With April upon us the tax deadline is looming and I decided to sit down this past weekend to work on our taxes. My go to tool is TurboTax and I have a love/hate relationship with this software but that’s a story for another day. After going through dozens of documents and forms the software let me know that we owe about $15,000 for 2023. That number included a penalty for underpaying the taxes too!
Why do I owe so much? Well let’s start with my favorite new tax bracket table:
| Status | Tax Rate | on taxable income from… | up to… |
|---|---|---|---|
| Single | 10% | 0 | 11000 |
| Single | 12% | 11001 | 44725 |
| Single | 22% | 44726 | 95375 |
| Single | 24% | 95376 | 182100 |
| Single | 32% | 182101 | 231250 |
| Single | 35% | 231251 | 578125 |
| Single | 37% | 578126 | Infinity |
| Married | 10% | 0 | 22000 |
| Married | 12% | 22001 | 89450 |
| Married | 22% | 89451 | 190750 |
| Married | 24% | 190751 | 364200 |
| Married | 32% | 364201 | 462500 |
| Married | 35% | 462501 | 693750 |
| Married | 37% | 693751 | Infinity |
| Head of Household | 10% | 0 | 15700 |
| Head of Household | 12% | 15701 | 59850 |
| Head of Household | 22% | 59851 | 95350 |
| Head of Household | 24% | 95351 | 182100 |
| Head of Household | 32% | 182101 | 231250 |
| Head of Household | 35% | 231251 | 578100 |
| Head of Household | 37% | 578101 | Infinity |
Our wages wedge us in between the 24% and 32% tax brackets but unfortunately all the other income put us over the top into the 32% bracket. The other income comes from rental properties, interest, dividends and even Jury Duty pay! Essentially all the other extra income got taxed by our favorite Uncle at a higher 32% rate.
Tax Shelters
The largest tax shelters that we have are socking away money into 401k’s and we both maxed the amount we could defer. We do not qualify for Roth IRAs at our income level.
Deferred Income
I have another “tax shelter” which allows me to defer my income into the future but for 2023 I did not take advantage of that because I missed the enrollment deadline and I hate to say that I missed the enrollment deadline for again for 2024 tax year! I have now put a reminder on my calendar to make sure I enroll before the deadline and will defer a good chunk of money. This doesn’t eliminate taxes though, it just “hides” income until some point into the future at which point taxes will be due.
No Tax Credits
On our taxes we also don’t qualify for any tax credits such as child tax credits, college HOPE credits, etcetera, nothing, zip, NADA.
Business Expense Write Off
The tax reductions we do get come from writing off business expenses for our rental property business but that just offsets the income from the properties so we are marginally neutral.
It Will Get Worse in 2026!
If you’ve been living under a rock or not paying attention, the tax brackets are set to go up in 2026 which is why I will definitely need to defer my income to some future point so I won’t have to deal with this mess over the next few years.
Tax Strategy
It is for this very reason that I wrote my 5 step retirement plan and wrote how I am investing my three buckets of money: tax free, taxable and tax deferred. All of this through the lens of taxation optimization because taxation is getting ridiculous.