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Old 01-03-2013, 07:26 PM   #41
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I haven't paid much at all in federal taxes since I retired back in 2002. I guess being part of the great unwashed making less than $100K a year does have it's benefits. I just never dreamed that the crazy low tax rates for us retired paupers would be made "permanent" Wonders never cease. I wish the state of Oregon would get on the bandwagon now. I pay far more in State taxes than I do in Federal taxes. Time to move to Texas I guess!
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Old 01-03-2013, 07:38 PM   #42
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Originally Posted by ejman View Post
I haven't paid much at all in federal taxes since I retired back in 2002. I guess being part of the great unwashed making less than $100K a year does have it's benefits. I just never dreamed that the crazy low tax rates for us retired paupers would be made "permanent" Wonders never cease.
The great unwashed, untaxed masses?
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Old 01-03-2013, 08:18 PM   #43
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Don't feel bad, Midpack. In fact, thanks very much for posting. (And great chart, LOL!)

For 5 years+ I have been reading innumerable posts with "I'm planning to harvest my capital gains" and until this thread I didn't fully understand the meaning.

Disclosures: Solidly in the middle of the accumulation phase. I'm several years away from RE and withdrawals. I haven't filed a schedule D or had dividend-paying investments in my after-tax accounts for number of years, i.e. I buy and hold almost 100% non-dividend-paying stocks in those accounts to minimize current taxes.

Even if I had filed Sch. D, our taxable income exceeds the 15% bracket - I probably would not have any reason to make Midpack's discovery even if I did have current taxable dividends and capital gains to report.

Also, all along I have been assuming that the "base" 15% dividend and capital gains rate I see in the news is applied to the first dollar and the last dollar of that year's div / CG income.

Thus I was reading the CG-harvesting posters' strategy as targeting the combined total of taxable income, dividends and LTCG's to avoid their next $1 of income being taxed at 25%. It made perfect sense in that context, as a way to manage taxes on discretionary withdrawals made from taxable accounts. Why make a withdrawal of $10 with $6 effectively taxed at 15% and $4 taxed at 25% when only $6 of cash is needed for living expenses?

It's now clear to me that I wasn't paying close attention. To learn that "capital gains harvesting" has been a much sweeter deal is revelation.

And to hear that it's now set to continue going forward with the fiscal cliff deal is even better news.

Time to rethink some of my biases against taxable accounts...
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Old 01-03-2013, 08:53 PM   #44
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As a single filer, dividends alone push me fairly close to the top of the 15% bracket, even after deductions.
About those deductions: now that the 0% CG rate is permanent (within the 15% bracket) it increases the value of those deductions for those of us in the 15% bracket. Every dollar of deductions is another dollar of tax-free CGs we can harvest before hitting the top of the 15% bracket. This increases the case for keeping a mortgage (if, together with other deductions it will put one over the standard deduction), and for "bunching" itemized deductions to get above the standard deduction every other year or so.

There, I worked the much-loved mortgage issue into this.

Ah, the games we play. I wonder what percentage of Americans miss out on all of this? It's crazy.
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Old 01-04-2013, 08:11 AM   #45
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I haven't paid much at all in federal taxes since I retired back in 2002. I guess being part of the great unwashed making less than $100K a year does have it's benefits. I just never dreamed that the crazy low tax rates for us retired paupers would be made "permanent" Wonders never cease. I wish the state of Oregon would get on the bandwagon now. I pay far more in State taxes than I do in Federal taxes. Time to move to Texas I guess!
While I still pay more in federal income taxes than I do (New York) state income taxes, the gap between the two has shrunk significantly. When I worked full-time (before the Bush tax cuts), my state income tax bill was about 1/3 of my federal income tax bill. Later, when I worked part-time (and my investment income rose a lot), my state income tax bill became 40% of my federal income tax bill. But since I ERed 4 years ago, my state income tax bill became at least 75% of my federal income bill, often only a few hundred dollars apart. This is mainly due to my growing stock dividends and all LTCG (especially as a percent of my overall income) being taxed at 0%. Even a recent tax cut in my NY taxes does little to change the equation.
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