Biglaw Salary & Tax Deductions

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FormerChild

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Biglaw Salary & Tax Deductions

Postby FormerChild » Tue May 02, 2017 6:12 pm

Those on biglaw salary--are you able to deduct any portion of 401k contributions and are you able to deduct any payment to interest on student loans? TIA

snowball2

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Re: Biglaw Salary & Tax Deductions

Postby snowball2 » Tue May 02, 2017 6:16 pm

Traditional 401k contributions are pre-tax by definition, they're deducted from taxable income on your W-2 (the taxable amount is post-401k). You get taxed when you take distributions at retirement. If you choose the Roth option then it's taxed now and tax-free later.

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unlicensedpotato

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Re: Biglaw Salary & Tax Deductions

Postby unlicensedpotato » Tue May 02, 2017 6:19 pm

Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

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Re: Biglaw Salary & Tax Deductions

Postby Anonymous User » Tue May 02, 2017 6:33 pm

unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?

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SmokeytheBear

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Re: Biglaw Salary & Tax Deductions

Postby SmokeytheBear » Tue May 02, 2017 6:37 pm

Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

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Re: Biglaw Salary & Tax Deductions

Postby Anonymous User » Tue May 02, 2017 6:38 pm

SmokeytheBear wrote:
Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.

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Re: Biglaw Salary & Tax Deductions

Postby Anonymous User » Tue May 02, 2017 6:42 pm

Also curious about taxes on salary advances. Would firms let you pay it down after your stub year, and would that affect how it's treated in terms of taxes?

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SmokeytheBear

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Re: Biglaw Salary & Tax Deductions

Postby SmokeytheBear » Tue May 02, 2017 6:44 pm

Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.


You realize this is a deduction and not a credit, right? In other words, you can deduct up to $2,500 from your taxable income (not just get a $2,500 tax credit).

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Re: Biglaw Salary & Tax Deductions

Postby Anonymous User » Tue May 02, 2017 6:46 pm

SmokeytheBear wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.


You realize this is a deduction and not a credit, right? In other words, you can deduct up to $2,500 from your taxable income (not just get a $2,500 tax credit).

Yes, which is why it's a close call against the additional origination fee, unless I'm missing something.

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Re: Biglaw Salary & Tax Deductions

Postby ballouttacontrol » Tue May 02, 2017 6:54 pm

Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.


You realize this is a deduction and not a credit, right? In other words, you can deduct up to $2,500 from your taxable income (not just get a $2,500 tax credit).

Yes, which is why it's a close call against the additional origination fee, unless I'm missing something.


unless you make other $$$ during the year, you are not going to be paying very much tax at all on your SA salary. Your annual income is like $34k, pretty close to poverty. The benefit of a $2500 deduction will be pretty small

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Re: Biglaw Salary & Tax Deductions

Postby ballouttacontrol » Tue May 02, 2017 7:08 pm

Looking at my tax history over the last couple years, here's the deductions/credits I've taken:

Personal Exemption & Standard deduction
Charitable Contributions
Education Credits
Student Loan Interest
HSA
IRA
401k
Job expenses incl. home office and vehicle depreciation
Moving expenses
Capital losses
State tax

and a couple very peculiar things.

Hopefully buying a house soon, which will be 180 for taxes

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Re: Biglaw Salary & Tax Deductions

Postby Anonymous User » Tue May 02, 2017 7:35 pm

I used the paycheck city calculator and apparently the State of New York will be taking $400 out of every paycheck this summer, even with 20 allowances claimed. Is this legit? Will I get any of this back? I knew state income taxes were serious but damn...

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Re: Biglaw Salary & Tax Deductions

Postby clerk1251 » Wed May 03, 2017 10:07 am

Ha - first off, I get a kick out of you guys complaining about how much money they take out. Yes, it's a lot, but you're also making A LOT! Rule of thumb is to just assume they will take out a little over a third, so for all the SA's, you will be taxed at an annualized rate with an assumed base of $180k.

Now, because you're only a summer, you will get a pretty sizable tax return back at the end of the year, seeing as you didn't end up making $180k that year.

As far as student loan interest goes, You are allowed a deduction of all interest paid that year, up to $2,500, if your taxable income is less than $85,000.
Typically no one starts to pay their loans until they go into repayment (usually 6 or 9 months after you graduate I believe). So, you'd have nothing to deduct the year you summer, because even though interest is accruing, you haven't paid anything. If you did want to put $2,500 towards your accrued interest, assuming you've already accrued that much, then yes, it would be deductible. Whether that's a worthwhile use of your money at this point in time is another question entirely though.

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Re: Biglaw Salary & Tax Deductions

Postby 2014 » Wed May 03, 2017 10:39 am

ballouttacontrol wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
unlicensedpotato wrote:Student loan interest you can deduct in your stub year up to, I believe, $2,500 so make enough total payments so that you've paid that in interest. After the stub year your annual income is too high to get a deduction.

Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.


You realize this is a deduction and not a credit, right? In other words, you can deduct up to $2,500 from your taxable income (not just get a $2,500 tax credit).

Yes, which is why it's a close call against the additional origination fee, unless I'm missing something.


unless you make other $$$ during the year, you are not going to be paying very much tax at all on your SA salary. Your annual income is like $34k, pretty close to poverty. The benefit of a $2500 deduction will be pretty small

It's absolutely worth it, even on just an SA salary one's effective tax rate is certainly higher than the (4%?) origination fee. I'm really struggling to see any situation in which it doesn't make sense if you have earmarked that $2500 to be used for tuition or COL.

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Re: Biglaw Salary & Tax Deductions

Postby albanach » Wed May 03, 2017 11:39 am

2014 wrote:[

It's absolutely worth it, even on just an SA salary one's effective tax rate is certainly higher than the (4%?) origination fee. I'm really struggling to see any situation in which it doesn't make sense if you have earmarked that $2500 to be used for tuition or COL.


Remember again that it's a deduction not a credit. So if your effective tax rate is 14%, you're getting back $350. Still, you're probably correct that if you have the cash and are paying tax it may well make financial sense to pay off $2,500 of interest in December and then reborrow it in the January semester.

The amount you gain is pretty small, but it doesn't take long so the ROI on time spent is good.

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Re: Biglaw Salary & Tax Deductions

Postby ballouttacontrol » Wed May 03, 2017 1:13 pm

2014 wrote:
ballouttacontrol wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:
SmokeytheBear wrote:
Anonymous User wrote:Can you also do this the year of your SA, and has anyone run the math to see if this outweighs the additional origination fee from not putting that $2,500 towards not taking out 3L loans (assume loan type with lowest origination fee)?


I'm pretty sure you have to have paid interest on the loan--not just accrued it--to get the deduction. So unless you are paying interest during the year of your SA, then no to that part of your question.

Yeah, I'm talking about paying $2,500 towards student loans from SA income.


You realize this is a deduction and not a credit, right? In other words, you can deduct up to $2,500 from your taxable income (not just get a $2,500 tax credit).

Yes, which is why it's a close call against the additional origination fee, unless I'm missing something.


unless you make other $$$ during the year, you are not going to be paying very much tax at all on your SA salary. Your annual income is like $34k, pretty close to poverty. The benefit of a $2500 deduction will be pretty small

It's absolutely worth it, even on just an SA salary one's effective tax rate is certainly higher than the (4%?) origination fee. I'm really struggling to see any situation in which it doesn't make sense if you have earmarked that $2500 to be used for tuition or COL.


Just did the math, I concede you're right. $263 ish profit, or $138 if you can get yourself down to the 10% bracket (I was very close when I was an SA)

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UnfrozenCaveman

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Re: Biglaw Salary & Tax Deductions

Postby UnfrozenCaveman » Sat May 06, 2017 12:49 pm

Take a bunch of allowances on your W2--do the worksheet on page 2. Get more take home pay.

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Re: Biglaw Salary & Tax Deductions

Postby TFALAWL » Sat May 06, 2017 1:15 pm

clerk1251 wrote:Ha - first off, I get a kick out of you guys complaining about how much money they take out. Yes, it's a lot, but you're also making A LOT! Rule of thumb is to just assume they will take out a little over a third, so for all the SA's, you will be taxed at an annualized rate with an assumed base of $180k.

Now, because you're only a summer, you will get a pretty sizable tax return back at the end of the year, seeing as you didn't end up making $180k that year.

As far as student loan interest goes, You are allowed a deduction of all interest paid that year, up to $2,500, if your taxable income is less than $85,000.
Typically no one starts to pay their loans until they go into repayment (usually 6 or 9 months after you graduate I believe). So, you'd have nothing to deduct the year you summer, because even though interest is accruing, you haven't paid anything. If you did want to put $2,500 towards your accrued interest, assuming you've already accrued that much, then yes, it would be deductible. Whether that's a worthwhile use of your money at this point in time is another question entirely though.



That rule of thumb doesn't work. I'm a first year in Ca. I put two deductions on my withholding + firm withholds health insurance
(350 after tax). I'm left with 8,800 a month -- not complaining, but that's a far cry from 10k which would be 2/3.

OP: assume 8,500-9k a month.

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kellyfrost

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Re: Biglaw Salary & Tax Deductions

Postby kellyfrost » Sat May 06, 2017 1:56 pm

Buy a home with a mortgage and you can deduct mortgage interest and mortgage insurance premiums.

My home interest was my largest deduction this year. (Not big law)
Last edited by kellyfrost on Sat Jan 27, 2018 2:13 pm, edited 1 time in total.

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BmoreOrLess

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Re: Biglaw Salary & Tax Deductions

Postby BmoreOrLess » Sat May 06, 2017 3:04 pm

UnfrozenCaveman wrote:Take a bunch of allowances on your W2--do the worksheet on page 2. Get more take home pay.


This is credited, but after getting fucked very hard by state taxes, make sure your withholding for state taxes is done correctly.

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Re: Biglaw Salary & Tax Deductions

Postby clerk1251 » Mon May 08, 2017 12:09 pm

TFALAWL wrote:
clerk1251 wrote:Ha - first off, I get a kick out of you guys complaining about how much money they take out. Yes, it's a lot, but you're also making A LOT! Rule of thumb is to just assume they will take out a little over a third, so for all the SA's, you will be taxed at an annualized rate with an assumed base of $180k.

Now, because you're only a summer, you will get a pretty sizable tax return back at the end of the year, seeing as you didn't end up making $180k that year.

As far as student loan interest goes, You are allowed a deduction of all interest paid that year, up to $2,500, if your taxable income is less than $85,000.
Typically no one starts to pay their loans until they go into repayment (usually 6 or 9 months after you graduate I believe). So, you'd have nothing to deduct the year you summer, because even though interest is accruing, you haven't paid anything. If you did want to put $2,500 towards your accrued interest, assuming you've already accrued that much, then yes, it would be deductible. Whether that's a worthwhile use of your money at this point in time is another question entirely though.



That rule of thumb doesn't work. I'm a first year in Ca. I put two deductions on my withholding + firm withholds health insurance
(350 after tax). I'm left with 8,800 a month -- not complaining, but that's a far cry from 10k which would be 2/3.

OP: assume 8,500-9k a month.


Well - that's just silly on your part for opting into any health insurance program when you are already covered. I've also never heard of a firm providing health insurance for an 8 - 10 week hire.

Assuming you have health insurance through your school during the school year, which most if not all schools require, it covers you during the summer as well. Don't waste your money on additional health insurance at a firm.

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Re: Biglaw Salary & Tax Deductions

Postby albanach » Mon May 08, 2017 4:14 pm

TFALAWL wrote:I'm a first year in Ca.


clerk1251 wrote:Well - that's just silly on your part for opting into any health insurance program when you are already covered. I've also never heard of a firm providing health insurance for an 8 - 10 week hire.

Assuming you have health insurance through your school during the school year, which most if not all schools require, it covers you during the summer as well. Don't waste your money on additional health insurance at a firm.


I think TFALAWL is an associate.



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