I am relieved that I only owe Uncle Sam $10k for 2025. I had a well thought out strategy to minimize my taxes that all went berserk when I got laid off but things turned out fine. Ironically, I got about $10k in unemployment benefits which I kept in interest bearing accounts knowing that most or all of this money would be going back to the government so technically, I am not having to pay anything out of pocket.
Total Income For 2025
According to our tax return, our total income for 2025 came in at ~$427,000. It sounds like a huge number but when you consider we maxed out 401k accounts, paid huge sums of taxes for federal, state, county (property taxes) and city (fees), much of it went somewhere other than our bank accounts.
Total Taxes For 2025
- Federal income tax liability was $81,600.
- Federal income taxes paid were $71,500.
- Total due = $10,100
I also owe state income taxes of $700 for rental property income in a state with state income taxes.
What Worked?
Our effective tax rate was 18.7% and it took a combination of capital gains strategy, municipal bond strategy, qualified dividend strategy, and real estate offsets to get to that number.
Buying municipal bonds and municipal bond ETFs instead of holding taxable bonds helped shield $25000 from taxation.
Deferring income into 401k’s worked well to lower our adjusted gross income.
Having rental properties also helped offset some income due to expenses incurred.
What Didn’t Work?
My grand scheme of deferring incoming in a deferred compensation program worked well until it didn’t. I got laid off and company policy is all money goes back to you 6 months after getting axed.
I also ended up getting a severance package.
I ended up collecting unemployment of about $10k.
Unemployment
The great news here is that I saved all the unemployment money I received, about 10k and I will use that to pay Uncle Sam so I consider this whole thing a wash.
What About 2026?
I don’t have access to a deferred comp program at my new job and I don’t really need on as this is the last year I plan on working on a W-2 employer. I was fully prepared to retire but this new administration now has us in a middle of a war that causing energy prices to spike like crazy.
It is a foregone conclusion that inflation will be very high for the rest of this year and possibly the next few years. If things get really out of control, I expect the stock market to correct or crash significantly.
I had planned on traveling after I retired but with airports a mess due to TSA not getting paid that’s also a no go at the moment.
Needless to say, I’m going to keep working probably to the end of the year or early 2027, let’s hope we still have a world.
Share The Wealth
How much do you owe Uncle Sam this year?