2015 Tax Prelim Planning: Comments??

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itstoomuch
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2015 Tax Prelim Planning: Comments??

Post by itstoomuch »

Has anyone done preliminary 2015 taxes?

We have entered the realm of SS benefit taxation. :annoyed
I think that taking more IRA distribution decreases the effective tax rate? :confused If this is so, then I will take more IRA distribution.
Comments?
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
Gill
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by Gill »

It's your marginal tax bracket that counts. The effective rate is really irrelevant. If you're married, that probably puts you in the 15% tax bracket.
Gill
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DonCamillo
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by DonCamillo »

Another concern is with step functions, where if your income rises by $1 it costs you hundreds of dollars.

For example, NJ has has a lot of its taxes break at $100,000. If you are below that in gross income, up to $20,000 of pension income is tax free. Above $100,000, it is all taxed. You can also lose other tax breaks, like a homestead rebate.

The same thing happens with the Medicare MAGI. If a single person exceeds $84,999, they pay an extra $634 for Medicare parts b and d.

Taxability of your SS is also a step function. Below $32,000 it is not taxable (federal tax) for a couple. Between $32,000 and $44,000 of total income, 50% becomes taxable income. Above $44,000, 85% is taxable.
Last edited by DonCamillo on Mon Dec 21, 2015 3:47 pm, edited 1 time in total.
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sport
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by sport »

Consider bunching your deductions into alternate years. If you can get above the standard deduction in the bunching years and below the standard deduction in the other years, you can reduce your taxes for the total of the two years.
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by jebmke »

also, keep in mind that your marginal tax bracket may well be different from the rate assigned to your "bracket".

I do a pro-forma return in mid-December every year. Mainly for planning ROTH conversions.
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itstoomuch
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by itstoomuch »

[quote="DonCamillo"]Another concern is with step functions, where if your income rises by $1 it costs you hundreds of dollar

Taxability of your SS is also a step function. Below $32,000 it is not taxable (federal tax) for a couple. Between $32,000 and $44,000 of total income, 50% becomes taxable income. Above $44,000, 85% is taxable.[/quote

AGI $44,033 :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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itstoomuch
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by itstoomuch »

jebmke wrote:also, keep in mind that your marginal tax bracket may well be different from the rate assigned to your "bracket".

I do a pro-forma return in mid-December every year. Mainly for planning ROTH conversions.
Getting late to do a Roth Conversion.
I think I will do a normal distribution to cash taxable. Then as I refine the numbers will determine if I want to put back money into IRA. Just talked to CPA. Using TaxAct 2015 (prelim) and this is not an endorsement for TA. :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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DonCamillo
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by DonCamillo »

I got a big unexpected capital gains distribution today that messed up my year-end planning, so I sold enough stock with a tax loss to offset it.

Can you do something like that or donate an additional $50 to a deductible IRA?
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)
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itstoomuch
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by itstoomuch »

DonCamillo wrote:I got a big unexpected capital gains distribution today that messed up my year-end planning, so I sold enough stock with a tax loss to offset it.

Can you do something like that or donate an additional $50 to a deductible IRA?
There's an :idea: . I need to refine the numbers later this afternoon.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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itstoomuch
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by itstoomuch »

DonCamillo wrote:I got a big unexpected capital gains distribution today that messed up my year-end planning, so I sold enough stock with a tax loss to offset it.

Can you do something like that or donate an additional $50 to a deductible IRA?
There's an :idea: . I need to refine the numbers later this afternoon.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by jebmke »

itstoomuch wrote:Getting late to do a Roth Conversion.
Takes me 2 minutes. Any time before the close of business Dec 31.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by tomd37 »

Toomuch,
Don't forget there are some items not normally included in your AGI but are included when calculating the taxation of SS benefits. There is a social security worksheet available online to assist in the calculations. You are already above $44K but others may benefit if they have more knowledge of the calculation and what goes into it.
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by Toons »

"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by kaneohe »

DonCamillo wrote:Another concern is with step functions, where if your income rises by $1 it costs you hundreds of dollars.

...........................................................................

The same thing happens with the Medicare MAGI. If a single person exceeds $84,999, they pay an extra $634 for Medicare parts b and d.

Taxability of your SS is also a step function. Below $32,000 it is not taxable (federal tax) for a couple. Between $32,000 and $44,000 of total income, 50% becomes taxable income. Above $44,000, 85% is taxable.
I agree w/you about the Medicare surcharge. Income $1 too much and you pay an extra "step" amount .

I don't think I would think about SS the same way. The % of income that becomes taxed above the breakpoints does step up but the amount of income subject to that % (not a tax rate) is the amount above that threshold (not the total income). Example: you have "income" of 32000. None of your SS is taxable. Increase the income by $2......you now exceed the threshold by $2 and so 50% of that excess or $1 of your SS is taxed at your marginal rate so perhaps an extra tax of 25 cents. I wouldn't consider that a step.
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Re: 2015 Tax Prelim Planning: Comments??

Post by Bill M »

I think the "preliminary" tax calculations are essential. In my case, I want to fill the xx% marginal tax bracket with Roth conversions, and that means essentially filling in (draft) 2015 forms this month and calculating exact amount of tax due. It also means deciding early whether to accelerate deductions and delay income, or reverse of that.

The big trouble, of course, is that a lot of the income figures are not yet known. I can make a good guess for CD interest to be paid 12/31, and with the CPI report of 11/15 I can figure out the 1099-OID for TIPS. But the Vanguard dividend payments (to come on 12/24) are still just estimates. And other figures, like imputed income for cost of group life insurance, I won't know until I get the W2. Solution: guess.

At least with Roth Conversions you can "undo" them with recharacterizations. But the hassle cost often exceeds the tax cost....
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Re: 2015 Tax Prelim Planning: Comments??

Post by Artsdoctor »

If your income tax situation is extremely easy, you can probably do back-of-the-envelope planning.

However, I can't imagine doing end-of-year tax planning without a software program. Trying to figure out your marginal tax rate is frustratingly difficult. I have been impressed by how little it really takes to change the marginal tax rate, even when you're in the AMT.

By using software in December, you may have a chance at limiting income (for example, if you're self-employed) or, more likely, making significant changes in your deductions.

This is so aggravating, but at least software gives you a chance.
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itstoomuch
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Re: 2015 Tax Prelim Planning: Comments??

Post by itstoomuch »

At burger king using their Internet. House Internet is down, localized problem of CenturyLink.
So I got some medical numbers this morning- Money can buy a smile ($6000 worth of crowns).
Can't/hard to plug in the new numbers using tablet in public system. :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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itstoomuch
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by itstoomuch »

sport wrote:Consider bunching your deductions into alternate years. If you can get above the standard deduction in the bunching years and below the standard deduction in the other years, you can reduce your taxes for the total of the two years.
Decided to take IRAs to Income and taxable accounts while I have a little space left and pay the extra taxes. The 2016 forward will be high tax years because of the rental. And 2018+ we'll have RMD #1.

OK. Prepaying dentist for crowns and routine. Seeing the Seeing Doctor. Prepaying the CPA.
Thx.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: 2015 TAX PRELIM PLANNING: Comments??

Post by grabiner »

DonCamillo wrote:Taxability of your SS is also a step function. Below $32,000 it is not taxable (federal tax) for a couple. Between $32,000 and $44,000 of total income, 50% becomes taxable income. Above $44,000, 85% is taxable.
This is not correct, although it is the way the rule is often described. See Taxation of Social Security benefits on the wiki.

If you are married filing jointly, then below $32,000 (other income plus half of SS), SS is not taxed. For every dollar from $32,000 to $44,000, 50 cents of SS becomes taxable, up to a maximum of 50% of total SS; the 50% limit can only apply if your SS is less than $12,000. For every dollar above $44,000, 85 cents of SS becomes taxable, up to a maximum of 85% of total SS.
Wiki David Grabiner
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