Recent Reading: Income Taxes Explained in 100 Pages or Less

5 May

Note: this post uses referral links, but I was not asked to read this book. You don’t have to use our links, but we’re very grateful when you do!

Inspired by the recent tax season, a solid recommendation from Afford Anything, and the impressive tax savings by Root of Good, I set out to better educate myself on the US tax system. Lately I’ve had this nagging doubt about whether I should be taking more proactive steps to minimize my income taxes… somehow.

To that end, I picked up “Taxes Made Simple: Income Taxes Explained in 100 Pages or Less” and was immediately in love with the concept. What a great way to get a basic foundation about an otherwise complicated and intimidating topic. I’ve filed my own taxes before (though not since our first rental property), and even then only with the prompted assistance of online tools like TurboTax.

Bonus: at the time of this writing this book was FREE as a part of the Kindle Owners’ Lending Library – which allows Amazon Prime members to digitally “check out” books on Kindle devices.

My Personal “Aha” Moments:

  • Source of Income Matters, A Lot – I never appreciated how much a dollar of earned income ≠ a dollar of self-employment income ≠ a dollar of qualified dividend income ≠ a dollar interest income. I don’t know if there’s anything I’m going to do differently with this information, but I do now understand why some think the game is rigged!
  • Above-the-Line vs. Below-the-Line Deductions – I already knew this was relevant to the home mortgage interest deduction, but I gained more clarity on how all the parts fit together. I suspect many people claim deductions that offer no tax benefits whatsoever and don’t even know it.
  • The Disappearing IRA Deduction – While contributions to a traditional IRA do not have an income cap, the valuable above-the-line deduction does (IF you or your spouse have access to a retirement plan at work). I consider myself pretty retirement account savvy and I had no idea.

This material should be required reading in high school, and this particular book will now join Suze Orman’s “The Money Book for the Young, Fabulous & Broke” as my default graduation gift (I know, I’m fun at parties too).

Income Taxes

(photo by Alan Cleaver)

Our key takeaway is to reconsider our above-the-line deductions, specifically traditional IRAs and HSAs. On one hand, we’re hesitant to reduce our tax exposure at the cost of tying up our money until retirement age – money that could otherwise be invested in rental properties. Still, this could definitely be useful if we find ourselves at risk of getting phased out of Roth IRA eligibility and want to take proactive measures to reduce our AGI.

I sure hope the author writes a rental property-specific book someday. Eventually I’ll also check out “Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages or Less” from the same author. LLCs and rental properties seem to go together like peanut butter and jelly, but I still have a lot to learn before I’d be comfortable committing.

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One Response to “Recent Reading: Income Taxes Explained in 100 Pages or Less”

  1. No Nonsense Landlord May 20, 2015 at 7:42 am #

    I always max out my 401K and have my rentals. Use the money from your rentals to fund the retirement accounts, rather than your lifestyle.

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