What is your effective tax rate?

[quote author="centralcoastobserver" date=1240051556]Back to the eye drop issue.... he probably had a prescription for some quinolone type antibiotic, such as Cipro. That could cost $70 or $80, because it's not on the formulary for most insurance programs. It's not "formulary" because there's not much evidence that Cipro eye drops work any better than Gentamycin eye drops, which would retail for about $20, and be covered under most insurance plans. Don't blame the health care insurance system for this one, blame the MD's who always seem to want to order the newest toys.</blockquote>


Ok, if we must get back to this issue... Basically, the entire story is that I went to the optometry office my wife was working at for my eye infection. The doctor there prescribed the $70 eyedrop, which stopped the redness, abnormal discharge, and any discomfort. However, my eye was not back to normal after a few days as I was seeing things foggily 50% of the time (Now I know it's a condition called corneal edema). So I went to a different optometrist that's within walking distance of my work. That optometrist asked about my symptoms and the eyedrop that was prescribed. She said that she would have prescribed the same drug. So, she prescribed another eyedrop that cost another $70...



Now, my wife is actually an optometry student now. I asked her about how doctors determine which drug to prescribe. Basically, she says that most doctors would prescribe drugs that are known to best treat the condition as described in standard of care, which makes sense to me. In my case, 2 doctors agreed with each other on the prescription, which most likely means what was prescribed was the standard treatment for my condition. Therefore, I would not blame the doctors in this case, but rather our health care system. I came from Taiwan, my wife came from Japan. The eye drop in those 2 countries would cost no more than $20. Now, don't give me crap about why don't I go live in those countries. That's not the point. The point is that we should expect better.



And yes, I did comparison shop... I hope we can leave this eye drop issue now.
 
[quote author="MacInThebox" date=1240060549][quote author="ipoplaya" date=1240051164][quote author="MacInThebox" date=1240048761][quote author="ipoplaya" date=1240032061][quote author="MacInThebox" date=1239977093][quote author="ocorbust" date=1239967980]



Deductibility of IRA is phased out between $159,000 and $169,000 for 2008 :(</blockquote>


I think that's if you have 401k at work. I do not.</blockquote>


No, that is not if you have a 401k at work. Those figures are correct, to a degree, for someone without an employee sponsored plan such as yourself. The numbers are much lower if you have a 401k at work... Is your spouse covered by an employee sponsored plan?</blockquote>


Hmm... I did some research before I made my contribution. Did not see anything about IRA limit being phased out without 401k. Also, my accountant who's pretty experienced did not bring that to my attention. I just found this page, which is pretty updated: <a href="http://www.smartmoney.com/personal-finance/taxes/what-are-your-ira-options-9563/"><strong>IRA Calculation</strong></a>



It says I can contribute $5000 to my IRA for 2008.



Let me know if I missed something. My wife is a student and does not currently work.</blockquote>


Anyone can contribute to a traditional IRA up to the contribution limit. It does not matter what your income is... The question is whether or not that contribution is tax deductible.



<a href="http://www.moneybluebook.com/traditional-and-roth-ira-contribution-limits-and-income-phase-outs/">Section 4 here is the pertinent information.</a> If both you and your spouse are not covered under an employer sponsored plan and you filed jointly, it would appear that the deductibility of your $5K contribution would be completely phased out at an income of $169K. You might want to confirm this with your tax accountant. I'm an accountant but do not specialize in taxation.</blockquote>


Ok. I think I figured it out. The tax deductibility table on that web page is wrong. When both husband and wife are not covered by employer 401k, there is no deductibility limit: <a href="http://www.investopedia.com/articles/retirement/03/011603.asp">Another IRA tax deductibility page</a> If you look closely at the web page you mentioned, you will discover what the error is.</blockquote>


Ipo is right, and you are wrong.







"Full Deductibility" as quoted in the article you refer to, means you can deduct the maximum amount, or $5,000.







Do not use Investopedia or Money Blue Book or other third parties for tax research. Read directly from irs.gov
 
I don't think I am wrong: <a href="http://www.irs.gov/publications/p590/ch01.html#en_US_publink10006076"><strong>IRS IRA 2008 Publication</strong></a>



Refer to Table 1-3. Again, neither me nor my wife is covered by a retirement plan at work.
 
[quote author="MacInThebox" date=1240091682]I don't think I am wrong: <a href="http://www.irs.gov/publications/p590/ch01.html#en_US_publink10006076"><strong>IRS IRA 2008 Publication</strong></a>



Refer to Table 1-3. Again, neither me nor my wife is covered by a retirement plan at work.</blockquote>


You are not covered by a retirement plan at work? This is not limited to a 401k. Previously, you said you did not participate in a 401k. Any employer sponsored retirement plan will subject your deduction to phase out.
 
Here is the deduction info per the <a href="http://www.irs.gov/publications/p17/ch17.html">IRS Publication 17</a>



<em>Modified AGI limit for traditional IRA contributions increased. For 2008, <strong>if you were covered by a retirement plan at work</strong>, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:



More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),



More than $53,000 but less than $63,000 for a single individual or head of household, or



Less than $10,000 for a married individual filing a separate return.



If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? later.

</em>



<em>Full deduction. If <strong>neither you nor your spouse was covered for any part of the year by an employer retirement plan</strong>, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of:

$5,000 ($6,000 if you are 50 or older in 2008, or $8,000 for certain employer bankruptcies).

</em>
 
[quote author="Mcdonna1980" date=1240107387]Here is the deduction info per the <a href="http://www.irs.gov/publications/p17/ch17.html">IRS Publication 17</a>



<em>Modified AGI limit for traditional IRA contributions increased. For 2008, <strong>if you were covered by a retirement plan at work</strong>, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:



More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),



More than $53,000 but less than $63,000 for a single individual or head of household, or



Less than $10,000 for a married individual filing a separate return.



If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? later.

</em>



<em>Full deduction. If <strong>neither you nor your spouse was covered for any part of the year by an employer retirement plan</strong>, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of:

$5,000 ($6,000 if you are 50 or older in 2008, or $8,000 for certain employer bankruptcies).

</em></blockquote>


Many people mistakenly think of 401ks only when they consider employee sponsored retirement plans for purposes of deduction phase out. And very few EMPLOYEES who make over $100,000 annually are not covered by an employee sponsored retirement program. Many folks who make over $100,000 are not covered by employee sponsored retirement programs, but they are SELF-EMPLOYED.
 
[quote author="awgee" date=1240123047][quote author="Mcdonna1980" date=1240107387]Here is the deduction info per the <a href="http://www.irs.gov/publications/p17/ch17.html">IRS Publication 17</a>



<em>Modified AGI limit for traditional IRA contributions increased. For 2008, <strong>if you were covered by a retirement plan at work</strong>, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:



More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),



More than $53,000 but less than $63,000 for a single individual or head of household, or



Less than $10,000 for a married individual filing a separate return.



If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? later.

</em>



<em>Full deduction. If <strong>neither you nor your spouse was covered for any part of the year by an employer retirement plan</strong>, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of:

$5,000 ($6,000 if you are 50 or older in 2008, or $8,000 for certain employer bankruptcies).

</em></blockquote>


Many people mistakenly think of 401ks only when they consider employee sponsored retirement plans for purposes of deduction phase out. And very few EMPLOYEES who make over $100,000 annually are not covered by an employee sponsored retirement program. Many folks who make over $100,000 are not covered by employee sponsored retirement programs, but they are SELF-EMPLOYED.</blockquote>


Yeah, I am self-employed. I do take regular salaries, however. Accountant told me I have to, otherwise I'd get into trouble with the tax agencies.
 
If you are self-employed, (you do not receive a W2), most of what you what you have posted does not apply to you. If you are self-employed it would be your advantage to investigate a Simple IRA. And you should consider hiring your wife and children for tax purposes.









If you are an employee, (you receive a W2), from your own firm, your potential tax deduction for retirement purposes, a Sep or a Simple IRA, may be extremely complicated and I can not address it here.







Either way, I advise you to seek the advice of a competent and paid Enrolled Agent to do some major tax planning. You are probably great at what you do, but you suck at tax code. :cheese:
 
[quote author="awgee" date=1240149773]If you are self-employed, (you do not receive a W2), most of what you what you have posted does not apply to you. If you are self-employed it would be your advantage to investigate a Simple IRA. And you should consider hiring your wife and children for tax purposes.









If you are an employee, (you receive a W2), from your own firm, your potential tax deduction for retirement purposes, a Sep or a Simple IRA, may be extremely complicated and I can not address it here.







Either way, I advise you to seek the advice of a competent and paid Enrolled Agent to do some major tax planning. You are probably great at what you do, but you suck at tax code. :cheese:</blockquote>


Since you are self employed, if no employees, regardless of it is sole P, S-corp, etc., open a SEP IRA is the easiest and headache free way to contribute to your retirement, and be tax efficient. It has cap, of 4x,000 ( I can't remember exact number for 2008), and limits to 25% of your net income ( income after all expenses), and subject to some adjustments to self employment tax which reduces your net income for the purpose of SEPIRA contribution calculation purpose, which in term reduces your max contribution amount. Check out the fidelity site, which has good information, and a calculator. Turbo Tax has a "max" function for SEP IRA calculation, which it is easy to use.



I believe SEP IRA contribution restriction is ring fenced within your selfempolyment business, and doesn't get affected by your other w-2 income or related IRA / 401K. Double check with your accountant, or you can just play scenarios on turbo tax, and you will figure it out very quickly by try and error.
 
[quote author="awgee" date=1240149773]If you are self-employed, (you do not receive a W2), most of what you what you have posted does not apply to you. If you are self-employed it would be your advantage to investigate a Simple IRA. And you should consider hiring your wife and children for tax purposes.



If you are an employee, (you receive a W2), from your own firm, your potential tax deduction for retirement purposes, a Sep or a Simple IRA, may be extremely complicated and I can not address it here.



Either way, I advise you to seek the advice of a competent and paid Enrolled Agent to do some major tax planning. You are probably great at what you do, but you suck at tax code. :cheese:</blockquote>


I guess I am not familiar with the definition of some of the terminologies; in this case, "Self-Employed" =/. I do receive a W2. Like I said in my previous post, I take regular salaries. I guess I really mean I am a small business owner with employees, me being one of them. I know about SEP-IRA, but just feel the idea of locking up a big portion of my income until I am 60 unappealing. I will probably give it more thought and discuss with my accountant.
 
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