When I’m not honing my negotiation skills with my four-year-old—yes, we brought a 10-inch snowball from home to nursery school today, but we did not transport it inside the car (yes! winning!)—or teaching GRE classes or bulk cooking … I read about taxes. What can I say? It’s … relaxing.
It’s also important. If you’ve been taking a closer look at your paychecks recently, you might have noticed that taxes take a big chunk of your pay. Here at LBYM, since we’re all about keeping more of what you make … I’m gonna read (and write) about taxes. I’m particularly interested this year because 1) our household made a lot less money and 2) as you may have heard, Congress passed a new tax law at the very end of 2017, one that very few people have actually read, let alone understand.
I’m not surprised that people don’t pay a lot of attention to taxes. It’s not like we talk very much about that other certainty … death.
*crickets*
Coming up next … your estate plan! #kiddingnotkidding
For the first time in a long time, I’m not really sure what’s going to transpire in February when I see my tax guy in NYC. Sure, we’ll still complain about the city, how expensive everything is, how terrible the traffic is. He’ll still list my husband’s name first on our tax return (I’m going to give him the benefit of the doubt and chalk this up to the fact that he was the hubs’ tax guy first). But the exact calculations? A mystery.
Even so, the law hasn’t changed so much that you and I can’t adhere to one simple tax guideline: if you’re definitely going to spend money on something, save money whenever possible by using pre-tax dollars. Here’s one example of how this principle plays out:
I knew my youngest would be in nursery school this year. He’s got a lot to learn. Also, I don’t want to hang out with him all day. Let’s say tuition is $3,000 per academic year (don’t roll your eyes … I’m trying to keep the math simple). If I’m in the 15% tax bracket, here’s how a Dependent Care Flexible Spend Account (FSA) which allows me to set aside his $3,000 tuition in pre-tax dollars would save me money:
I am sure my four-year-old will find other uses for that money.
Other things I’m definitely going to spend money on? Health care, housing, my kids’ college expenses, my retirement … rice. Except for the last item, our federal and many of our state governments have exempted some of the dollars we set aside for these things from income tax, making it just a little easier to pay for them. Makes sense, no? A country benefits from a healthy, educated populace that isn’t sleeping on the streets.
Really, you’d think the US would just cover health care and college outright.
Hmm 🤔.
So all these little pockets of tax savings from things you have to spend money on anyway? Come April 15th, they could add up to a nice little pot of seed money for your shadow budget.