Single and Earning $150K? Here’s A Breakdown of Your Potential Tax Bill
How Much You Owe—and Strategies to Keep More of Your Money
Taxes are one of the biggest expenses you'll ever face in your lifetime—yet most people don’t put nearly enough effort into lowering that bill. You don’t need to be a tax expert, but understanding how your taxes flow can make a huge difference in your financial future.
Today, I’m walking you through a real-life tax return, showing you exactly where opportunities for tax planning exist. The goal? To help you keep more of your hard-earned money and pay less in taxes. Let’s get into it:
Here is transcript:
Welcome to this week’s episode of Thursday Thoughts. Today, we’re diving into taxes—arguably the highest expense you’ll pay in your lifetime, yet one of the least understood topics.
To be fair, I don’t expect everyone to be a tax expert. The joke is that tax laws are written in pencil—they’re constantly changing, just like your own financial situation. My goal is to educate you on the fundamentals of tax returns, helping you understand why you’re paying so much and how you can potentially lower that bill through tax planning.
Why Tax Planning Matters
A lot of people assume their accountants handle tax planning. The reality? Many accountants are overwhelmed, processing hundreds or even thousands of returns in a short window. They don’t have the time to conduct in-depth tax planning for every client.
If you want to lower your tax bill, you need to:
Engage with an accountant during their slower months (summer is ideal), or
Work with an advisor like us, where tax planning is part of what we do every year.
Many retirees, for example, are surprised by how much taxable income they still generate. Just because you no longer have a job doesn’t mean your income will be low—every situation is unique, and planning ahead is key.
Real-World Example: Slick Rick’s Tax Return
We uploaded a real tax return into our software to walk through a breakdown. Here’s what we found:
Total Income: $156,000
Taxable Income: $137,258 (after deductions)
Federal Taxes Paid: $26,240
Marginal Tax Bracket: 24%
Understanding Marginal vs. Effective Tax Rates
The U.S. has a progressive tax system, meaning:
Your income is taxed in brackets, not a flat rate.
If you’re in the 24% marginal tax bracket, not all of your income is taxed at 24%.
Your effective tax rate is calculated by dividing total tax by taxable income.
For example, Slick Rick had about $41,000 taxed at 24%, but lower portions of his income were taxed at lower rates. Understanding this structure is essential for effective tax planning.
The Role of Capital Gains and Dividends
Not all income is taxed the same way. If you have a taxable brokerage account, pay attention to:
Qualified dividends (taxed at a favorable 15% rate for most filers)
Long-term capital gains (taxed at lower rates if you hold investments for over a year)
For instance, by holding an investment long enough to qualify for long-term capital gains rates, you could save 9% in taxes compared to ordinary income rates.
The Standard Deduction vs. Itemizing
Most people (about 90%) take the standard deduction rather than itemizing. In 2023, the standard deduction was $13,850 for single filers.
Common Itemized Deductions:
Medical and dental expenses
State and local taxes (including property tax)
Mortgage interest (up to $750,000 loan limit)
Charitable donations
A key note on charitable giving: If you take the standard deduction, you cannot deduct your charitable contributions on your federal return. So if you donated $2,000 to charity but took the standard deduction, you won’t see tax savings from it.
Tax Efficiency Strategies
Focus on Qualified Dividends & Long-Term Capital Gains
If your brokerage account has too many ordinary dividends, it’s an immediate tax planning opportunity.
Optimize Interest Income
Interest from savings accounts is taxable, but you can explore tax-free municipal bonds or tax-free money market accounts to reduce your tax burden.
Consider Tax Credits & Deductions
Are you eligible for credits like the Saver’s Credit or deductions like student loan interest?
Can you contribute to a Roth IRA or Traditional IRA for tax advantages?
State Tax Considerations
Taxes vary by state. For example, in Massachusetts, short-term capital gains are taxed at 8.5% at the state level. Being aware of state-specific tax rates can help you make better investment and withdrawal decisions.
Conclusion: Take Control of Your Taxes
Rather than simply complaining about high taxes, take action. Tax planning is a proactive approach that can help you keep more of what you earn. Review your tax return, identify opportunities, and work with professionals who can help you navigate the complexities.
If you need guidance, reach out to us—we’re here to help!
Disclosure:
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Tax laws are complex and subject to change. Tax strategies should be tailored to your individual situation. Consult a qualified tax professional or financial advisor to determine the best approach for your specific needs.
This is not comprehensive financial planning, legal or tax advice. This report does not provide comprehensive financial planning and does not constitute legal or tax advice. Rather, the information outlined in the report is designed to illustrate tax planning related considerations only, as may be relevant in the context of more comprehensive financial planning.