How am I supposed to save?

amother

Fri, Jun 27 2014, 7:56 am

I don't understand something. We have been struggling for a while now, but BH our income took a turn for the better and we are now making around $120,000 a year. We owe a lot of debt, somewhere close to 30,000. We are both self-employed. I've never had to pay much taxes before since we never made a lot of money. Now, I am finding out that I will have to pay a LOT towards tax. As it is, we have NO money month to month, as every extra penny goes towards paying down debt. So does that mean that once I finally pay off the $30,000 in debt, I'll have the same amount or more, that needs to go towards taxes?!? How is that something to look forward to? I was really looking forward to the day our debt is done and we can start saving, but if the reality is that every year we need to pay that amount taxes or more, then we still will be in the same boat we are now, living month to month and JUST making it.

I am so upset just thinking about it. We have no savings at ALL. How are we supposed to save if every penny goes towards taxes??

AM I MISSING SOMETHING??

justforfun87

Sun, Jul 06 2014, 11:24 pm

Be grateful you only owe 30 grand. We owe over a hundred grand for schooling. With that income there is no reason you can't put aside payments towards the loan. In terms of taxes can your employer take it out of paycheck so you don't even see the money in the first place. Keep in mind about 25% of earned income will be owed to taxes.

gp2.0

Mon, Jul 07 2014, 5:45 am

Talk to a financial planner, definitely. There are ways to save money and get tax breaks either now or later. With an IRA taxes are deferred until you withdraw the money, with a Roth IRA you pay taxes now but don't owe taxes when you withdraw. There's 529 plans for saving for college.. Talk to someone. And obviously charity is tax deductible... So the part of your kids tuition that's charity, like the building fund and dinner fund are tax deductible.

33055

Mon, Jul 07 2014, 5:49 am

gp2.0 wrote:

The building fund and the dinner are not tax deductible if they are mandatory.

sky

Mon, Jul 07 2014, 6:57 am

I was told by an accountant that typically building funds and dinners can be tax deductible. For sure in my case, but in general as well.
My school required 1000 up front of the building fund for acceptance, that I couldn't claim, but the rest I was told I could, based on the wording that was used.
My rav also said dinner and building fund can be ma'aser because even if required they won't throw your kid out for not paying - or maybe that is just my kids school (dinner is not required in my school, but very strongly encouraged, so maybe that is the difference).

Back to the OP, I totally hear you - taxes stink.

One thing that worked for us is to have our savings deducted directly from our bank account monthly. We use it to save for our kids, 401 K, etc. Its much easier to do when you never even see the money.

33055

Mon, Jul 07 2014, 7:20 am

sky wrote:

You said it is not mandatory just simply encouraged. If it is mandatory, it is tuition and not deductible despite any wording on the receipt.

The IRS audited an entire school of parents who took the deduction in my town. This was explained to me by the CFO of the school I send to. He is aware that the parents can't legally deduct the money, however, he said that when they didn't make the contribution mandatory the schools did not raise the required money. Even the school that got audited with the parents also getting audited as a consequence still has "mandatory contributions."