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Budget Planning for Minimal Taxes

June 4th, 2008 at 01:13 pm

I always have a budget. Sometimes things happen to cause me to tweak it (new things learned or experienced) and sometimes even completely rewrite it (divorce). Always, I ask myself how I could spend less yet maintain an abundant, pleasurable lifestyle. And, I've come to realize that spending according to my values helps me stay on budget.

You need to make a minimum to live but I still maintain its not what you make its what you keep from your income that is most important.

So, with that in mind, I always try to structure my budget to pay $0 taxes. Not entirely possible with taxes on gasoline, sales tax, phone taxes, FICA ect (unfortunately the list goes on and on). But I can control consumption, look for legal ways around a tax and plan my finances to use the tax laws (legally) to pay $0 federal income tax and something close on Maryland income tax which is much harder to do.

I contribute to my 403b7 to take my income down and set up my living expenses to allow me to live comfortably on about $18,000. If my adjusted gross income is 17,999 and I have contributed at least $2,000 to a retirement account the retirement tax credit takes my income tax down to $0. The $18,000 is not my income just the amount I live on.

Years ago, I read somewhere that tax planning is an important part of budgeting and that statement has been an important part of my ability to save money for a long time. It works. Even when I was married and our income was close to $100,000 a year we paid very little in taxes because to tax planning.

Never did we do anything illegal or shady, we just structured our budget starting from January 1st of every year to pay the minimum allowable under the law.

I still feel I contribute my fair share. I pay taxes (sales, gasoline, excise, FICA ect) and donate to charity. I just try to do it consciously and with deliberation. Its part of living my values.

In my next few posts I will write about how I am structuring myself to live well on !8,000 a year.






5 Responses to “Budget Planning for Minimal Taxes”

  1. sagegirl Says:

    I was determined this year to analyze my tax load and see how to plan better, which would include adjusting withholdings and making better pre-tax contributions. It is my goal and I have 6 months left in the year to work on this. I look forward to reading your posts related to this.

  2. Sunshine Suz Says:

    I am looking forward to your "$18,000" posts. The number I was playing with for me in the future is $18,500 so will be very interesting what you are doing.
    Would you share what state you live in?
    Thanks.

  3. managinglife Says:

    We have also restructured our salary incomes for better tax planning for 2008. I have increased my 401K to 12%, decreased my federal tax exemptions on my military retirement and salary pay. I hope to minimize my tax for the IRS.

  4. scfr Says:

    Are you talking about reducing your total (federal) tax to zero, or reducing your taxes owed when you file your return to zero?

  5. klbb90 Says:

    Total taxes paid and owed would be zero. Take 18,000-5350(standard deduction)-3400(personal exemption)=$9,250. $9,250 has a federal tax of $1,000. Now, use the federal retirement credit of $1.000 and taxes owed are zero. However, I think I have to take my income down to 15,500 to get the full $1,000 now that I am single and not head of household. So I will probably have to adjust my contributions to reach down to 15,500. I will look at this closely in the next 3 weeks so I can adjust my contributions. Up until a few weeks ago I thought I would be filing Head of Household this year.

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