as a w2 for an amc. But as state or county employee I have much more options.

The other rates are:

• 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
• 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
• 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
• 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
• 12% for incomes over $11,000 ($22,000 for married couples filing jointly).

The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

Taking a better paying opportunity over a lesser paying opportunity is a good decision.

Deciding not to do overtime at your W2 job because you wonder what your time is worth and realize that those hours are taxed at the highest marginal rate is also potentially a good decision depending on how you value your time.

Taking a W2 job that pays 450k over another W2 job that pays 650k (assuming all else is equal in terms of workload and benefits) in order to keep your tax rate low is a dumb decision…a rather bizarre decision, actually.

 

[onconc]

Actually my effective tax rate is is 20/23%. Just rechecked. And this is with a real w2 job. I’m not lying about it. As pure 1099. It can be around 15% effective tax rate.

I’m gonna to make a tad under 700k this year gross combined w2 and 1099.

The key is to keep the real w2 income below the threshold. That’s why an amc 650k w2 job is no good. My w2 job is 450k before deductions

yes the conversion makes sense to a select few people who have a ton of cash at their disposal cover the taxes due on a big conversion plus the time frame (10-15 years to let it grow)

Due to the economy downturn and me losing so much money in housing cash as well. I didn’t have the cash to cover the conversion without liquidation of other assets which made it not a wise move.

I do think we got side track (I’m at fault also) with this discussion on 401k Roth and backdoor Roth.

Could you please explain how you pay so little taxes; especially on the 1099 part of your income ? I mean what are the large deductions that lower your taxable income by several hundred thousand ?

Based on what I understood from your comments, you have a $450k w2 job, and about $250k as 1099; for a total income of about $700k. Is my understanding correct ?

And additionally, you have about $250k or $350k of deductions which brings down your taxable income to somewhere between $350k to $450k. Correct ?

My main confusion is how do you have upto $350k of deductions ? I can understand some $27k standard deduction, $23k 401k deduction, and some $12k with HSA, health insurance etc. That all adds up to only like $60k or so. Where is the rest of $290k ($350k - $60k) coming from ?

Thanks. Genuinely curious.

 

[aneftp]

Could you please explain how you pay so little taxes; especially on the 1099 part of your income ? I mean what are the large deductions that lower your taxable income by several hundred thousand ?

Based on what I understood from your comments, you have a $450k w2 job, and about $250k as 1099; for a total income of about $700k. Is my understanding correct ?

And additionally, you have about $250k or $350k of deductions which brings down your taxable income to somewhere between $350k to $450k. Correct ?

My main confusion is how do you have upto $350k of deductions ? I can understand some $27k standard deduction, $23k 401k deduction, and some $12k with HSA, health insurance etc. That all adds up to only like $60k or so. Where is the rest of $290k ($350k - $60k) coming from ?

Thanks. Genuinely curious.

People confuse marginal tax rate vs effective tax rate. 40% Americans pay zero federal taxes. That’s $0. What does that make their effective tax rate?? $0. As in zero

So those who complain they pay 35% federal taxes. Only a very bit of that money is expose if you are married making Agi above 500k

In fact married couples making less than 400k pay less than 24% MARGINAL taxes and remember the first 100k is taxed at marginal 10%. That’s where you get effective tax rates much lower than what you think. Effective tax rate is always lower than marginal tax rate.

“Your marginal tax rate corresponds to the highest tax bracket your last dollar of taxable income falls into. Your effective tax rate is the average rate of tax you pay on all of your income and is always lower than your marginal tax rate”

Singles tax filers get hit the hardest.

Fortunately my w2 job is not an amc. So I can put away over 70k pretax myself into various 401a/457/403b. That helps a ton. Than you have flex (limited) dependent care , healthcare all coming out of cafeteria pretax That’s another 15k pretax. So my w2 job gives me over 85k pretax savings.

As for 1099 deductions. Section 179 are the biggest deductions. Putting non working spouse into solo 401k funding retirement. That alone is 100k worth of deductions. Education cme trips is 40-50k. Buy online travel cme to match cme travel dates. Now you are at 150k without batting an eye.

Than you have regular business expenses. That’s another 80k? So you are close to 230k. See how easy it is to drive down business taxes close to zero.

So when I file my taxes I itemized deductions also.

Everything adds up.

I really don’t get why people are up in arms with simple legal busienss expenses and and a w2 job has generous pretax benefits as well plus being married. I’m not reinventing the wheel with what I do.

 

[onconc]

Thank you !

And yes, I 100% agree with your point about marginal vs effective.

So those who complain they pay 35% federal taxes. Only a very bit of that money is expose if you are married making Agi above 500k

Depends on income though, doesn't it ? Households which make $2M a year will be exposed quite a bit; don't you agree ? My own effective federal tax rate is between 30 and 35%. That is, yes, effective tax rate, not marginal tax rate. And that is just federal. California adds its own ~10% tax on top. For an overall effective tax rate of between 40% and 45%

Fortunately my w2 job is not an amc. So I can put away over 70k pretax myself into various 401a/457/403b. That helps a ton. Than you have flex (limited) dependent care , healthcare all coming out of cafeteria pretax That’s another 15k pretax. So my w2 job gives me over 85k pretax savings.

As for 1099 deductions. Section 179 are the biggest deductions. Putting non working spouse into solo 401k funding retirement. That alone is 100k worth of deductions. Education cme trips is 40-50k. Buy online travel cme to match cme travel dates. Now you are at 150k without batting an eye.

Than you have regular business expenses. That’s another 80k? So you are close to 230k. See how easy it is to drive down business taxes close to zero.

So when I file my taxes I itemized deductions also.

Everything adds up.

I really don’t get why people are up in arms with simple legal busienss expenses and and a w2 job has generous pretax benefits as well plus being married. I’m not reinventing the wheel with what I do.

Thanks again.
But for the 1099 deductions. as I understood it, the list is as below, correct ?

$60k - non working spouse 401k
$50k - education CME
$40k - Section 179 expenses
$80k - regular business expenses
------------------------------------------
$230k - total

Correct ? And you are saying that this $230k reduces 1099 income of $250k to almost nothing (i.e. $20k)

And the $170k out of the $230k seems to be items all related to job expenses. I.e. $50k CME, $40k Section179 and $80k other business expenses.

I have 2 questions about this $170k if you don't mind.

1. These business expenses are ** expenses **. I.e. you spend that money. Meaning it is not going into savings. So you spend $170k to get $170k in tax deductions. I mean wouldn't it be better if you don't spend most of that at all ?

2. Secondly that seems like a very high number though. I mean I don't spend anything at all on CME since its all reimbursed (upto $5k). Vehicle depreciation may be another $10k. Thats about it. All the other random business expenses don't add up to much at least for me. That is why I am curious how you have $170k of business expenses.

So what exactly are your business expenses that are adding up to $170k ?

I really don’t get why people are up in arms with simple legal busienss expenses and and a w2 job has generous pretax benefits as well plus being married. I’m not reinventing the wheel with what I do.

I am not. I really am not up in arms. I am legitimately just trying to understand how I can lower my effective federal tax rate of 30% plus. I had posted a similar question myself on W2-vs-1099 last september - W2 vs 1099

Thank you.

 

[aneftp]

Thank you !

And yes, I 100% agree with your point about marginal vs effective.



Depends on income though, doesn't it ? Households which make $2M a year will be exposed quite a bit; don't you agree ? My own effective federal tax rate is between 30 and 35%. That is, yes, effective tax rate, not marginal tax rate. And that is just federal. California adds its own ~10% tax on top. For an overall effective tax rate of between 40% and 45%



Thanks again.
But for the 1099 deductions. as I understood it, the list is as below, correct ?

$60k - non working spouse 401k
$50k - education CME
$40k - Section 179 expenses
$80k - regular business expenses
------------------------------------------
$230k - total

Correct ? And you are saying that this $230k reduces 1099 income of $250k to almost nothing (i.e. $20k)

And the $170k out of the $230k seems to be items all related to job expenses. I.e. $50k CME, $40k Section179 and $80k other business expenses.

I have 2 questions about this $170k if you don't mind.

1. These business expenses are ** expenses **. I.e. you spend that money. Meaning it is not going into savings. So you spend $170k to get $170k in tax deductions. I mean wouldn't it be better if you don't spend most of that at all ?

2. Secondly that seems like a very high number though. I mean I don't spend anything at all on CME since its all reimbursed (upto $5k). Vehicle depreciation may be another $10k. Thats about it. All the other random business expenses don't add up to much at least for me. That is why I am curious how you have $170k of business expenses.

So what exactly are your business expenses that are adding up to $170k ?




I am not. I really am not up in arms. I am legitimately just trying to understand how I can lower my effective federal tax rate of 30% plus. I had posted a similar question myself on W2-vs-1099 last september - W2 vs 1099

Thank you.

1. Move out of California.
2. It’s a trade off spending money. It’s like equivalent of 30% off. iPhone I pay full price $1300. That’s like 30% off. I trade it in the next year

So you gotta spend to get the deduction. If you don’t spend. That’s fine also. You just will be taxed on it.

 

[onconc]

1. Move out of California.

That won’t help me lower my federal tax rate of 30% to 35%.

So your point about no one paying 30% plus federal effective tax rate is false. There are indeed many people who pay more than 30% effective federal. Many on this forum. You just didn’t realize that some people earn 1, 2 or 3 million or more

2. It’s a trade off spending money. It’s like equivalent of 30% off. iPhone I pay full price $1300. That’s like 30% off. I trade it in the next year

So you gotta spend to get the deduction. If you don’t spend. That’s fine also. You just will be taxed on it.

That is not how mathematics of expenses works 😂

At the end of the year, you have a new iPhone. And I have $900 more cash than you ($1300 cost of iPhone minus 30% federal effective tax rate.. Extrapolate it to the $170k of business expenses you said you have - and I am estimating that you are losing out on something like $120k of net savings a year just because you are creating expenses just to get a tax deduction

I am of course not saying that you should never spend anything. All I am saying is it is not very bright to spend just to get a tax deduction

 

[Arch Guillotti]

$60k - non working spouse 401k
$50k - education CME

sounds legit

 

[aneftp]

sounds legit

guys paid 26k for Vegas superbowl vip trip in a couple of week. That’s their write off.

50k can be easily accounted for.

Again like the other poster said. At what point doing spending money like this for business expenses make sense vs just paying taxes on it.

Corporations buy tickets for Super Bowl for decades for their employees. Do you frown upon that?

Same with my long time radiology buddy who has suites at Kansas City chiefs game. His dad owns a business. The suite is a write off for his dad to entertain clients.

 

[Arch Guillotti]

guys paid 26k for Vegas superbowl vip trip in a couple of week. That’s their write off.

50k can be easily accounted for.

Again like the other poster said. At what point doing spending money like this for business expenses make sense vs just paying taxes on it.

Corporations buy tickets for Super Bowl for decades for their employees. Do you frown upon that?

Same with my long time radiology buddy who has suites at Kansas City chiefs game. His dad owns a business. The suite is a write off for his dad to entertain clients.

of course, its all 100% legit. Is there even any question?

 

[sevo00]

guys paid 26k for Vegas superbowl vip trip in a couple of week. That’s their write off.

50k can be easily accounted for.

Again like the other poster said. At what point doing spending money like this for business expenses make sense vs just paying taxes on it.

Corporations buy tickets for Super Bowl for decades for their employees. Do you frown upon that?

Same with my long time radiology buddy who has suites at Kansas City chiefs game. His dad owns a business. The suite is a write off for his dad to entertain clients.

Seems you like have so many high net worth friends bro. Radiology bros, finance bros, retinas bros. Plus you seem to be the only one that nails all these high end anesthesia contracts. Starting to think this guy is a master troll…

 

[dumbmedstudent]

I would like 20% effective tax rate too

 

[triggermaster]

I would like 20% effective tax rate too

Just give half your money to charity and you’ll have a 20% tax rate. If you get your tax rate that low any other way you may have problems if you get audited.

 

[onconc]

guys paid 26k for Vegas superbowl vip trip in a couple of week. That’s their write off.

50k can be easily accounted for.

Again like the other poster said. At what point doing spending money like this for business expenses make sense vs just paying taxes on it.

Corporations buy tickets for Super Bowl for decades for their employees. Do you frown upon that?

Same with my long time radiology buddy who has suites at Kansas City chiefs game. His dad owns a business. The suite is a write off for his dad to entertain clients.

We are high net worth too dude. Just that we are not dumb enough to unnecessarily spend $170k to save $50k in taxes. Elementary school math

 

[aneftp]

We are high net worth too dude. Just that we are not dumb enough to unnecessarily spend $170k to save $50k in taxes. Elementary school math

I don’t know where you think I “spend/waste” 170k

I said 80k in regular business expenses.

40-50k for cme (normal people are income range spend an average of 15-20k for on big vacation alone ). So that’s like 2 big vacations yearly. An average trip for a family to Disney world alone is 10k. $500 per person tickets x 4 adds up quickly. Airfare $2000. Hotel $2000. Food $1500. Other expenses $2000. So why not take advantage of tax deduction while I’m on vacation doing my normal thing.

Solo 401k allows for catch up for employee spouse (employed by me) to run the business 30k pretax plus 25% employer contribution

That’s gives them social security and Medicare credits also.

I pay myself a nominal salary out of the solo 401k also but don’t contribute to the employee side of things since i already maxed on the the $30k employee side with my regular job

You are welcome to do with whatever you want with your money. We are all adults. We make our own decisions.

But my game plan is very simple

Here is the Finance Plan…..

Make money then make that money make money then once that money has made money, spend that money! It’s very simple. It’s elementary math. I agree. I should hit 15 million by age 60. So I think I’m doing just alright with my strategy. That’s on one income. And spending it also. So what if I don’t hit 25 million? Will that make a difference?

Nothing wrong with my game plan.

Seems to me is your goal is to leave your kids a nice 20 million dollar nest egg when you die. That’s fine also. Personal decisions.

 

[chessknt]

sounds legit

Definitely. I know id definitely hire a secretary for 100k with a fully funded 401 to do a few hours of work a week (the IRS would also totally agree that is reasonable to have a practice manager for a practice of one person with no office or other staff or equipment), then another 80k easily on business expenses that consist of a room in my house that I never go in to. Then I have the business Lambo I have to drive to the hospital and the business pool I put in my backyard to take meetings in. Thankfully republicans want to defund the irs so they'll (probably) never audit me.

Also the CME in Disneyland of course, forgot about that.

 

[onconc]

I don’t know where you think I “spend/waste” 170k

I already mentioned to you that I extrapolated that based on your iPhone example. You said you buy a new iPhone every year just to get the tax deduction. Right there is $900 of waste on a $1300 example.

I said 80k in regular business expenses.

Right there. $80k in regular business expense is also waste. A regular physician driving a reasonably priced car wouldn't need more than $10k of business expense. All the rest $70k is a waste. You may be adding the cost of renting a room in your home as your home office. Depending on how expensive is the real estate in your area, yes, that can also contribute something to business expense. But no way is the total anywhere near $80k (again assuming you are not living in a $50M mansion where one room rent is worth $1M).

Seems to me is your goal is to leave your kids a nice 20 million dollar nest egg when you die. That’s fine also. Personal decisions.

That may or may not be my goal. How did you conclude that my goal is not "retiring at age 45 with a 8 figure net worth" ?

You come across as a simpleton. You were going on and on about how no one here understands the difference between marginal and effective rates and that no one pays effective rates of 30%. I explained to you that people who earn several millions of salary do indeed pay effective rates of 30% or more. I am inferring from that that you think that the maximum salary of people here is around what you make , i,e. 600 or 700. At those numbers yes, the effective rates may be less than 30. But once you climb over a million and especially when you go into the multi million range, the effective rates and marginal rates start to converge.

Yet, all your comments so far (and especially on the first page) have been about
1. You have a "tremendous" knowledge about the tax rates; especially on marginal and effective rates
2. It is a no-brainer to convert from pre tax to post tax 401k while in prime earning (and high income) years

Now, given that I have explained how someone earning $1M or $2M will have effective federal tax rate of more than 30% and the same person in retirement will have much lower effective federal tax rate (assuming yearly withdrawal of 300k to 400k);
do you want to admit that both #1 and #2 above are false ?

 

[aneftp]

I already mentioned to you that I extrapolated that based on your iPhone example. You said you buy a new iPhone every year just to get the tax deduction. Right there is $900 of waste on a $1300 example.



Right there. $80k in regular business expense is also waste. A regular physician driving a reasonably priced car wouldn't need more than $10k of business expense. All the rest $70k is a waste. You may be adding the cost of renting a room in your home as your home office. Depending on how expensive is the real estate in your area, yes, that can also contribute something to business expense. But no way is the total anywhere near $80k (again assuming you are not living in a $50M mansion where one room rent is worth $1M).



That may or may not be my goal. How did you conclude that my goal is not "retiring at age 45 with a 8 figure net worth" ?

You come across as a simpleton. You were going on and on about how no one here understands the difference between marginal and effective rates and that no one pays effective rates of 30%. I explained to you that people who earn several millions of salary do indeed pay effective rates of 30% or more. I am inferring from that that you think that the maximum salary of people here is around what you make , i,e. 600 or 700. At those numbers yes, the effective rates may be less than 30. But once you climb over a million and especially when you go into the multi million range, the effective rates and marginal rates start to converge.

Yet, all your comments so far (and especially on the first page) have been about
1. You have a "tremendous" knowledge about the tax rates; especially on marginal and effective rates
2. It is a no-brainer to convert from pre tax to post tax 401k while in prime earning (and high income) years

Now, given that I have explained how someone earning $1M or $2M will have effective federal tax rate of more than 30% and the same person in retirement will have much lower effective federal tax rate (assuming yearly withdrawal of 300k to 400k);
do you want to admit that both #1 and #2 above are false ?

27% is my buddy effective tax rate grossing 1099 1.7 million in tax year 2022. I don’t think these are high net worth individuals. They work.

The real high net worth guys in my neighborhood have been retired since age 39 and 44. They are on a different stratosphere now they leverage tax advantage accounts and pay even less effective tax rates.

But yes. The majority people of people don’t have access to tax advantage savings employing multiple business strategies

You can call it whatever you want.

Congrats to you if you are making 1-2 million. Don’t work too hard for it because you are giving back too much of it.

 

[aneftp]

I already mentioned to you that I extrapolated that based on your iPhone example. You said you buy a new iPhone every year just to get the tax deduction. Right there is $900 of waste on a $1300 example.



Right there. $80k in regular business expense is also waste. A regular physician driving a reasonably priced car wouldn't need more than $10k of business expense. All the rest $70k is a waste. You may be adding the cost of renting a room in your home as your home office. Depending on how expensive is the real estate in your area, yes, that can also contribute something to business expense. But no way is the total anywhere near $80k (again assuming you are not living in a $50M mansion where one room rent is worth $1M).



That may or may not be my goal. How did you conclude that my goal is not "retiring at age 45 with a 8 figure net worth" ?

You come across as a simpleton. You were going on and on about how no one here understands the difference between marginal and effective rates and that no one pays effective rates of 30%. I explained to you that people who earn several millions of salary do indeed pay effective rates of 30% or more. I am inferring from that that you think that the maximum salary of people here is around what you make , i,e. 600 or 700. At those numbers yes, the effective rates may be less than 30. But once you climb over a million and especially when you go into the multi million range, the effective rates and marginal rates start to converge.

Yet, all your comments so far (and especially on the first page) have been about
1. You have a "tremendous" knowledge about the tax rates; especially on marginal and effective rates
2. It is a no-brainer to convert from pre tax to post tax 401k while in prime earning (and high income) years

Now, given that I have explained how someone earning $1M or $2M will have effective federal tax rate of more than 30% and the same person in retirement will have much lower effective federal tax rate (assuming yearly withdrawal of 300k to 400k);
do you want to admit that both #1 and #2 above are false ?

As for my iPhone. I resell it one year later on Facebook marketplace for at least $800 (Apple retail gives you $700 (prices fluctuates with their website it was $650 plus sales taxes so $697 they give back) Not losing very much. Alternative years with different phone line strategies with cell phone trade in promos as well. Bottom line. I ain’t wasting much money with my electronics value

Same with my suv sec 179 tax savings and trade in. Range rovers are expensive to maintain after warranty expires. So take the sec 179 tax savings and trade in for brand new 80k bmw x5 plug in this year for another sec 179 tax savings. So I get another new car. All personal decisions.

Again. Nothing wrong with not spending money.

But I get to enjoy my life while still building a pretty darn big nest egg. The last thing you want to be is crippled and not be able to enjoy your life

 

[triggermaster]

Your S Corp owns that phone so if you put the cash in your checking, you are cheating on your taxes. Right?

You are spending WAY more buying vehicles with frequent turnover than you are saving in taxes, but if you feel the need to always have a new vehicle then go for it I guess- as long as it’s worth the net expense to you not just part of an obsession with taxes.

 

[onconc]

27% is my buddy effective tax rate grossing 1099 1.7 million in tax year 2022. I don’t think these are high net worth individuals. They work.

That is a lot of disneyland CMEs to be able to reduce taxable income from 1.7 to like 400k.

How do they possibly do that ?

Don’t work too hard for it because you are giving back too much of it.

Yes, you are unfortunately right on that. My effective tax rate is insane.

As for my iPhone. I resell it one year later on Facebook marketplace for at least $800 (Apple retail gives you $700 (prices fluctuates with their website it was $650 plus sales taxes so $697 they give back) Not losing very much. Alternative years with different phone line strategies with cell phone trade in promos as well. Bottom line. I ain’t wasting much money with my electronics value

Same with my suv sec 179 tax savings and trade in. Range rovers are expensive to maintain after warranty expires. So take the sec 179 tax savings and trade in for brand new 80k bmw x5 plug in this year for another sec 179 tax savings. So I get another new car. All personal decisions.

Some numbers seem off. There is an IRS limit of some $30k in Section 179 that you can deduct on luxury vehicles. So multiply that by your stated effective rate of some 25%, and the tax benefit is some $7.5k (= $30k x 25%). But a new vehicle depreciates at least 20% in the first year; especially a luxury SUV. So your $80k BMW ($88k if you include sales taxe, doc fee etc) will be worth only $64k when you trade it in at the end of the year. So you are losing $24k ($88k - $64k) there in depreciation. So even after including the tax benefit, you are losing big on depreciation.

Again. Nothing wrong with not spending money.
But I get to enjoy my life while still building a pretty darn big nest egg.

I don't judge people who spend money. I don't judge people who don't spend money. You may get happiness from buying a $80k BMW; and trading it in every year to buy another $80k vehicle. Someone else may get happiness from being able to do a triathlon while spending $2k for it.

The last thing you want to be is crippled and not be able to enjoy your life

Lot of assumptions in that statement. None of those apply to me.

Corporations buy tickets for Super Bowl for decades for their employees. Do you frown upon that?

The scale of math is different. Corporations don't spend 1/4th of their revenue on entertainment expenses. They maybe spend 1% of their revenue on such things. You seem to be doing at a significantly higher percentage of your income. You spending $100k on a superbowl / disneyland and writing it off would be like Pepsi (annual revenue ~100B) spending $20 Billion on superbowl tickets to entertain clients.

 

[aneftp]

That is a lot of disneyland CMEs to be able to reduce taxable income from 1.7 to like 400k.

How do they possibly do that ?



Yes, you are unfortunately right on that. My effective tax rate is insane.



Some numbers seem off. There is an IRS limit of some $30k in Section 179 that you can deduct on luxury vehicles. So multiply that by your stated effective rate of some 25%, and the tax benefit is some $7.5k (= $30k x 25%). But a new vehicle depreciates at least 20% in the first year; especially a luxury SUV. So your $80k BMW ($88k if you include sales taxe, doc fee etc) will be worth only $64k when you trade it in at the end of the year. So you are losing $24k ($88k - $64k) there in depreciation. So even after including the tax benefit, you are losing big on depreciation.



I don't judge people who spend money. I don't judge people who don't spend money. You may get happiness from buying a $80k BMW; and trading it in every year to buy another $80k vehicle. Someone else may get happiness from being able to do a triathlon while spending $2k for it.



Lot of assumptions in that statement. None of those apply to me.




The scale of math is different. Corporations don't spend 1/4th of their revenue on entertainment expenses. They maybe spend 1% of their revenue on such things. You seem to be doing at a significantly higher percentage of your income. You spending $100k on a superbowl / disneyland and writing it off would be like Pepsi (annual revenue ~100B) spending $20 Billion on superbowl tickets to entertain clients.

Corporations are very top heavy. And their executives get tons of perks not just travel/jet perks but stock options perks relative to their annual compensation .

Even on a smaller scale. Small anesthesia company had a daily driver for ceo and maid for the home. To keep ceo fresh for the work day. That’s a waste of 200k. On 10 million of revenue for the practice.

 

[aneftp]

Can you answer the question I asked in a thread I created last sept ?

W2 vs 1099

*** X-posted from the main IM subspecialties page *** For the same income; and relatively low expenses, is it better to be on W2 or 1099 Income : 1M Annual expenses : 200k Let's say your total annual expenses including everything (car lease, mortgage, kids tuition, underwear, shaving cream ...

forums.studentdoctor.net

Basically, assume
- total income = 1 M
- total household expenses (including everything) = 200k
- Both me and spouse work and both have significant income. So I can't employ spouse myself.

The way the tax brackets work is the further you get higher than 600k roughly as a w2 (assuming married). You exposed yourself to so much taxes as a w2.

That’s why my brother anesthesia and his wife (Kaiser IM) always have him working as a 1099

Combined income of 1.2 million.

But as 1099. Hes has the the Charles Schwab defined benefits plan. Forgot how much he puts in. 150k-200k a year to shield from taxes in addition to regular business deductions.

The issue you face is the nasty California state income tax surtaxes for those making over 400-500k. You are literally paying like 11.25-12.25% state incomes

So taking over barley over 50% of what you make as a w2.

1. Are you both w2? That’s the worst of all situations for married couples who are physicians.

The old saying is it’s not what you earn. It’s what you keep.

2. You already did the calculations and said you would net 100k more as 1099 (by ur calculations) as a 1099. That’s a significant savings assuming you don’t write off even more expenses.

I know you don’t like to “waste”
Money on frivolous tax expenses.

Just no way to avoid California state income taxes besides moving or having huge deductions which you don’t want to spend to take

 

[onconc]

1. Are you both w2? That’s the worst of all situations for married couples who are physicians.

Yes, both W2

2. You already did the calculations and said you would net 100k more as 1099 (by ur calculations) as a 1099. That’s a significant savings assuming you don’t write off even more expenses.

I don't have any other expenses. And even the 200k is my entire yearly expenses including everthing. Not all of that is tax deductible.

Just no way to avoid California state income taxes besides moving or having huge deductions which you don’t want to spend to take

We have other reasons to stay in california. Don't wanna move out of cali

 

[onconc]

The way the tax brackets work is the further you get higher than 600k roughly as a w2 (assuming married). You exposed yourself to so much taxes as a w2.

@aneftp , what do you do about
1. FICA taxes on the 1099.
2. malpractice insurance on the 1099 part of your work

How much are those