| correction: W-2 software engineers that don’t do anything else are pretty screwed 1099 software engineers have some of the best tax deductions, and that earnings range is the sweet spot one of my favorite things to do is contribute $66,000 to a 401k for that tax deduction (thats how high the employer match limit really is), immediately borrow $50,000 from the 401k and donate that same money to a donor advised fund for a charitable donation. $116,000 tax deduction before looking at actual expenses. its not advice, its one of my favorite things to do, you have to pay back the 401k over time off $265,000 in earnings (number chosen because thats the minimum to max out a self directed 401k) the AGI would be $199,000 and the MAGI would be $149,000. keep going and get it as low as possible. I would typically try to do a FMV charitable deduction from my existing portfolio. Combined cash+asset charitable deductions can lower that year’s earnings by 60%. if you achieve that the government is only looking for taxes on $106,000 and again this is before you look for expenses. But if there are pre-existing externalities like a mortgage and home depreciation, then you’re pushing your AGI (and subsequently MAGI) down further and further. you can get to Warren Buffett %’s pretty easily even without having long term capital gains tax treatment. |
And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level.
And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI.
Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.