I live in MA, USA. I recently got a job and feel like almost half of what I earn is going to taxes, and putting money in bank doesn't give enough interest.

So what options do I have (like invest in different things)? What is the best way to minimize my taxes? The question has been asked here https://money.stackexchange.com/q/39398/14200 but was closed because user didn't specify the geographic area.

PS: I already got enrolled for 401K, and I don't own a place or a car.

  • Curious: I know MA is a relatively high tax state, but even to reach a marginal tax rate near 50% (including FICA and Medicare), you'd need to be making quite a bit. I'm struggling to understand how your net tax liability gets that high. Are you talking about your net pay after taxes, health insurance, 401k deductions, etc? – Rick Goldstein Nov 13 '14 at 21:40
  • @RickGoldstein yup! 401k, healthcare & tax. – uday Nov 13 '14 at 22:32
  • 2
    I decided long ago that life was much happier if I completely ignored the pre-tax portion of my paycheck and just accepted that most of this was money transferred between the company and the government and was never "mine" at all. The only reason we get involved is because there are various tax incentives which may let us get some of it back. Viewed that way, it's annoying ("NO TAXATION WITHOUT PROPER INSTRUCTIONS!") but not more than that, and I don't waste time or energy worrying about it. – keshlam Nov 13 '14 at 22:42
  • @uDaY - Well, welcome to the working world, then. Your situation is typical. My wife and I are comfortably upper-middle class, with 2 kids and a mortgage. After taxes, premiums, retirement contributions, HSA, etc., we take home a bit less than 2/3 of gross pay. But retirement savings is a significant chunk of that missing 1/3. – Rick Goldstein Nov 13 '14 at 22:52

The only ways to increase your after-tax income are to increase your tax-deferred savings (401k), increase your tax deductions, or increase your pre-tax income.

Increasing tax-deferred savings is great for the long term, but will usually not result in a bigger paycheck (though net pay including the savings will go up). This is, however, probably your best bet for reducing current tax liability.

Increasing deductions usually involves spending money--on charity, mortgage interest, other taxes, etc. So, while you may reduce your tax liability, you probably won't end up with more money in your pocket. Also, if you are single and aren't paying a mortgage, it probably won't be easy to exceed the Standard Deduction.

Which pretty much leaves you with asking for a raise, getting a better paying job, or taking on a second job to increase your top-line income.


Don't worry about minimizing taxes too much - worry about maximizing post-tax income. Keep in mind that if you just got a job then it's likely that the taxes being automatically withheld are based on the assumption you've been earning this much all year, which could mean that you're likely going to be due a refund come April (basically, if you're making 100k/year, but only actually getting 20k this year, they'll still take taxes out as though you were making the full 100k).

If you're maxing out your 401K, you can also contribute to an IRA to reduce taxes (or contribute to a Roth to invest more if you max it out).

For investment I like Betterment, it's well diversified and avoids many common investment pitfalls. Much better than a savings account, but you should also consider the need to have readily-accessible money in case of emergencies.

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