How can I reduce my income tax?

Question

I'm a single 23 year old female with no dependents (unless there's a way to get creative). I make barely over $29,000 a year before taxes. Between state (CA), federal, and social security, I'm getting hit with about $500 in taxes per paycheck. It's insane! I pay about $289 to the fed, $60 to the state, and almost $150 in soc sec. That turns a $2447 monthly check into $1797 (the extra is benefits and such). I haven't claimed any allowances of any kind, as I just can't think of any that apply to me. I've got no assets and a whole bunch of credit card debt I could be paying off with that money.

Anyone got any ideas?

Answer 1

There isn't much you can do. If you make money, the government takes a part of it. You can't avoid that. I can always suggest finding ways to cut back so that you can afford to pay back your debts. That may mean not dining out, cutting off your cable, not partying, etc.

As for your taxes, there is not a lot you can do. Most tax write offs you hear about are for people who make and spend a lot more money than you. Then again, they are taxed at a rate up to 38%, you are taxed at 15%.

One thing you can do is to put into a traditional IRA. Every dollar you put into this reduces your taxable income. And if you put enough into it, you may qualify for an additional tax credit (up to $200).

Do you have student loans you are paying back? The interest you pay can lower your taxable income.

If you are in school right now, you can get a tax credit for the tuition you paid.

Answer 2

Well, keep in mind, you can always claim yourself on the W4.

Also, remember that the W4 is simply a guideline that your payroll department uses to calculate the amount of tax which will be withheld in accordance with what your estimated tax liability is going to be. This is based off of your amount of pay per pay period, and is therefore subject to rise and fall even if your end-of-the-year gross is less than some of those pay periods would suggest it was going to be. This guideline operates under the auspices that if you make X dollars and claim 3 dependants, then since you're paying less in taxes due to the allowances on your W4, you'll also be claiming 3 dependants on your 1040 and, therefore, be balancing it all out. However, you can just keep more money per pay period and then not get much (if any) of a refund.

As long as you aren't claiming a rediculous amount of allowances on your W4 you're in no danger of the IRS raising an eyebrow. Stick 2 or 3 on there if you're sure you'll not still have liability at the end of the year. And even if so, better to get extra money every paycheck and pay in $300 at filing time than give the govt' an interest-free loan for a year.

Answer 3

Seriously, the only way to pay less taxes is to make less money.

Most "deductions" occur when you spend money so, in your case, you would have to spend $1000 to save $150. You would be still $850 in the whole.

The one exception is retirement. It is never too early to think about saving for retirement. Putting $4000 in a IRS would save you $600. Sure, you would be out the $4000 but you would be investing in yourself. Something to think about.

Answer 4

On income of $29,000 in 2006, your taxes are
social security $1,798
medicare $420.50
CA SDI $174
Federal income tax $2646.25.
Plus CA income tax.

For federal income tax your top income is in 15% bracket. So if you invest $4,000 in Trad IRA, you will save only $600. For your age and tax bracket should you invest or not?

Answer 5

u are doin good girl . tobad u like shoppin too much and or partyin. the best way in u'r situation is to invest money in tax right off investments that pay back latter but at u'r age u will not think that way. I know because when we are young we will not listen to old people like me who blew there life away by not saving and investing.