Lowering Tax Liability
July 24, 2006
I work a TON and make about 30-50% over my normal salary in overtime, which sounds like a whole lotta luxury but in reality is not really much at all. The overtime has been a total lifesaver in allowing me to superfund my financial “holes” like my personal expenses, cover many family expenses, pay down parental debt ($XXXX! *sigh*) and still add the desired amount to the growing emergency fund. I do feel like I’m sitting on a prickly cushion because I know that I depend on a much bigger paycheck than would normally be warranted and if that OT ever went away I’d be in a pretty uncomfortable situation. However, the larger paychecks mean that I also have to be aware of my tax bill.
My primary fixes for this situation are to:
1) Fund a supplemental retirement account: 403(b). As I posted earlier, I increased the contribution rather drastically a few months ago because I realized that by the end of this calendar year I will still only have lowered my tax liability by a couple thousand dollars. Can I afford to increase the contribution? I’m not sure that I can. I know that each additional $100 I contribute pretax works out to something like $60-80 actual dollars out of my regular check and that might just not work for me right now.
2) Transportation Subsidy: I should have done this before/earlier, but I’m going to have the University take out $100 per month before taxes for my train ticket, with the remaining cost of the ticket post-tax. My office reimburses for the train tickets so the entire cost will still be nothing for me but reduce my tax liability $100/month. That’s good but since I waited so long it’ll only be effective for Aug or Sept-Dec of 2006.
The second solution is unique to my office because most other offices do not reimburse for transportation expenses – this office does that because it pays for parking for driving employees so the “equivalent” benefit for the non-drivers would be having their train ticket paid for. Our accountant doesn’t like it but I am NOT against this one bit.
I can’t think of any other solutions that won’t reduce my take-home pay right now – and I really can’t afford to reduce it anyway. How do other people reduce their tax liability – legally, of course?
