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4 Years of Tax Returns

In solidarity with several presidential candidates (with the exception of our current sitting president…) I have decided to “release” the last 4 years of my tax returns!

Why 4 years? Since I started my full time job in the middle of 2014, 2015 was the first full year where I had a job, so I felt that starting here would be the most relevant.

What’s the point of all this? Well, for one, I believe that transparency is pretty important. I don’t want people getting the wrong idea about how I have built my wealth.

Second, I think I (hopefully) can use this as a great opportunity to explain to people how their taxes work, and what tools you have at your disposal.

For people who have a W2 job, no house, and work solely in the US, their taxes really shouldn’t be too complex. I think most young millennials or Gen Z-ers qualify under this.

Since it isn’t too complex, you really should take the time to learn at least at a basic level how the tax system works for yourself, so you can use it to your own advantage!

Using my own tax returns as an example, hopefully you can gain some insights into how your taxes are affected by the savings and spending choices you make!

Before we get into it, here is a disclaimer:

I am not an accountant and do not provide tax or accounting advice. The below is for informational purposes only and should not be relied upon for your own situation. You should consult your own tax and accounting advisors before engaging in any transactions.

With that said, let’s take a look at the first part to take into consideration:

W2 Gross Income

To start it all off, shortly after the new year begins, your employer should send you at least two forms: an earnings summary and a W2 form.

The earnings summary will detail your taxable income on the year, and break out any pretax deductions you may have (401K, HSA, medical premiums, etc). This leaves you with your W2 gross income.

The other form is your W2 form, which has the bulk of the information you need to fill out your tax forms, including income earned and taxes withheld.

Below is my exact earnings summary for the past 4 years, ending with my W2 gross income:

As you can see, my gross salary has steadily grown over the last 4 years with various raises and promotions. The biggest jump came in 2018, in part as I was also working some overtime hours that helped.

The “Other Taxable Income” line mostly revolves around a $250 wellness reward my company offers every year for hitting various healthy milestones (such as total steps). There is some other taxable income which are just “spot” awards – usually a gift card my supervisors would give out for doing a good job, or helping out on various projects. The spike in 2016 was due to a relocation benefit I was given to move to the DC area.

The last area is all the pretax deductions I had: 401K/HSA contributions, and medical/dental premiums.

I contributed 11% of my income to my 401K in 2015 and 12% in 2016, following an annual 1% increase plan. This amount doubled in 2017 after my discovery of FIRE, though I ran out of time to max it out. 2018 was my first time maxing out my 401K, though I plan to do this again in 2019!

I turned 26 at the very end of 2017. Prior to that I was fortunate to be under my parents’ health insurance (I have younger siblings, so it was no extra cost to have me under theirs). I only had one month of my own health insurance in 2017, which is why there were such low contributions and premiums. 2018 reflects a full year of premiums for medical and dental. I maxed out my HSA that year as well, with my employer contributing the other $750.

The main takeaway from here is to show just how much pretax deductions can affect your W2 income. My taxable income was essentially the same in 2016 and 2017, but my overall W2 gross income decreased by over $7,000 due to the increased 401K contributions!

Using the 401K (403b or 457 as well) and HSA as a tool for saving has the immediate effect of lowering your current taxes while also putting you ahead in saving for retirement.

Just how much does it lower the amount of taxes you pay? Let’s keep going to find out:

Adjusted Gross Income (AGI)

The next step in the tax process is determining what your Adjusted Gross Income (AGI) is.

AGI takes into account all other income/deductions you have that are outside your W2 gross income.

The categories for income can include any self-employment income, real estate income, interest, dividends, capital gains/losses, IRA distributions, among others. For younger people, this is probably all that is relevant, though there are many other categories to include.

The deduction categories include any IRA contributions (traditional, not Roth), student loan interest, and the self-employment tax deductions. As with the income, there are also many other categories here to include, but these are likely the most relevant to young people. Check with a tax professional to see if others apply for you here.

Below is what my AGI has looked like over the past 4 years (note: the IRS allows you to round when filing your taxes, hence why everything is in whole dollars from here on out):

In 2015, the only adjustment to my W2 income was a last capital loss I could account for. When I was born, my grandparents opened a brokerage account in my name that they contributed to in order to help pay for future college expenses. When it came time to withdraw from the account, it was 2010, and the account had not recovered from all the losses it had from 2007-2009. Because of my very low income from 2010-2013 (college years), I was able to carry forward these losses to deduct in 2014 and 2015 when I actually had more income coming in.

As you can see, in 2016 my AGI was exactly the same as my W2 gross income. It really was that simple. The only accounts I had during that time were my 401K and bank accounts. As the money in my bank earned less than $10 in total interest for those years, they did not even send me a 1099-INT form to file.

In 2017 I finally opened a brokerage account, which led to some taxable dividends that year and in 2018. You can find these on the 1099-DIV form your brokerage provider should send you.

2018 is the year I finally switched to an online savings account that earned me real interest, as well as opened a new bank account that had a $300 account opening bonus (considered interest income).

It’s also the year I started a side hustle, which led to just over $900 in total income. Self-employment dollars can be found via a 1099-MISC form if you work for a company, or through your own business, in which case you need to track that on your own.

You can deduct business expenses (if you have them – I unfortunately did not) from your self-employment income.

As part of this self-employment gig, I had to pay self-employment taxes (we’ll get to that in the next section). My situation qualified me to be able to take a 50% deduction on the self-employment taxes I paid, hence the one deduction in 2018.

I have not sold any stocks yet in my current brokerage account, which means there haven’t been any capital gains/losses to account for. Similarly, I have not taken any IRA distributions (withdrawing from pre-tax accounts).

As for the deductions, I have only contributed to Roth IRAs, which do not get a deduction, and I paid off my student loans in 2014, meaning I have not deducted any student loan interest.

As a result, my AGI looks very similar to my W2 gross income from 2015-2017, while 2018 there was a little more income as I hustled and optimized my finances!

Total Federal Income Taxes Owed

Lastly, we get to the Total Federal Income Taxes Owed section.

Here you take your AGI from the previous section, and apply a couple last deductions to it, before calculating your total taxes owed.

Below is what my total Federal income taxes looked like over the past 4 years:

Prior to 2018, there was both a standard deduction as well as an exemption which were adjusted in various years. As the exemption was removed under the recent tax law, we won’t go into detail about that one. For 2018, the standard deduction was set at $12,000 (for single filers – $24,000 for married filing jointly).

For people who have self-employment income, in some cases you can also claim a Qualified Business Income (QBI) deduction. To determine your QBI deduction, you subtract your self-employment tax deduction from your self-employment income (both in prior section), and multiply by 20%.

For me this was $909 – $64 = $845;   $845 * 0.2 = $169

In order to correctly determine your income taxes owed, you need to remove your qualified dividends (found on 1099-DIV form) temporarily as they are taxed differently than normal dividends. While regular dividends are taxed as normal income, qualified dividends are taxed at 0% if your AGI falls within the 10% or 12% marginal tax bracket (2018 single filers shown below), or at 15% if you are in any other bracket.

2018 single filer tax brackets

Now, in order to calculate your Federal income tax (before credits), you will need to utilize the above table to do the math. Because we have a marginal tax system, your money is taxed differently depending on how much you make.

In 2018 my taxable income less qualified dividends was $47,062. An interesting thing I noticed is when your taxable income is less than $100K, you actually use the IRS tax tables, which averages your income ending in $25 or $75 increments (whichever you are closest to) to make the calculation. Thus, my $47,062 is actually rounded up to $47,075.

Here is how I calculated how much I owed:

The first $9,525 (first line on above table) is taxed at 10% (9,525 * 0.1 = $952.50)

The next $29,175 ($38,700 – $9,525) is taxed at 12% ($29,175 * 0.12 = $3,501.00)

The last $8,375 ($47,075 – $38,700) is taxed at 22% ($8,375 * 0.22 = $1,842.50)

Don’t forget to add back those qualified dividends! The $219 of qualified dividends is taxed at 15% since I am in the 22% marginal tax bracket ($219 * 0.15 = $32.85).

Add those all up and round to the nearest dollar ($952.50 + $3,501.00 + $1,842.50 + $32.85) and you get $6,329. The exact amount I owed!

If you qualify for any credits, this would be the time to add these in and subtract from the total income owed we just calculated.

The ones most relevant would be the child tax credit (if you have one), foreign income tax credit (for any income made overseas) and the retirement savings contribution credit (there is an income threshold to qualify).

As none of these credits applied to me, the $6,329 was exactly what I had to pay. This translated to an effective tax rate (Tax Owed/AGI) of 10.65%, far lower than the 22% tax bracket I was in!

Despite my taxable income going up in 2018 over 2017, I actually owed less Federal income tax due to the new tax law that went into effect in 2018 (more on that in the next section).

Lastly, as mentioned in the previous section, I also owed the self-employment tax on my side hustle income. This is essentially the tax to account for Social Security and Medicare.

Normally, through your W2 job, your income is taxed for these at 6.2% and 1.45% respectively, while your employer matches these and pays the same. However, with self-employment as you have no employer to match this amount, you have to pay it all, which amounts to 15.3% (6.2 + 6.2 + 1.45 + 1.45).

In order to calculate this amount owed you take 92.35% (here’s the explanation behind this number if interested) of your earnings, and multiply by 15.3%.

For me this was: $909 * 0.9235 * 0.153 = $128 (after rounding).

Difference Between Taxes Withheld and Owed

With the new tax law, there seemed to be a lot of confusion around whether people actually got a tax cut or not.

The mistake most people make is that they are basing this presumption on whether or not they got a bigger or smaller tax refund than the year before.

What they don’t realize is that there is a huge difference between what your federal tax liability is (how much total income tax you owe) and what your return amount is (difference between what was withheld and your total liability).

How much taxes your employer withholds during the year is based on how many allowances you claim on your W4 form. If you claim “0”, they will withhold more than if you claim “2”.

If your total tax owed is less than what your employer withheld, you will get a tax refund. If you owe more than what was withheld, you need to pay extra.

For instance, see below for my taxes withheld by year, and whether that led to a refund or further amount owed during the year.

As you can see, even though my total Federal income tax liability decreased by ~$600 from 2017 to 2018, I actually owed on taxes instead of getting a refund as I had adjusted my W4 form to have my employer withhold less taxes from my paycheck (after reading this post from Accidental FIRE).

I still owed less taxes and benefitted from the new tax law, I just simply did not get a big refund this year.

As the new tax law also changed the rules around how much your employer needs to withhold, many people received smaller refunds than they were used to, and assumed the new tax law did not apply to them.

This is why it is very important to monitor how much your company is withholding from your paycheck throughout the year, so that you are not completely surprised come tax season to find you either owe a massive amount, or are getting a larger than expected return.

In Summary

Whew, that was quite a bit!

If you’ve made it this far, I hope this breakdown of my past taxes was beneficial and helped you to learn a few things.

The most impactful thing I have noticed after going through all my taxes is just how much the pretax deductions help to lower the total amount of income tax you owe.

There is nothing shady going on here, all these methods are completely legal and there for your benefit. I’m not sure why you wouldn’t want to take advantage of them!

For all the young people out there, try to shovel as much of your paycheck as you can into your pretax savings accounts. The impact of this will be a huge benefit for your finances – now and in the future!

Perhaps using these charts as a basis you can even build your own spreadsheet tailored to your situation, helping you to track your tax liability throughout the year and control whether or not you will end up getting a return, or owing on taxes.

Taking control of your financial life and learning the basics on the tax system can help you out immensely throughout your life. After all, it’s a lot tougher to win the game without knowing the rules!


What other methods do you use to track your tax liability? Did I miss anything that would be useful to discuss? How do your taxes compare? Let me know in the comments any other questions you may have!

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12 thoughts to “4 Years of Tax Returns”

  1. This was entirely too much fun to read. You know you’re a PF nerd when…

    And now you have me curious and wanting to look at this myself. I was going through old paperwork the other day and looking at 2008 – 2012 in particular we did NOT make a lot of money.

    1. Hahaha such a nerd! (Though since I’m the one who put this together what does that make me… 😅) It funny you say that, I was just looking through old tax returns from 2012 and 2013 and it’s crazy how little money I made back in those college years…

  2. This is an awesome post! Really shows how tax liability can be significantly reduced by using tax-advantaged accounts. I noticed it myself doing my 2018 return as it was the first year I had a HSA. Made a big difference. This year I maxed out my contributions before I came off the health plan I was on at my former employer because I don’t believe I have the ability to contribute anymore at my new employer. 🙁 Their health plan is better though, so it’s not a total loss, plus I now have a tax-deferred retirement plan through them that I’ll be able to deduct. 🙂

    Looks like I have a spreadsheet to create this weekend! I’ve filed tax returns since I got a part-time job when I was 17 and worked jobs through college, so I now have a solid 15 years of returns to enter into Excel. Wow, I’m old. 😂

    1. Yea that’s great you are taking advantage of the accounts you’re able to!

      Wow that’s gonna take quite some time to enter in haha, but I’m sure it will look real cool when it’s all side by side!

  3. Nothing says fun on a Friday like 4 years of tax returns and a big picture of the word TAX with an American flag behind it. ha ha, you did make it fun though and yes those pretax deductions are key. Thanks

  4. Love, love, love this! I’m an accountant, but never thought to look at my tax situation like this. Can’t wait to get home from work and put mine together in a spreadsheet!

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