I’m a Single Woman Earning $210,000 … How Do I Pay Less Tax?

Hi Scott,

I am a 40-year-old, single, professional woman with no dependants (other than my pets). I have recently increased my income to $210,000 and so have moved into the top tax bracket -- a double-edged sword. I am following your steps, claiming deductions where I can, and saving for a home. The trouble is, most of my income disappears through tax! I have seen you recommend family trusts, splitting income, etc, as ways to reduce tax. What options are available for employees like me who do not have a traditional family?

Jessica

Hi Jessica,

I don’t think earning $210,000 is a double-edged sword … it’s more of a diamond-encrusted poker.

So let me poke you a bit.It’s not true that most of your income disappears through tax. The Australian tax system is based on marginal rates, so you are only paying the top rate of tax of 45 cents in the dollar, excluding Medicare, on each dollar you earn over $180k. The total tax payable on your $210,000 is around $71,932 per year, roughly one-third of your income.

My advice?

Put away your violin, and start swinging from the chandeliers!

You still have $11,503 after-tax income is hitting your bank account each month. and you have no debt and no dependants to share it with. Life is good! However, the truth is that you’re working a very demanding job, so my advice would be to keep your financial affairs simple and build up your financial security.

Here’s what I’d do over the next decade:

First, save up a 20 per cent deposit and buy yourself a nice home. You deserve it, and you can afford it.

Second, add to your employer’s pre-tax super contributions so that you round it up to $25,000 per year.

Third, build up a Mojo account of three months of living expenses.

Fourth, focus on paying down your mortgage as quickly as you can.Fifth, then start building up your investments, inside and outside of super.

Disclaimer: I understand that none of this is as sexy as taking out a whopping big loan, investing in something exotic, and then running a spreadsheet of how much tax you’ll save each year.

But my plan is simple, and it works.

And if you continue earning big bucks, you’ll retire a very wealthy woman, no doubt about it.

Scott