2018 Taxes

[Trice]

The following is a real life conversation I had with a client who makes approx. $400,000 in W2 wages a year and has approx. $125,000 withheld for fed and IA taxes a year:

He asked me if he should ask for a pay decrease so he wouldn't be paying so much in taxes. Before I had the chance to answer his wife called him a moron and told him no way in hell was he asking for a pay decrease.

One would hope that a Venn diagram of people who make $400K in one circle, and people who would ask a question like that in another circle, should not intersect. But sadly, the recent public discussion around marginal tax rates would indicate that those two circles are more than likely actually the same circle.

 

[isufbcurt]

I can't fathom being in a position to take in that much income, yet still somehow have zero understanding of how to effectively manage it.

The icing on the cake - He works for a government contractor.

 

[NickTheGreat]

The following is a real life conversation I had with a client who makes approx. $400,000 in W2 wages a year and has approx. $125,000 withheld for fed and IA taxes a year:

He asked me if he should ask for a pay decrease so he wouldn't be paying so much in taxes. Before I had the chance to answer his wife called him a moron and told him no way in hell was he asking for a pay decrease.

He's right though. If he asked for a 50% decrease in pay, he'd pay less in taxes. Not completely due to tax brackets though . . .

 

[besserheimerphat]

Forgive me, I do not mean to talk down to anyone or insult anyone. I saw 2018 Taxes thread and it hit a nerve and when I opened it up about 5 minutes into it I read someone frustrated about their tax return not being as much as it was in the past years.

My wife and I just started the 2018 tax return filing, the preliminary outlook shows we are going to have to pay a lot in taxes again. We both have very well paying jobs where we have a significant portion taken out as well in taxes. We take advantage of every tax saving encentive. We also own our own business along with our W2 jobs. This business also makes good income, and we also take advantage of any tax saving incentive there as well. I should not complain because we are blessed.

But to see that I owe $12,000 in Federal and State income taxes on top of the taxes that were already withdrawn from both my Wife and I's paycheck every other week, is frustrating, especially when I already pay in quarterly estimates for our business. I then hear other peoples frustration about their tax return not being as big as they liked. All I can hear is those blasted election commercials with the people putting down one party saying over and over "Everyone should pay their fair share".

Sorry, done ranting. Again, I'm not talking down to anyone or casting judgment on anyone. But when someone posts about their tax return not coming fast enough or this year they only got $1800 back instead of $2100 back, forgive my frustration, my sighs, and my eye rolls.

But you do realize those people getting refunds are still paying taxes, right? I make a little over $100k/yr and will be getting a refund of a few thousand dollars like we have every year since forever. That doesn't mean we aren't paying taxes, it means we're overpaying our taxes every paycheck and this is Uncle Sam making us even with a single check.

 

[ArgentCy]

The icing on the cake - He works for a government contractor.

Shocked.

 

[besserheimerphat]

Shocked.

Are you saying that people who claim taxes are disincentives for work are wrong? I don't think both claims can logically be true at the same time.

If taxes are disincentives to work, then it is rational to work less to pay less tax. If it is irrational to make less money just to avoid taxes, then taxes aren't a disincentive to work.

 

[isufbcurt]

Shocked.

To be fair to my client he does possess very good IT skills and is good at his job.

 

[Trice]

Are you saying that people who claim taxes are disincentives for work are wrong? I don't think both claims can logically be true at the same time.

If taxes are disincentives to work, then it is rational to work less to pay less tax. If it is irrational to make less money just to avoid taxes, then taxes aren't a disincentive to work.

The guy isn't asking to work less. He's asking whether he should take a pay cut, while doing the same amount of work, to lower his taxes. Rightfully, his wife called him a moron.

I'm not an economist, so I'm hesitant to wade into an argument about incentivizing work. But if someone who has a desire to earn more money chooses to turn down his $408,201st dollar because it is only going to put $0.65 in his pocket instead of the $0.68 that his $408,200th did, then by all means he should do so. The rest of us will be here wondering how a guy that dumb ever got a job that good in the first place.

 

[Antihawk240]

But you do realize those people getting refunds are still paying taxes, right? I make a little over $100k/yr and will be getting a refund of a few thousand dollars like we have every year since forever. That doesn't mean we aren't paying taxes, it means we're overpaying our taxes every paycheck and this is Uncle Sam making us even with a single check.

Absolutely I understand you pay. As do I. I just get frustrated by people complaining they don’t get their return fast enough or it was as big as they wanted. I file taxes too and I get a bill at the end of it.

 

[Antihawk240]

There's no reason for someone to be surprised by their taxes. They publish new tax brackets months before the new tax year starts. Even if your income is variable, you ought to be able to rough out the numbers at any point throughout the year and adjust your withholding if you choose.

Obviously that requires a willingness to dig into the numbers that many might not have, but if you own a business this shouldn't be foreign to you. Or have an accountant do it.

But it sounds more like you just feel like you pay too much in taxes, period. And that's just a philosophical problem you'll have to come to grips with. Tax rates haven't been lower in our lifetimes than they are now.

I hear you. I understand and keep up to date on all our numbers. I pay the legal required estimates. I know the tax bill is coming. If I were to increase my estimates by $3000 a quarter that’s just working capital I’m throwing away. I can use that $3,000 to make more money and then settle up at year end.

You are exactly correct. I understand the laws and regulations. It’s the writing a check when everyone else gets one back is the pill I can’t swallow.

 

[Cyclone.TV]

I hear you. I understand and keep up to date on all our numbers. I pay the legal required estimates. I know the tax bill is coming. If I were to increase my estimates by $3000 a quarter that’s just working capital I’m throwing away. I can use that $3,000 to make more money and then settle up at year end.

You are exactly correct. I understand the laws and regulations. It’s the writing a check when everyone else gets one back is the pill I can’t swallow.

So you are mad that you pay in at the end but you do it like that so you can use it to make more money during the year....

But if you’d pay more in during the year you’d get a check back now...

It sounds like you just don’t like taxes. Welcome to the club.

 

[capitalcityguy]

Well duh. You can't squeeze water from a stone, and people with little money don't have much to tax.

agreed....yet someone still thought it sensible to make a comment suggesting surprise that the "stone(s) " should have been given tax relief from something they were paying little or none of to begin with.

 

[Trice]

I hear you. I understand and keep up to date on all our numbers. I pay the legal required estimates. I know the tax bill is coming. If I were to increase my estimates by $3000 a quarter that’s just working capital I’m throwing away. I can use that $3,000 to make more money and then settle up at year end.

You are exactly correct. I understand the laws and regulations. It’s the writing a check when everyone else gets one back is the pill I can’t swallow.

Every decision has its opportunity cost. At least you're on top of it and not caught off guard by it.

 

[dmclone]

Anyone thinking about moving from TurboTax Online to H&R Block software, don't do it. The TurboTax is so much better.

 

[Rabbuk]

I hear you. I understand and keep up to date on all our numbers. I pay the legal required estimates. I know the tax bill is coming. If I were to increase my estimates by $3000 a quarter that’s just working capital I’m throwing away. I can use that $3,000 to make more money and then settle up at year end.

You are exactly correct. I understand the laws and regulations. It’s the writing a check when everyone else gets one back is the pill I can’t swallow.

By working capital do you mean hookers and blackjack?

 

[CascadeClone]

If taxes are NOT a disincentive to do something (e.g. income) then why do we tax "bad" things like cigarettes? Because you're darn tootin' they are a disincentive! If you make something more expensive, people are going to want less of it.

Income taxes are a disincentive to WORK more, not a disincentive to get PAID more for the same work.

A lot of economics is really simple stuff that totally makes sense if you look at it one way, and totally looks like BS if you look at it another way.

 

[isufbcurt]

Income taxes are a disincentive to WORK more, not a disincentive to get PAID more for the same work.

If you are turning down income because you have to pay more in taxes YOU ARE A MORON!!!

Give me $100,000 more income and I'll gladly give up $40,000 in taxes. It's still a net win.

 

[Rabbuk]

If you are turning down income because you have to pay more in taxes YOU ARE A MORON!!!

Give me $100,000 more income and I'll gladly give up $40,000 in taxes. It's still a net win.

It depends on the work attached to it

 

[besserheimerphat]

If taxes are NOT a disincentive to do something (e.g. income) then why do we tax "bad" things like cigarettes? Because you're darn tootin' they are a disincentive! If you make something more expensive, people are going to want less of it.

Income taxes are a disincentive to WORK more, not a disincentive to get PAID more for the same work.

A lot of economics is really simple stuff that totally makes sense if you look at it one way, and totally looks like BS if you look at it another way.

Because cigarettes, alcohol, etc are things you PAY for. So we make them more expensive to reduce demand.

But income taxes are taxes on money being PAID TO YOU. Any tax rate <100% results in you making more money when you work more. It's still a net benefit for you. And a rational actor should always work to maximize their well being. So if you claim taxes as the only reason for not increasing your income, you are being irrational from an economic standpoint.

When you get a merit raise (not just a cost of living adjustment), the economist's view is that you are more productive; you are doing more work for your employer. If you weren't, they wouldn't have given you the raise. Even if you always work the same 40hrs/week.

Do you know anyone who has ever turned down hours, over time, a raise, etc due to taxes? Maybe due to countless other things, but not because of the taxes.

ETA: And this is consistent with the idea that WELFARE disincentivizes work. If additional income pushes someone over a threshold where the loss of benefits outweighs the new income, a rational actor maximizing their own well being SHOULD choose to decline the extra income. That is a valid argument. But you can't use the logic one way to make one argument and then change the logic to make another argument. That's not how logic works.

 

[DreamyCy]

I hear you. I understand and keep up to date on all our numbers. I pay the legal required estimates. I know the tax bill is coming. If I were to increase my estimates by $3000 a quarter that’s just working capital I’m throwing away. I can use that $3,000 to make more money and then settle up at year end.

You are exactly correct. I understand the laws and regulations. It’s the writing a check when everyone else gets one back is the pill I can’t swallow.

So you just complained about having to owe money and now are stating you’re intentionally under paying so you can have more working capital.

People who get consistently large refunds are just morons who don’t know how to properly set up their withholdings.