Tax Question: How can I reduce my tax liability?

Question

Got married this year in September. He made 120K (income & investments). I made close to 90K. We just closed on a house in October (300K). For 9 months out of the year my W4 withholdings were single/5. His were single/1.

I'm concerned

1. I didn't have enough taken out because I was claiming for myself and children. before i was married this worked out! I got some $ back.

2. Can we get any credit for closing costs and taxes paid on our home?

3. Will charitable gifts reduce our tax liability? around $5000 given this year.

4. Are we better off filing joint or separately?

I'm scared we're going to have a huge tax bill come tax time.

ozeki- we plan to. but i've been worried about it. i obviously wouldn't take and run with any advise from yahoo! answers, come on now! i did, however, hope to run into some tax-savvy person who could give me a little insight into the who thing. BTW, why bother answering if you have nothing to contribute?

lovely- i paid around 30% as a single mom with 4 kids on 90K annually. now that im married i had hoped the burden could be shared. but i guess you don't have any advice either, huh. didn't think so.

you people crack me up. check out my profile. what's the point in lying? why bother with the question?

Answer 1

To give a couple of quick answers:

1. Closing costs on a home are not deductible, rather, they are added to the basis of your home. Property taxes are deductible as itemized deductions.

2. Contributions are also itemized deductions.

3. Although you should work the numbers both ways, for the vast majority of couples MFJ is the best.

4. As mentioned above, it is very late in the year for tax planning. Still, I would recommend you see a tax professional ASAP for a tax projection. You may still be able to max out retirement plans, etc. On top of that, if you know how much you will owe you still will have 4 months to come up with the funds, that is better than finding out on 4-15.

Finally, do not listen to anyone who implies that doing everything you can to legally reduce your tax bill is being greedy. Tax professionals specialize in making sure you pay the legal minimum for your circumstances, while keeping you in compliance to avoid future problems. Even if its too late for 07, you can get on the right track for 08 with good advice taylored to your circumstances.

Answer 2

I just checked your profile and you are a lawyer. I hope that you have some tax specialists at your firm.

Here are some basic observations from your question.

I'm guessing that you will be subject to AMT. If this is the case, any answer can be skewed.

Just because you got married will not necessarily reduce your tax liability. Actually, being an unmarried couple with children and owning your own home is a better situation when it comes to taxes. If you don't believe me, run the numbers yourself when you prepare your tax return.

If you are that concerned, make an estimated payment by January 15, 2008. The worst thing that will happen is that you will get the money back when you file your taxes.

You don't give enough information if you had enough withheld based on your total deductions. Since you claimed 5 exemptions on your W-4, you are stating that you had at least $17,000 in deductions. This does not include any deductions that your husband had. Read IRS Publication 15 for more information.

You cannot get a credit for any closing costs that you paid. However, the property taxes that you paid when you closed on the house, from the date of closing through the end of the year, can be taken as an itemized deduction on your tax return.

The charitable contributions will reduce your tax liability as long as you itemize. If you have anything else that you can give (things, not cash) will further reduce your tax liability. I am stating things because I am assuming that you are only interested in reducing your tax liability without reducing your cash flow. If you want to make cash contributions, go ahead.

Filing joint will be beneficial unless you have specific knowledge to file a separate tax return. If you file separate, then you will lose any possible tax credits like the Child Tax Credit.

If you and/or your husband each had your own houses before you bought your house, then you have mortgage interest that you can use as a tax deduction. Sine you closed on your house in October, I'm guessing that your first mortgage payment was due December 1. That won't help you much at tax time for this year.

I hope this helps.

Answer 3

Your tax liability for the year is already determined. Now it is just a matter of figuring out what it is. with such a high income, you should probably see a tax adviser. You will have to have your tax liability computed several ways to find the lowest tax. You may be subject to the ATM. I hope you can avoid an underpayment penalty.

You can itemize and deduct property taxes, interest, and charitable contributions. Also medical expenses in excess of 7.5% of your adjusted gross income, and some other items perhaps.

You may run into interesting problems. My son and his wife each contributed to IRAs before they were married. Then when they were married, they were penalized because their total contribuitons that year were excessive as a married couple although they were OK as singles. What's more, they were penalized each year thereafter for the same contributions made before marriage, a strange marriage penalty.

Answer 4

As you know it's a little late. not sure what you can do about it. Not sure how many kids you have but gonna guess 4 if so your probably ok. IRS contributions wont help you. The taxes points and interest may or may not help. Combining that with the charity and state taxes will push you into itmeizing. But there isnt much use in crying over spilt milk. You can get out of a penelty because your situation changed so all you will owe will be the taxes you owe. So it's not like your getting screwed over. All you can do is get em figured out this year and adjust your W-4 accordingly. I'd see a pro this year.

Answer 5

You made that much money ( 210k a year ) and you are trying to pay LESS in taxes, while people barely make 1/3 of your income 'alone' and give up aprox. 30% at the end of the year!?

You should have aprox. 30% tax deduction for both of you like everyone else and be happy about it because you still have bunch to live on. Don't be greedy.

Answer 6

It's a bit late to try to do anything for this year. But you can see an advisor and make plans for next year.

Answer 7

So glad that I found this topic already answered! it is like you've read my thoughts!

Answer 8

by seeing a tax advisor. come on now.