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Old 02-08-2015, 10:02 PM   #41
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I'm not planning on paying federal income tax for a looooong* time. This year we're getting back a couple thousand dollars (no tax liability, refundable child tax credits). Should be more of the same in the future (at least the no tax liability part).

While working, we managed to get up to $150k in income and pay $150 in tax.

* Unless our portfolio does really well and I amp up the spending significantly. Or age 70 and RMDs kick in.
I was looking at taxable income under $10k this year and had qualified for Medicaid, but then someone offered me a part time contracting job at $72/hour so now my low tax year is blown. Lucky I didn't cancel my ex employer's health plan.
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Old 02-09-2015, 05:57 AM   #42
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The question is how hard are you going to work to ensure you don't contribute to the public services from which you benefit? And how proud are you of not paying your share? People like Fuego seem to be happy to take money from other taxpayers, but proud of contributing as little as they can. That means everyone else pays more. If you go out for drinks with your coworkers, do you buy a round, or slip off to to restroom when your turn comes up and hope they don't notice?
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Old 02-09-2015, 06:13 AM   #43
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Taking advantage of the tax code is not cheating. Let's be careful to avoid characterizing other forum members - we're all friends here.
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Old 02-09-2015, 06:22 AM   #44
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Originally Posted by bad_LNIP View Post
For a married couple the feie max is over 200k. Form an investment company and collect a management fee. Qualified dividends are tax free up to 91k or so .

Interesting idea.
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Old 02-09-2015, 07:43 AM   #45
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Paying zero tax is so last decade.

Now you want to be paying negative tax via ACA subsidies.

Married couple with $500,000 from sale of house put into CD ladder, $1,500,000 investment portfolio in total stock market

Expenses of $60,000 a year.

Dividends, interest, capital gains of $30,000 (0% tax bracket)
Cash draw from CD ladder $30,000 (sale of house was tax free gain)

MAGI $30,000

ACA silver plan subsidy with cost sharing $8,000

Effective tax rate = negative $8,000
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Old 02-09-2015, 08:17 AM   #46
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Paying zero tax is so last decade.

Now you want to be paying negative tax via ACA subsidies.

Married couple with $500,000 from sale of house put into CD ladder, $1,500,000 investment portfolio in total stock market

Expenses of $60,000 a year.

Dividends, interest, capital gains of $30,000 (0% tax bracket)
Cash draw from CD ladder $30,000 (sale of house was tax free gain)

MAGI $30,000

ACA silver plan subsidy with cost sharing $8,000

Effective tax rate = negative $8,000
Yeah, I was tempted to keep drawing down my after tax savings to keep my income low and qualify for Medicaid, but give the chance to work 20 hours a week for a few months it was hard to pass up. I end up paying more tax and have to pay for healthcare, but I get some more SS contributions and end up with enough cash to cover another year of spending.
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Old 02-09-2015, 08:24 AM   #47
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Another consideration: It's not just the total taxes paid, but when you pay them. For many people (incl DW and I) paying taxes late in our lives (e.g. after age 80) is going to be a lot less irksome (I think) than paying them now, because our portfolio/spending requirements will be subject to a lot less uncertainty over a 20 year span than a 50 year span. When the finish line is in sight and the "game" won, paying more taxes isn't such a problem.
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Since RMD is not activated until age 70 1/2, many folks wish to delay receipt (taxation) of IRA/401(k) proceeds as long as possible. I know that's true for me now that I am 70. I could have withdrawn these proceeds prior to this year, but I had no immediate need for the cash, thus delaying distribution until this year.
But in many cases, delaying those tIRA/401K withdrawals as long as possible ends up producing a higher tax bill. If those RMDs plus SS and other income push the taxpayer into the 25% bracket and he was int he 15% bracket from age 59 to 70, he might have been better off to take money out of the tIRA/401K in those early years, at least up to the top of the 15% bracket.

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If you go out for drinks with your coworkers, do you buy a round, or slip off to to restroom when your turn comes up and hope they don't notice?
Totally inappropriate analogy. The government doesn't get money from the voluntary contributions of people who have freely agreed to contribute. Taxes are governed by rules, and failure to obey the rules can result in fines and loss of your liberty (jail time). IMO, the most virtuous path is to obey the rules to the letter, seek every opportunity to take advantage of them, and highlight to the world all the crazy loopholes that exist. That's how bad rules get fixed.

If my acquaintances tied me up, took me to the bar, ordered a lot of drinks, then went through my pockets to pry loose my "fair share", I would not feel obliged to chip in any more. And if there were a law allowing them to do this, I still wouldn't volunteer anything extra.
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Old 02-09-2015, 08:36 AM   #48
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But in many cases, delaying those tIRA/401K withdrawals as long as possible ends up producing a higher tax bill. If those RMDs plus SS and other income push the taxpayer into the 25% bracket and he was int he 15% bracket from age 59 to 70, he might have been better off to take money out of the tIRA/401K in those early years, at least up to the top of the 15% bracket.

I have the chance to take my 401a DC account and turn it into a pension that will pay me $20k a year starting at age 55 (that's in 2016). With income from rent and dividends and after deductions I estimate taxable income of $25k. So I actually like it from a tax perspective because it distributes retirement income evenly over my retirement years, gives me a bit of head room to do some IRA to ROTH rollovers up to the 15% tax limit and so maintains 0% on dividends and capital gains and should minimize my RMDs when the time comes to do that.
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Old 02-09-2015, 09:15 AM   #49
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Totally inappropriate analogy. The government doesn't get money from the voluntary contributions of people who have freely agreed to contribute. Taxes are governed by rules, and failure to obey the rules can result in fines and loss of your liberty (jail time). IMO, the most virtuous path is to obey the rules to the letter, seek every opportunity to take advantage of them, and highlight to the world all the crazy loopholes that exist. That's how bad rules get fixed.
Oh, they'll still take donations...
Americans donate $8 million to cut national debt - Nov. 20, 2012
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Old 02-09-2015, 09:56 AM   #50
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In my case, it's not my plan to totally avoid paying federal taxes when I retire, but there's still a good chance it's I'll pay close to nothing. I only need about $40K to live. But, even if I went with the short form rather than itemize, I'd be able to take a standard deduction of $6300 (single) and personal exemption of $4000. So that only leaves $29,700 to account for.

Well, the 25% tax bracket kicks in at $37,451 for 2015. Qualified dividends and capital gains are taxed at 0% if you're in the 10 and 15% brackets. So, I could make up to $47,751 and not pay any federal tax. Higher, actually, considering some long term capital gains would have a cost basis, so some of that "income" would really be return of capital.

Of course, there are still state and local taxes involved. And real estate taxes. Plus mortgages, and charitable deductions. So, chance are I'll be itemizing, which means an even bigger write off. I'm not sure how health insurance premiums fall into the equation, though. If I'm retired, and paying my full premium, it's considered a medical expense, right? However, don't you expenses for the year have to be more than 7.5% of your income before you can write anything off?

Also, I guess one way of looking at some of these deductions, is that while you're not paying taxes yourself, you're deflecting them to other sources. And in many cases, you're actually paying out much more than you get back in a tax writeoff. For instance, when I write off my mortgage interest deduction, I get back about 33 cents on the dollar (it would be much less once retired). However, that dollar, and many more, are going to the mortgage company, who pays taxes (or finds creative ways to dodge them, itself). That mortgage company keeps people employed, who pay taxes. When I write off my state and local, and property taxes, I'm helping keep government people employed at the state and local levels, and help keeping that government running. I'm paying for schools, roads, and infrastructure at the state and local level. When I make donations to a charity, that helps keep the poor, in some way, off the government dime.

So, if you have a big mortgage, big property tax bill, high state and local taxes, etc, you're still shelling out an awful lot of money, even if it helps you to get out of paying federal taxes.
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Old 02-09-2015, 11:26 AM   #51
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The government doesn't get money from the voluntary contributions of people who have freely agreed to contribute. Taxes are governed by rules, and failure to obey the rules can result in fines and loss of your liberty (jail time).

Not just that we have no limits or controls on how they take it, but we have no control or limitations on what the government chooses to spend the money on.

Its like someone slamming down Turkish coffee mixed with Guinness beer in front of you, demanding you pay your "fair share" and rifling through your pockets if you refuse. Furthermore, what public benefits am I using if I am overseas?
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Old 02-09-2015, 12:25 PM   #52
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I would like to meet some of these people. Apparently they don't know any person or any private charity who can do more good or more efficiently use their money than the US Government can. Those are some "true believers". . .
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Old 02-09-2015, 12:28 PM   #53
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Furthermore, what public benefits am I using if I am overseas?
You may just find out if there's a noncombatant evacuation operation (NEO), you want to travel on that US passport, or if you get into legal trouble in your new offshore paradise.
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Old 02-09-2015, 01:04 PM   #54
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The question is how hard are you going to work to ensure you don't contribute to the public services from which you benefit? And how proud are you of not paying your share? People like Fuego seem to be happy to take money from other taxpayers, but proud of contributing as little as they can. That means everyone else pays more. If you go out for drinks with your coworkers, do you buy a round, or slip off to to restroom when your turn comes up and hope they don't notice?
Well, I don't have coworkers any more and didn't particularly care to drink with them when I did have them.

But I invite my friends over for beers at my house all the time. I pay for the beers myself of course. A case of beer for all of us is cheaper than a couple of drinks at a bar, so it's very cost efficient (and the scenery is better and we can burn stuff in the fire pit).

Sometimes they bring a six pack, a bottle of wine, or a snack but I tell them not to worry about it. It's on me. It is, after all, a social time among friends and something I enjoy sharing voluntarily.

I don't understand how you linked an evening of hopped up fun with my buddies to a discussion of the IRC and our federal government's fiscal policies. Maybe you can enjoy a beer at my house some time and expand on that?
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Old 02-09-2015, 01:15 PM   #55
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If I was going to get worked up over people (since corporations are people, too!) I'd be more concerned with the people with billions in dollars of earnings not paying taxes:

20 big profitable US companies paid no taxes

"The biggest example during the second quarter is drugmaking giant Merck. The company had a negative effective tax rate during the second quarter of 7.5%, meaning it actually got a net tax credit. That's despite the fact that income before taxes at Merck soared 52% to $1.9 billion during the quarter.

Merck appears to be gaining on the tax front, in part, by the fact it earns profits in countries with lower tax rates."
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Old 02-09-2015, 02:24 PM   #56
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Headlines like the above can be oh so misleading. While it is true that Merck's 2Q effective tax rate was negative due to some unusual transactions, their effective tax rates for 2013, 2012 and 2011 were 18.5%, 27.9% and 12.8% respectively.

See page 121 their 2013 10-K for details. http://www.merck.com/investors/finan...orts/home.html
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Old 02-09-2015, 02:33 PM   #57
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Headlines like the above can be oh so misleading. While it is true that Merck's 2Q effective tax rate was negative due to some unusual transactions, their effective tax rates for 2013, 2012 and 2011 were 18.5%, 27.9% and 12.8% respectively.

See page 121 their 2013 10-K for details. Investors
Merck wasn't in the headline. There are many news articles on billion dollar corporations like Apple paying little in taxes. Are they all incorrect?

How Does Apple Avoid Taxes? - Forbes

How Google and Apple Make Their Taxes Disappear
http://www.newsweek.com/2014/12/26/h...ar-291571.html

How Apple Sidesteps Billions in Taxes
http://www.nytimes.com/2012/04/29/bu...anted=all&_r=0

You Pay Taxes, and Rich Corporations Don't
http://www.cnn.com/2014/07/16/opinion/pease-tax-avoidance
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Old 02-09-2015, 02:37 PM   #58
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Isn't there an old saying that corporations don't pay taxes...people pay taxes? Don't the corporations simply raise prices when faced with higher taxes?
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Old 02-09-2015, 03:22 PM   #59
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For income between FIRE age and age 65 optimally I would like to get about 55k in Qualified Equity Dividends and lets say 50k in cash per year.

That would give me 105k of income with 0% Federal taxes and Obamacare subsidies .
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Old 02-09-2015, 07:41 PM   #60
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For income between FIRE age and age 65 optimally I would like to get about 55k in Qualified Equity Dividends and lets say 50k in cash per year.

That would give me 105k of income with 0% Federal taxes and Obamacare subsidies .

Are qualified dividends not counted in your MAGI?
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