health and taxes
For some reason I decided I needed to finish our taxes this week. Thanks to TurboTax I’ve been working in fits and starts, putting in information when I had a few free seconds. I decided that I might end up fiddling around right up until April 15th, and with preparation for our move starting to take a little more time every day, I decided to finish taxes on Sunday.
Except for two unusual situations I would have finished sooner and written a post about something else – before I got obsessed with taxes. We had an investment in a publicly traded partnership that triggered a bunch of forms I had never seen before, and we had significant medical expenses in 2008. How significant? We had just over $10,000 in medical expenses in 2008. Hopefully it is an outlier (my daughter Pumpkin was born last spring) but it’s a staggering figure when you consider that’s with a health insurance plan.
What’s even more staggering is that I’ve already pumped somewhere in the neighborhood of $5000 into health care this year…for almost nothing. We’ve had a few doctor and pediatrician visits, but not anywhere near enough to justify the outlay of cash so far. I’ve continued to hold on to COBRA in hopes that I’ll start getting subsidized (thanks to the stimulus package) and partially because I didn’t want to change anything before we moved. The word is that sometime in mid-April I should get the COBRA subsidy and it should be retroactive. If so, fine – my health care costs will be tolerable for a while. If not, I’ll have one heck of a fat deduction on my taxes next year. As an unemployed freelancing writer 7.5% of my income (the threshold to clear before deducting medical expenses) won’t be tough to surmount.
My taxes are unpredictable from year to year - my income fluctuates, the whole New York/New Jersey mutual mugging is hard to understand and this year we’ll sell a house and move to another state (where, mercifully, I won’t need to pay state income taxes anymore). I enter each tax season with more than a little trepidation, although I’m feeling quite confident about 2009 so far – at the rate I’m going my taxes should take a serious dip (which is not a bad thing, obviously).
So what’s the point? The point is that I sat down and figured out that once you take out medical expenses, taxes and all the little bits and pieces (Medicare taxes, etc.) I’m only taking home about 60% of my income. And don’t forget about the stealth taxes like tunnel and bridge fees (it costs $16 in fees just to drive 42 miles, round-trip, to visit my in-laws). When it’s all tallied up, I would imagine that about 50% of my income is out the window before I bring it home.
I am not making an anti-tax rant, although I could stop and consider where that tax money is going (protracted wars, bailouts for bonuses, interest payments on the national debt) and get angry. I did some rough calculations and realized that my choice of a place to live (New Jersey) and work (New York City) and profession (six-figure consultant) and other lifestyle choices (expensive health care, commutes, etc.) don’t give me much return on value. For the sake of argument, if I’m making $100,000 and bringing home $50,000, I’m in a bit of a squeeze.
On the one hand, I’m impressed with myself – given tight numbers like that, I still managed to max out my 401(k), buy a new minivan for cash and have a bit left over. On the other hand, I keep wondering if I wouldn’t be better off making $60,000 and paying $15,000 in taxes (and probably less) in a less metropolitan area.
Nothing new, right? Maybe. After a lot of debate and tension – and still with no ironclad source of income – my family and I are going to see if that’s true. Will hacking our income and cost of living down be paid off by – ironically – actually having more take-home income? It will depend on many things – whether we can generate enough income to live comfortably, whether we can reduce temptations to upsize our house and hoping that we can get health insurance under control. But after struggling through another cold week, taking another lead pipe to the back of my head struggling through three complicated tax returns and watching my income from a profession I don’t really like drain away, I’m ready to give it a shot. I wouldn’t say it’s a sign, but doing my complicated taxes while looking forward to a long week of rain and cold is a push in the right direction. Sometimes external forces conspire to simplify an internal decision.
photo credit: Gret@Lorenz
PS I was interviewed over at Living Almost Large: click on over!
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It continues to amaze me how people think 100k is a lot of money in places like NY, San Francisco, etc…
@Chris: I thought it was a lot when I started making it, but then again I lived in Manhattan, had no expenses other than rent and going out, and barely spent anything on furniture or stuff because I had no space…
Once you're in the burbs 100K is nothing to be proud of…
Interesting post – your tax burden sounds quite familiar.
It seems a lot of Americans think Canada is relatively “socialist” but maybe the main difference is that American taxes are spread out more (ie pay health care separately) whereas Canucks pay more up front in income taxes?
Your tax burden is about the same as it would be over here in the UK – that is netting between 50% and 60% of gross pay. At lower incomes (below £40k ~ $60k?) it would be more like 60% to 70%. And the equivalent of moving to Florida, is moving to Spain, where the weather is nicer and the cost of living is lower – I think Canadians are probably stuck with the snow and rain.
@Four Pillars:
I generally think that the socialist / non-socialist divide that exists in some Americans' minds is misleading. Stuff costs money. Some things are essential (housing, utilities, healthcare, police forces, schools etc) and the way you pay for it doesn't really affect how much it's going to cost you as a society.
For sure! Once you get a wife and kids the whole game changes!
@ Plonkee
The problem happens when everyone wants everything from the government and there is little prioritization. We vote “yes” for every sill spending bill because “what can it hurt to have ____”… What people don't appreciate is that IT ISN'T THEIR MONEY and it is the equivalent of STEALING.. I'll bet all these “nice to have” projects would be a lot harder to fund if people had to go to their neighbors house, knock on the door, and ask them to cough up money for it.. Quietly voting to pick your neighbor's pocket is not only cowardly, it is wrong..
Wow. Not because of the health care costs, but because I tie this back to an older post of yours (8 ways to a six figure income), in which you advocate moving to a big city. This seems to be the very antithesis of that post. It's okay; we all have contradictions in our lives, but perhaps you can address this one.
@Curmudgeon: I guess my defense would be that moving to a big city early in your career can (almost artificially) accelerate your salary growth. My second defense would be that I personally don't want to – and haven't found the way to – continue to increase my six-figure salary to maintain the lifestyle I'd like. Before that sounds like I want simply to spend more, that means sending kids to a decent public school, having a reasonable commute, and living in a less urban environment. To have a yard, a short commute and decent public schools (not to mention a less urban environment) is possible, perhaps, in some large cities but not New York.
I would still say moving to a big city is a better path to a six-figure career, though, and advise anyone to do that when they are young, single, childless and ambitious. If I had to do it over again, I'd still move to Moscow (then New York) when I was in my 20s.
But a good point, and a good example of how posting my thoughts online can really reveal my changing thought process over time!
What accelerated my salary growth was finding the “right” type of company to work for. The variation in salary levels for the same work can be amazing. I know of many people who accept salaries far lower than what they could be making, even in the same locale, simply because they don't know better.
For the record, I have never lived in a large city, although I have usually lived and worked near one (Boston, the last 20 or so years).
@Curmudgeon: I guess my defense would be that moving to a big city early in your career can (almost artificially) accelerate your salary growth. My second defense would be that I personally don't want to – and haven't found the way to – continue to increase my six-figure salary to maintain the lifestyle I'd like. Before that sounds like I want simply to spend more, that means sending kids to a decent public school, having a reasonable commute, and living in a less urban environment. To have a yard, a short commute and decent public schools (not to mention a less urban environment) is possible, perhaps, in some large cities but not New York.
I would still say moving to a big city is a better path to a six-figure career, though, and advise anyone to do that when they are young, single, childless and ambitious. If I had to do it over again, I'd still move to Moscow (then New York) when I was in my 20s.
But a good point, and a good example of how posting my thoughts online can really reveal my changing thought process over time!
What accelerated my salary growth was finding the “right” type of company to work for. The variation in salary levels for the same work can be amazing. I know of many people who accept salaries far lower than what they could be making, even in the same locale, simply because they don't know better.
For the record, I have never lived in a large city, although I have usually lived and worked near one (Boston, the last 20 or so years).
What accelerated my salary growth was finding the “right” type of company to work for. The variation in salary levels for the same work can be amazing. I know of many people who accept salaries far lower than what they could be making, even in the same locale, simply because they don't know better.
For the record, I have never lived in a large city, although I have usually lived and worked near one (Boston, the last 20 or so years).
Wow. Not because of the health care costs, but because I tie this back to an older post of yours (8 ways to a six figure income), in which you advocate moving to a big city. This seems to be the very antithesis of that post. It's okay; we all have contradictions in our lives, but perhaps you can address this one.
@Curmudgeon: I guess my defense would be that moving to a big city early in your career can (almost artificially) accelerate your salary growth. My second defense would be that I personally don't want to – and haven't found the way to – continue to increase my six-figure salary to maintain the lifestyle I'd like. Before that sounds like I want simply to spend more, that means sending kids to a decent public school, having a reasonable commute, and living in a less urban environment. To have a yard, a short commute and decent public schools (not to mention a less urban environment) is possible, perhaps, in some large cities but not New York.
I would still say moving to a big city is a better path to a six-figure career, though, and advise anyone to do that when they are young, single, childless and ambitious. If I had to do it over again, I'd still move to Moscow (then New York) when I was in my 20s.
But a good point, and a good example of how posting my thoughts online can really reveal my changing thought process over time!
What accelerated my salary growth was finding the “right” type of company to work for. The variation in salary levels for the same work can be amazing. I know of many people who accept salaries far lower than what they could be making, even in the same locale, simply because they don't know better.
For the record, I have never lived in a large city, although I have usually lived and worked near one (Boston, the last 20 or so years).