Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
1st Year of FIRE: tax planning and withholdings?
Old 12-26-2014, 08:41 AM   #1
Full time employment: Posting here.
 
Join Date: Feb 2014
Posts: 731
1st Year of FIRE: tax planning and withholdings?

I hope everyone had a good Christmas and are relaxing.

My question has to do with tax planning with regards to withholdings and estimated taxes.

First year of FIRE for me will be 2015, but my DW is still w*rking.

I will have a modest monthly pension and plan on selling After Tax assets early in 2015 (purely LTCG equities) and also plan to supplement any shortfall later in 2015 from a 401k distribution as my reserve to pay my portion of the expenses that we split.

Since I won't have earned income, my DW will need to adjust her W4 and her withholdings to meet what taxes I have estimated for 2015. And I will need to submit a W4P for withholdings from my pension.

We have two boys both in school and being claimed as dependents.

I have estimated taxes for 2015 and have target dollar amounts as withholdings for both myself and my DW - is there a way to backwards calculate what to put on the W4 forms?

Say if we want to target a yearly Federal withholding of $6500 for my DW, can I work backwards to what a revised W4 would look like?

Thanks!
__________________

__________________
BBQ-Nut is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-26-2014, 11:01 AM   #2
Recycles dryer sheets
 
Join Date: Dec 2012
Posts: 226
I use H&R Block tax preparation software each year to calculate my taxes. Then I make the assumption that the following year will bring minimal tax changes and I do a "what if" type of tax return for the coming year. My pension is paid monthly so I adjust my withholding to cover about 95 percent of the upcoming tax liability. I just add an additional amount to be withheld each month. Hope I read your question correctly.
__________________

__________________
davismills is online now   Reply With Quote
Old 12-26-2014, 11:40 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Last time I filled out a W-4 (a long time ago) you could select the number of exemptions or whatever you were entitled to due to itemized deductions and other considerations. However, there was also a simple line that said add the amount you entered to your withholding for each period. I usually went with zero exemptions and set the extra dollar amount to what I needed. Very easy if you know what your base level of withholding is already. Otherwise, you'll have to look up the withholding tables and see what they do by default. I would think for your pension at least the default would be 0% or a similar simple percentage.
__________________
Animorph is offline   Reply With Quote
Old 12-26-2014, 01:13 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,936
Tables at the end of this http://www.irs.gov/pub/irs-pdf/p15.pdf
Pick your status (single/married) and pay period (wkly, etc) and tune your exemption # to get the correct $ amount you want withheld. Be sure to check the paycheck withholding to see that it is consistent.

I've never used them myself......used the previously described technique of underwithholding and then adding a fixed $ amount /pay period.
__________________
kaneohe is offline   Reply With Quote
Old 12-26-2014, 03:44 PM   #5
Thinks s/he gets paid by the post
Brett_Cameron's Avatar
 
Join Date: May 2011
Location: South Eastern USA
Posts: 1,010
I made a spreadsheet that models income and income tax calculations. I set up a withholding calculator using the parameters from IRS Notice 1036. I use the spreadsheet to vary # of exemptions and extra withholding $ to make the final 1040 form taxes slightly positive. Comes out close and conservative relative to Turbo Tax calculations.
__________________
All that glitters is not gold. -G. Chaucer, W. Shakespeare
All that is gold does not glitter. -J.R.R. Tolkien
Brett_Cameron is offline   Reply With Quote
Old 12-26-2014, 03:58 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,726
Actually for 2014 if you make level estimated payments the penalty according to form 2210 is 1.995% on the unpaid balance. (If you make uneven payments you have to use the long method) But then if you make withdrawals late in the year and you use the regular method the interest due is 3%* the number of days late. So the penalty is not to bad due to the low short term interest rates.
__________________
meierlde is online now   Reply With Quote
Old 12-27-2014, 08:44 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,475
Quote:
Originally Posted by BBQ-Nut View Post
.... I have estimated taxes for 2015 and have target dollar amounts as withholdings for both myself and my DW - is there a way to backwards calculate what to put on the W4 forms?

Say if we want to target a yearly Federal withholding of $6500 for my DW, can I work backwards to what a revised W4 would look like?

Thanks!
Yes you can. There are paycheck calculators out there that you can put in DW's earnings per pay period, withholding status, etc and it will calculate the various withholdings and her net check. Just play with the withholding status until the withholdings for a year are equal to your target.

If it were me, I would just adjust DW's so that her tax withholdings are equal to your total expected tax liability for the year and forget about having to do estimated taxes.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
1st year Flew By siamamerican Life after FIRE 8 02-21-2010 10:24 AM
Need my 1st men's suit- what to get and where to go? thefed Other topics 48 10-16-2009 08:20 AM
Fire! Fire!---Not FIRE mickeyd Other topics 16 11-18-2008 05:19 PM
Tax Question: 1st Year of Desig Roth Contrib TromboneAl FIRE and Money 1 02-04-2008 08:09 PM
End of year tax planning for wage slaves.... maddythebeagle Young Dreamers 22 12-22-2006 09:39 AM

 

 
All times are GMT -6. The time now is 03:38 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.