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» From: San Francisco, CA Dear TaxMama: Housing and cost of living in San Francisco Bay are very high. A decent 3 bedrooms home is around $500K. We both are in the mid-30s, just started a family with a child, and just bought a house. We both have to work very hard to be able to pay for a mortgage payment, property tax, and childcare expenses. Our AGI is always a few hundred or a few thousands over $150K. We were told (by accountant) that we are not able to deduct anything since the AGI is over $150K. She suggests that my wife work part-time to reduce the AGI. However, if she works part-time, we won't have enough to pay for mortgage/tax. I feel like we both are working so hard, saving every penny we can, and still barely have any savings left, yet have to pay higher tax rate than others. It seems to be so unfair. Do you have any other suggestions on how we can reduce the AGI or any suggestion on how we can be able to reduce our taxes, period? Thank you very much, Lake Dear Lake, Yes, it does seem so unfair. And we can thank Congress for the new reductions in the 'Marriage Penalty' that won't take effect for many more years. But, I don't understand, why can't you deduct anything? You should be able to deduct your mortgage, property taxes, charity, etc. Yes, there are some limitations and some reductions as your income gets that high, but they're not enough to try to convince someone to earn less. That's just plain silly. There are some ways to reduce your AGI, though. Find out if your company has a 'cafeteria plan' or offers 'flexible spending accounts.' (FSA) They will be especially important to you since you have a child and child care costs. You're already spending money on child care and probably, some medical, that your insurance doesn't cover. If you pay those expenses through FSAs, you may be able to run as much as $10,000 through those accounts. That income would reduce your taxable wages (and, thus, your AGI). So, all that money, that you are spending anyway, would come off the top of your wages. It would not be taxed for income taxes, Social Security or Medicare, so you get a little extra bonus. (This would save you over $3000 in IRS/FTB/Medicare taxes.) And, rather than trying to reduce your earnings, just go out and earn as much as you can. Succeed. Do well. It's good for your soul! Best wishes, Eva Rosenberg Your TaxMama  |
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