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Basic Tax Planning Question
12-04-2012, 12:09 PM
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#1
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Recycles dryer sheets
Join Date: Sep 2012
Location: Redmond, WA
Posts: 185
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Basic Tax Planning Question
So as I plan for retirement, I have a budget built with my estimated costs mortgage, utilities, insurance, travel, food, etc. This adds up to $77k annually. When I am figuring what my nest egg needs to be, what number should I use for taxes? I was figuring I would use 20% for taxes and so I would need a recurring stream of $96k (77k/.80). But wait a sec....I was thinking of being a working guy. My tax burden should be lower because part of the withdrawl is on money I already paid taxes on and part with be dividends right? How should I figure this?
Note, my savings are all held in taxable accounts not 401k or anything like that.
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12-04-2012, 12:16 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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The best way to do it is run some ""what if" situations in TurboTax or some other tax prep. program. That will give you a basis of what your tax liability can would be today, then you can guess how that might change in the future...
__________________
Numbers is hard
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12-04-2012, 01:16 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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This one is pretty simple. You can put in your basic information and it will give you an estimate of what your taxes will be. Put in your estimated, interest, dividends, etc. then keep adding capital gains on withdrawals as needed.
TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator
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12-04-2012, 01:23 PM
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#4
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Recycles dryer sheets
Join Date: Jul 2008
Location: Sacramento area
Posts: 467
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Shabby -
Your basic assumption is correct - depending on the cost basis of the underlying assets, the cash you withdraw will only be PARTLY taxable. Your statements probably have the cost basis listed. That will help you decide WHICH items to liquidate as you draw down.
DON'T forget State taxes - here in California you QUICKLY get to the 9%+ marginal rate.
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12-04-2012, 02:19 PM
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#5
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Recycles dryer sheets
Join Date: Sep 2012
Location: Redmond, WA
Posts: 185
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Ran some numbers on TurboTax and my best guess is 10%. This makes a big difference in my calculations which I used 20% for. Very exciting stuff.
Basically I live off of dividends on Bond Funds, bit of principle, some part time work, write off interest on the mortgage, grab social security in 20 years and life should be good.
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12-04-2012, 08:55 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I use my own software program to do the calculation for each retirement year, including capital gains, IRA's, Roth IRA's, and deductions. Kind of tough to figure out the effects of Roth conversions without including the tax effects. You could do something similar in Excel. I would think i-orp.com would be able to help as well.
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12-05-2012, 05:35 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
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After reading this thread I realize the planned tax rate I am using once FIREd (22%) may be too high.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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12-05-2012, 08:03 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,206
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Quote:
Originally Posted by pb4uski
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Son of a gun. I've been using TurboTax since fire was discovered (or thereabouts), and never noticed that site. Nice quick and dirty estimate. Thanks!!!
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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02-14-2013, 03:41 PM
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#10
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Recycles dryer sheets
Join Date: Jan 2013
Location: Camas, WA
Posts: 96
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02-14-2013, 05:08 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Taxcaster models the 0% long-term cap gains tax rate for low-income folks just fine.
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02-14-2013, 05:16 PM
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#12
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Full time employment: Posting here.
Join Date: Jun 2006
Posts: 927
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I thought everybody used the TurboTax TaxCaster. It is a very handy tool.
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CW4, USA-(ret)
RN, BSN-(ret)
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02-14-2013, 05:18 PM
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#13
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Thinks s/he gets paid by the post
Join Date: May 2011
Location: South Eastern USA
Posts: 1,068
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I have an Excel spreadsheet that models the tax calculations. It has tax parameter inflation escalation as well. Since all of my income and expense projections are escalated by inflation, this fits well.
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02-14-2013, 08:16 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Quote:
Originally Posted by LOL!
Taxcaster models the 0% long-term cap gains tax rate for low-income folks just fine.
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so does the H&R Block one................
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