How to RAISE my tax liability?

[Lazarus52980]

This feels like it must be the dumbest thing I have ever asked anywhere, but yes, is there any way (other than getting a 2nd job and making more $$) to raise my tax liability?

The reason I would ask seems important in this situation.

My wife and I are foster parents, and it is looking like we will be adopting all 3 of our foster children in 2015. When you adopt from the foster system, you are able to take the entire available adoption tax credit, which means we will have a tax credit of about $40,000 to use over the course of 2015 through 2021. I do not current pay all that much in taxes (I work, and my wife is a stay-at-home mom with my biological kids and my foster children) so I will not be able to use $40,000 in tax credit over 6 years.

Thus my question: How can I raise my tax liability so that I use more of that $40,000?

 

[Squeetard]

Ask for a raise!

 

[NutBucket]

Cash out your IRA and re-invest into a Roth? Send the wife to work?

 

[Lazarus52980]

Cash out your IRA and re-invest into a Roth? Send the wife to work?

I have a 401k but not an IRA... Maybe something to look into, since I guess I could do it without penalty.

My wife homeschools our 4 biological children and 3 foster children, so I don't think I would want to add to her burden by having her work too. Seems like a good way for her to go insane. :'(

Good thought though! I'm appreciative of any ideas.

 

[TwiceOver]

How about not gaming the system, that's an option too right?

 

[Lazarus52980]

Ask for a raise!

I think I am due for a cost of living raise in the near future, but that's about it.

 

[Lazarus52980]

How about not gaming the system, that's an option too right?

Gaming the system? How am I doing that? /confused

 

[dullard]

Rolling your 401k into a Roth IRA (or Roth 401k if possible) in 2015 would be the easiest by far. All money that is rolled over into a Roth is instantly taxable (but in the long run has little to no impact on you if tax brackets stay the same, so doing this probably doesn't harm you). But, you have to either lose your current job or be over 59.5 years old to qualify for many of those types of rollovers. If it is feasible, it may even be worth it to change jobs just for this reason (or quit for a few days and be rehired if you have a great boss).

Do you have any assets to sell like stocks or collectables that are outside of your 401k? Those would incur taxes on the year you sell them.

Do you have some spare cash now? If so, you can prepay most of your normal 2015 deductions. For example, if you own a home, you can pay your 2015 real estate taxes in 2014. That will give you a big tax refund for 2014 and a big tax liability increase in 2015. Same with donations, make all of your 2015 donations in the next week (or hold off until Jan 2016 to do your 2015 donations). You can probably do it with mortgage interest a bit, but see if your bank will allow you to prepay interest.

If you have a great HR department, you can maybe sweet talk them into withholding the rest of your 2014 salary (if any) until Jan 2015.

Do not put any money past your company match in the 401k in 2015. Put it into a Roth IRA or Roth 401k in 2015 instead (or invest it now in the 401k for 2014 if you can, or hold of until 2016 if you can).

Another easy one: quickly file a very large estimated state INCOME (typo fixed, oops) tax payment. Suppose you pay $10,000 in estimated state taxes on Friday. Then you get to deduct $10,000 more from your 2014 federal taxes (saving you maybe $2500 in 2014's taxes if you are in the 25% tax bracket). But you'll get back an additional $10,000 on your state tax refund in 2015 because you didn't really owe it. So your 2015 federal income will be adjusted up $10,000 (adding $2500 to your 2015 tax liability).

 

[Lazarus52980]

Stuff

This is great Stuff Dullard, thank you. I don't know if I will have time for this in the next week before the end of the year, but I can do it next year, since I will have 6 years to use the money.

 

[dullard]

This is great Stuff Dullard, thank you. I don't know if I will have time for this in the next week before the end of the year, but I can do it next year, since I will have 6 years to use the money.

You posted after my last edit. So you may have missed the estimated state tax possibility. That is the only one in that list that I haven't used personally to shift liability from one year to another. But I know a CPA who recommended it to me, but I decided against it.

 

[CPA]

Rolling your 401k into a Roth IRA (or Roth 401k if possible) in 2015 would be the easiest by far. All money that is rolled over into a Roth is instantly taxable (but in the long run has little to no impact on you if tax brackets stay the same, so doing this probably doesn't harm you). But, you have to either lose your current job or be over 59.5 years old to qualify for many of those types of rollovers. If it is feasible, it may even be worth it to change jobs just for this reason (or quit for a few days and be rehired if you have a great boss).

Do you have any assets to sell like stocks or collectables that are outside of your 401k? Those would incur taxes on the year you sell them.

Do you have some spare cash now? If so, you can prepay most of your normal 2015 deductions. For example, if you own a home, you can pay your 2015 real estate taxes in 2014. That will give you a big tax refund for 2014 and a big tax liability increase in 2015. Same with donations, make all of your 2015 donations in the next week (or hold of until Jan 2016 to do your 2015 donations). You can probably do it with mortgage interest a bit, but see if your bank will allow you to prepay interest.

If you have a great HR department, you can maybe sweet talk them into withholding the rest of your 2014 salary (if any) until Jan 2015.

Do not put any money past your company match in the 401k in 2015. Put it into a Roth IRA or Roth 401k in 2015 instead (or invest it now in the 401k for 2014 if you can, or hold of until 2016 if you can).

Another easy one: quickly file a very large estimated state sales tax payment. Suppose you pay $10,000 in estimated state taxes on Friday. Then you get to deduct $10,000 more from your 2014 federal taxes (saving you maybe $2500 in 2014's taxes if you are in the 25% tax bracket). But you'll get back an additional $10,000 on your state tax refund in 2015 because you didn't really owe it. So your 2015 federal income will be adjusted up $10,000 (adding $2500 to your 2015 tax liability).

I believe this would only work for 2014, as he begins taking the credit in 2015. I can't see any of these ideas making any difference from 2015 through 2021. He would just be moving liability from one year to another, with no appreciable benefit.

 

[dullard]

I believe this would only work for 2014, as he begins taking the credit in 2015. I can't see any of these ideas making any difference from 2015 through 2021. He would just be moving liability from one year to another, with no appreciable benefit.

True, I answered just for 2014. But the Roth IRA / Roth 401k option is available for all the other years. And he can reverse it in the last year (put many deductible expenses into 2022 instead of 2021).