2018 Tax Planning

[Ready]

I'm a bit confused about the new tax rules and I have not been able to find a calculator on the internet that helps me to plan for my 2018 tax liability. I'm no longer working so I will have no earned income, but I will have $55K in capital gains and $7K in interest.

I know the interest is taxed as ordinary income but the gains should be taxed at the lower CG rates.

I file married filing separately, so I think my standard deduction is $12K, which leaves me a net of $50K in income. But this is where I get confused on how to calculate the estimated taxes.

I know the taxes rates on CG's are 0% up to about $38K, but since I'm over, how do I calculate the estimated taxes?

 

[audreyh1]

AGI $62K
subtract standard deduction of $12K
Taxable income $50K, so $50K-$38.6K = $11.4K will be subject to the capital gains rate of 15%.
I think the all the rest is $0 since your ordinary income was less than your standard deduction? Yes, they would subtract your $55K of capital gains from your total taxable income of $50K, and with a negative result, 0 would be applied to the tax table.

 

[pb4uski]

+1. Your capital gains over the limit after applying the standard deduction would be all at 15%.

 

[Ready]

Audrey, PB - thanks for the quick response. I was confused as to whether the entire amount of capital gains was subject to 15% once you go over $38K or just the amount over $38K. The latter sounds much better to me.

Thanks!

 

[tinlizzy]

Tax caster looks to be all set up with the new tax changes. You can figure this year's tax, 2017, and also 2018.

 

[audreyh1]

Audrey, PB - thanks for the quick response. I was confused as to whether the entire amount of capital gains was subject to 15% once you go over $38K or just the amount over $38K. The latter sounds much better to me.

Thanks!

Oh yeah, it’s not a stair step function like the ACA subsidy eligibility, being able to contribute to IRAs, or Medicare IRMAAs. It acts like proper tax brackets where income that falls in each bracket gets taxed at that rate.

 

[Ready]

Tax caster looks to be all set up with the new tax changes. You can figure this year's tax, 2017, and also 2018.

I see that Taxcaster mentions 2018, but when I try to go to the web page to plug in the numbers, it just says "coming soon". Did you find a way to estimate 2018 taxes on their site?

 

[tinlizzy]

I see that Taxcaster mentions 2018, but when I try to go to the web page to plug in the numbers, it just says "coming soon". Did you find a way to estimate 2018 taxes on their site?

I have the app and it's updated so maybe that's the difference. There's a tab that says looking at 2018.

 

[pj.mask]

Yea, I ran through this on the AMT worksheet recently. Regular income can fill up the 0% LTCG bracket but in general it works the same as regular income brackets.

I haven’t heard of any changes to this for 2018.

 

[Sunset]

OP - do you file that way out of habit, or do you check each year to see if filing jointly would be better ?

We always file jointly, but maybe we are missing something that would make filing single married better ?

Are there common reasons for one over the other ?

 

[Ready]

I have the app and it's updated so maybe that's the difference. There's a tab that says looking at 2018.

I was using the web site. I downloaded the app and I see the looking at 2018 tab now. Thank you!

 

[Ready]

OP - do you file that way out of habit, or do you check each year to see if filing jointly would be better ?

We always file jointly, but maybe we are missing something that would make filing single married better ?

Are there common reasons for one over the other ?

Generally married filing jointly works best. But DH is still working and is based in a different state, so he does not file a CA tax return. So if we filed jointly, we would have a much more complicated situation for filing my CA return. If it weren't for that, we would file jointly.

 

[kaneohe]

Both Taxcaster and the HR Block tax calculators post 2018 results along w/ the 2017 results. On the last results page for both, there is a small tab for the 2018 results along w/ the usual 2017 results. Unfortunately while you can get more detail on the 2017 results, you only get the bottom line for 2018. ......
and both calculators agree in the one example I did.

 

[audreyh1]

Yea, I ran through this on the AMT worksheet recently. Regular income can fill up the 0% LTCG bracket but in general it works the same as regular income brackets.

I haven’t heard of any changes to this for 2018.

Same capital gains tax treatment under AMT, and capital gains are not subject to AMT, but they can push ordinary income into the AMT zone. You still get your 0% on some of your capital gains where ordinary income < 15/12% tax bracket even if you pay AMT rates on some of your ordinary income.

 

[kaneohe]

Same capital gains tax treatment under AMT, and capital gains are not subject to AMT, but they can push ordinary income into the AMT zone. You still get your 0% on some of your capital gains where ordinary income < 15/12% tax bracket even if you pay AMT rates on some of your ordinary income.

Might be best to run these scenarios through tax software or calculators like the HR Block /Taxcaster calculators. Like the taxation of SS, a lot of it is not intuitive, at least in the beginning.

Although mechanistically, the treatment of CGs is the same under AMT, the interactive effects on ordinary income can raise the marginal rates of CGs significantly.

 

[audreyh1]

Might be best to run these scenarios through tax software or calculators like the HR Block /Taxcaster calculators. Like the taxation of SS, a lot of it is not intuitive, at least in the beginning.

Although mechanistically, the treatment of CGs is the same under AMT, the interactive effects on ordinary income can raise the marginal rates of CGs significantly.

The marginal rate increase is on the ordinary income, not the capital gains income. I suppose some people see it the other way around. But the AMT rates are calculated on the ordinary income. Under AMT you still pay capital gains rates on the capital gains, and you'll still see 0% on some (if your ordinary income is below the 15/12% tax bracket), 15% on the next, 18.8% if your AGI exceeds $250K for MFJ, and 23.8% if your AGI exceeds - what ~$470K?

I have large cap gains income, and small ordinary income, and have paid AMT for many years. I usually pay a small amount even though the "rate" is very high.

 

[kaneohe]

The marginal rate increase is on the ordinary income, not the capital gains income. I suppose some people see it the other way around. But the AMT rates are calculated on the ordinary income. Under AMT you still pay capital gains rates on the capital gains, and you'll still see 0% on some (if your ordinary income is below the 15/12% tax bracket), 15% on the next, 18.8% if your AGI exceeds $250K for MFJ, and 23.8% if your AGI exceeds - what ~$470K?

I have large cap gains income, and small ordinary income, and have paid AMT for many years. I usually pay a small amount even though the "rate" is very high.

This is mostly semantics.......when I think of marginal rate on CGs, I think of what happens if I add $1000 of CG. If you are in phaseout region of AMT, the marginal tax rate on that $1000 change in CG income will not be 15%.....it more likely will be 15% + 6.5% (= 26%/4) + (perhaps) 3.8% for NIIT = 25.3%.
You can think of it mechanistically (as the calculation goes) as normal CG rates and additional ordinary income rates but the net result of increasing CGs is that larger number.

 

[audreyh1]

Well I'm hoping to be out of AMT starting next year as I have taken steps to realize future capital gains. It kind of depends on distributions though. At least I'll be way below the new much higher phaseout region.

Kind of a good thing as our ordinary income is creeping up with higher interest rates plus a lot of growth in the portfolio - so more in bonds and CDs.