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Calculate 2019 Taxes to pack 22% Tax Rate
Old 08-26-2019, 03:45 PM   #1
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Calculate 2019 Taxes to pack 22% Tax Rate

- How do I start to calculate 2019 Taxes ? I want to do Roth Conversion without crossing the 22 % Tax Rate.

- Can anyone please suggest a simple method to do that ?
Close enough numbers will be fine.

- We are retired, 63 & DW 58, estimated passive income from Dividends & Interest is around $75k for this year 2019. I do not see any other taxable income in 2019.

- Do not expect any cap gains Tax in the Taxable accounts this year
- No rental property, no dependents
- Just 1099s from Vanguard Investments & Bank CDs + savings in 3 Banks

- I want to start doing taxes for myself using Turbotax for 2019 & not go an Accountant. Married Filing Jointly. The top number for 22 % marginal Tax Rate is around $168 k.
-Does it mean I have room of about $ 93k for the Roth Conversion. ? For the taxable income I deduct the Standard Deduction of $24k ?

What am I missing ?

I know it is a simplistic question to complex calculations, but I will appreciate any pointers for me to start working on .

Thanks
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Old 08-26-2019, 03:52 PM   #2
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If you have Turbotax, they have a good "what if" section.

If not, I have found this to be very useful, and accurate to within 10's of dollars for my 2018 return.

https://www.mortgagecalculator.org/c...calculator.php

EDIT to add: If you scroll down., it gives you all the tax brackets and other info to explain what they have done.
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Old 08-26-2019, 04:22 PM   #3
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Given that you are approching Medicare age, there's another threshhold to watch, IRMAA.
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Old 08-26-2019, 04:31 PM   #4
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If you do ROTH conversions to the top of the 12% tax bracket ($78,950 for MFJ), you need to ensure that your taxable income does not exceed $78,750. Otherwise, your LTCGs from the taxable account will be taxable at the 15% rate. I'd suggest that you use last year's TurboTax or one of the online tax estimators to calculate the max you can convert, and then under-convert by a few hundred $.

P.S. Re-reading the OP's post has me questioning whether they're trying to stay within the 12% bracket, or the 22% bracket.

Here's one you can try for free.
https://turbotax.intuit.com/tax-tool...ors/taxcaster/

I personally use a spreadsheet that includes all of my projected income, carry over capital losses, and tax-deferred contributions to determine my gross and adjusted gross income, then subtract the 2019 standard deductions to determine taxable income, then calculate taxes owed based on the 2019 tax brackets. I'm usually within $200 per year, but I update dividends quarterly, so I have a pretty good idea by the third quarter.
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Old 08-26-2019, 05:13 PM   #5
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Quote:
Originally Posted by HNL Bill View Post
If you do ROTH conversions to the top of the 12% tax bracket ($78,950 for MFJ), you need to ensure that your taxable income does not exceed $78,750.
To possibly clarify, Bill's numbers are "taxable income" as defined on the tax form. That's after you subtract off $24,000 for the MFJ standard deduction. (If you itemize, adjust for that number instead.)

In "total income" terms, including the amount that would be offset by the $24K standard deduction, for MFJ in 2019:

Ordinary income is taxed at:
1. 0% up to $24,000
2. 10% from $24,000 - $43,000
3. 12% from $43,000 - $103,000
4. 22% from $103,000 - $193,000
5. 24% from $193,000 - $365,000

You say you don't expect any taxable capital gains, but for completeness:
Qualified income (qualified dividends and long-term capital gains) "sits on top of" ordinary income. This is taxed:
1. 0% on amounts below $103,000 "total income"
2. 15% on amounts above $103,000 "total income"
3. Add 3.8% on amounts above $250K "total income"
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Old 08-26-2019, 06:51 PM   #6
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Thanks, I appreciate your replies,

- Yes, I meant 22% (Not 12%)

- When I said I do not expect any Cap Gains Tax, I meant I will not be selling nor I sold any Mutual Funds in year 2019 (do not have any individual stocks) from my Taxable Accounts at Vanguard.
If the Mutual Fund sells any, although almost all are Index Funds with minimal turnover, then CG Tax will be generated, I guess, about 80 to 90% of our Dividends are qualified

- I bought the Turbotax CD on Amazon ($13) for 2018 Taxes, to start learning to do the taxes & found the 2018 Taxes it calculated was close enough to what our Accountant had.
I wonder if I can I update this Turbotax for 2019 Taxes or do I buy a fresh one for 2019 when the time comes

- I understand that I need to keep our Taxable income below $169 k, to pack up the 22% Marginal rate.i.e.. $ 193k Total Income -$ 24k Standard Deduction = $ 169k Taxable Income. Anything over that will be taxed at 24%. Am I right ?

- I thank you all & will work on the links provided, to get a better handle on how to do the Taxes for yr 2019. I will come back here if any questions arise.
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Old 08-26-2019, 07:30 PM   #7
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Originally Posted by rkser View Post
If the Mutual Fund sells any, although almost all are Index Funds with minimal turnover, then CG Tax will be generated, I guess, about 80 to 90% of our Dividends are qualified
You could use the amounts on your 2018 1099 forms as a starting guess for 2019.

Quote:
I wonder if I can I update this Turbotax for 2019 Taxes or do I buy a fresh one for 2019 when the time comes
Intuit will force you to buy a 2019 version if you want to use it for filing. The "what if? worksheet" in the 2018 version should however be reasonably accurate for 2019.

Quote:
I understand that I need to keep our Taxable income below $169 k, to pack up the 22% Marginal rate.i.e.. $ 193k Total Income -$ 24k Standard Deduction = $ 169k Taxable Income. Anything over that will be taxed at 24%. Am I right ?
Pretty much. The bracket changes at $168,400, and the IRMAA tier jumps at $170K of AGI, not taxable income.

Quote:
I thank you all & will work on the links provided, to get a better handle on how to do the Taxes for yr 2019. I will come back here if any questions arise.
If you want to see rate changes in graph form, the case study spreadsheet will do so for your situation (if you download in Excel form).
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Old 08-26-2019, 08:13 PM   #8
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I think your Roth conversion can be as much as $118k. $75k interest and dividends + $118k Roth conversions -$24k STD deduction = $169k taxable income
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Old 08-26-2019, 08:49 PM   #9
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Your actual marginal tax rate (not the nominal bracket) on traditional withdrawals will go above 24% at a lower amount than one might think. Assuming all $75K of "dividends and interest" is qualified dividends, the chart below shows the actual marginal rates. Spikes are IRMAA tiers.


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Old 08-27-2019, 01:19 PM   #10
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I just converted $30,000 from my wife's Trad IRA, now I am trying to calculate the Tax hit.
I arrived at adding the Roth Conversion Tax of $4050 to the estimated taxes to be sent by next month. I invite comments & clarifications on my calculations.

The Premise I am working on is keeping our (MFJ) Adjusted Gross Income for 2019 close to $165000 but below $170000 to avoid the next tier of IRMAA for the Medicare Premiums, as I will be reaching 65 in 2021. This will keep us in the 22% Marginal Tax Rate.

Presuming a effective Tax rate of 15%(Not the marginal), the taxes on $30000 conversion will be $4500. The sum of her Rollover + Traditional IRAs(Not her Roth) is $480000 & $45500 are the Non deductible after tax IRA contributions, say 9.5% of the Total of $480000.

9.5% of $4500 say 10% rounding off is $450. Subtracting $450 from $4500 is $4050, which is the estimated tax due on this $30,000 of conversion.

Am I right in my calculations, please comment does this make sense ?

Thanks Pb4uski & Sevenup for your input. I have learnt a lot from Pb4uski over the years on this Forum.
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Old 08-27-2019, 02:32 PM   #11
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Quote:
Originally Posted by rkser View Post
I just converted $30,000 from my wife's Trad IRA, now I am trying to calculate the Tax hit.
...

Presuming a effective Tax rate of 15%(Not the marginal), the taxes on $30000 conversion will be $4500.
When looking at the choice to take additional income and incur taxes on that income, it's the marginal rate on that income - i.e., (change in tax)/(change in income) - that matters.

To answer your specific question, you don't need to know the marginal rate (although it would be easy enough to calculate) if you determine the change in tax that occurs due to the additional income. How much the tax will change may depend on the specific type of other income (e.g., qualified vs. non-qualified dividends) so using a good 2019 tax estimation package seems appropriate.
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Old 08-27-2019, 02:53 PM   #12
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Quote:
Originally Posted by rkser View Post
...This will keep us in the 22% Marginal Tax Rate.

Presuming a effective Tax rate of 15%(Not the marginal), the taxes on $30000 conversion will be $4500. The sum of her Rollover + Traditional IRAs(Not her Roth) is $480000 & $45500 are the Non deductible after tax IRA contributions, say 9.5% of the Total of $480000.

9.5% of $4500 say 10% rounding off is $450. Subtracting $450 from $4500 is $4050, which is the estimated tax due on this $30,000 of conversion.

Am I right in my calculations, please comment does this make sense ?
With a taxable income of almost $170K, the ROTH conversion will be taxed at 22% (as will any income from $78,950 to $168,400). The added tax burden is 0.22 x $30,000, or $6,600. I calculate a $28,765 federal tax bill (taxable income of $168,400, MFJ), or 14.98% effective. You're not paying 15% taxes on the conversion, it is 22%.
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Old 08-27-2019, 03:04 PM   #13
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https://www.mortgagecalculator.org/c...calculator.php

why not use a simple calculator instead of guessing. You need to specify for your DIV/INT income how much is qualified dividends.
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Old 08-27-2019, 03:14 PM   #14
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Maybe I am wrong, but it sounds like OP has a mixture of pre-tax and post-tax funds in the IRA, so he is trying to figure out how much of the conversion is taxable.

I have never had this issue, so can't comment.
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Old 08-27-2019, 03:29 PM   #15
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Originally Posted by kaneohe View Post
https://www.mortgagecalculator.org/c...calculator.php

why not use a simple calculator instead of guessing. You need to specify for your DIV/INT income how much is qualified dividends.
+1. That may be the best web-based estimator, but even that one will miss the IRMAA tiers. The spreadsheet mentioned in reply #7 and used for the chart in #9 does include IRMAA along with other tax code details.

Quote:
Originally Posted by HNL Bill View Post
With a taxable income of almost $170K, the ROTH conversion will be taxed at 22% (as will any income from $78,950 to $168,400). The added tax burden is 0.22 x $30,000, or $6,600. I calculate a $28,765 federal tax bill (taxable income of $168,400, MFJ), or 14.98% effective. You're not paying 15% taxes on the conversion, it is 22%.
It's a variety of individual rates as the chart posted previously suggests. Need to know the details of "Dividends & Interest is around $75k" for an accurate number.
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Old 08-27-2019, 05:27 PM   #16
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I got it,

I understand the details of the dividends Qualified vs Non Qualified matter in determining the Tax Bill with qualified one getting the preferential treatment & Non qualified Dividends are treated as ordinary income & taxed at higher rate.

I will find the IF SUPPOSE scenario on the Turbotax 2018 CD & put the numbers in, looking at the 2018 Taxes. That will make things clearer for me.

Sevenup I will come back to understand the Graph you posted about the Irmaa.

Again, thanks a lot for your time & answers to help a novice here.
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Old 08-27-2019, 06:11 PM   #17
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I will find the IF SUPPOSE scenario on the Turbotax 2018 CD & put the numbers in, looking at the 2018 Taxes. That will make things clearer for me.
See Solved: How do I get the "what-If" worksheet? if needed.
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Old 08-27-2019, 07:03 PM   #18
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Thank you so much, Sevenup. You have made my job easier.

Thanks everybody for your input
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Old 08-27-2019, 07:20 PM   #19
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Quote:
Originally Posted by rkser View Post
I just converted $30,000 from my wife's Trad IRA, now I am trying to calculate the Tax hit.
I arrived at adding the Roth Conversion Tax of $4050 to the estimated taxes to be sent by next month. I invite comments & clarifications on my calculations.

The Premise I am working on is keeping our (MFJ) Adjusted Gross Income for 2019 close to $165000 but below $170000 to avoid the next tier of IRMAA for the Medicare Premiums, as I will be reaching 65 in 2021. This will keep us in the 22% Marginal Tax Rate.

Presuming a effective Tax rate of 15%(Not the marginal), the taxes on $30000 conversion will be $4500. The sum of her Rollover + Traditional IRAs(Not her Roth) is $480000 & $45500 are the Non deductible after tax IRA contributions, say 9.5% of the Total of $480000.

9.5% of $4500 say 10% rounding off is $450. Subtracting $450 from $4500 is $4050, which is the estimated tax due on this $30,000 of conversion.

Am I right in my calculations, please comment does this make sense ?

Thanks Pb4uski & Sevenup for your input. I have learnt a lot from Pb4uski over the years on this Forum.
It is hard to say based on the info provided as it depends on how much income you have before the $30,000 conversion and the nature of that income (ordinary vs preferenced). As others have mentioned, the best way is to use the what-if worksheet in TT.
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Old 09-01-2019, 04:19 PM   #20
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A question,

I am using 2018 Tubo Tax Premier & filling in presumed numbers for 2019 for 1099s Div & Interests & so on.

I am not clear on how & where to fill in the $50k of Roth Conversion from Traditional IRA, it asks me to fill in the IRA contribution, which I did not do as there is no earned income.

In the end it did not include the filled in $50 k as the Income. Do I have to complete Form 8606 at this point or can I do it later.?

Would any Turbotax users who have done the Roth conversion, care to throw some light on this struggle I am having.

Thanks in advance
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