Poll: What tax bracket are you?

[nash031]

Doing everything legally possible to stay in the 25% bracket while we're both still working. (Un?)Fortunately it gets harder every year.

 

[LitGal]

I do what ever I need to in order to stay in the 15% bracket....

+1 And try to do Roth conversions that won't take me over 15%: a challenge....

 

[Ally]

15%

 

[Bikerdude]

staying under 15% until RMD's kick-in at 70.5

+1.

 

[braumeister]

I'll never be below the 25% bracket. Pensions are wonderful things, so I certainly won't complain about paying the taxes.

 

[LOL!]

How in the world are you in the 33% bracket with an effective tax rate of only 6%

We are also in the 33% bracket + 3.8% ACA, paying $36.80 on every $100 (for 2014) and our effective average tax rate is almost 22%.

I am a master of tax planning including tax credits. For one thing, I have no interest income, but if I did, then it would be taxed at 33%.

 

[Badger]

staying under 15% until RMD's kick-in at 70.5

+1

 

[Walt34]

15% for now, when I start SS next year it'll be into the 25% bracket. First world problem so no complaints.

 

[Dash man]

39.6% bracket with DW still w*rking. 32.2% effective rate.

 

[aja8888]

28% tax bracket, 26% effective tax rate.....Grrrr, too much PT work and having taxable SS + first RMD pull!

Really got to lay off the PT work! (actually, I already did).

 

[pb4uski]

Tax software tells me if I earned another $100 in interest in 2014 that I would pay another $33 in taxes, so I was in the 33% marginal income tax bracket. Tax software also tells me that my effective average tax rate is about 6%.

How in the world are you in the 33% bracket with an effective tax rate of only 6%....

I am a master of tax planning including tax credits. For one thing, I have no interest income, but if I did, then it would be taxed at 33%.

I suspect that LOL's low effective rate is due to a boatload of foreign tax credits from international holdings... plus probably a lot of qualified dividends and LTCG that only get taxed at 15% even if one is in the 33% bracket....just a guess.

Perhaps the master will share some of his secrets.

 

[Lakewood90712]

Your poll does not reflect the change to the tax code by the ACA so I can't vote as no category fits. My federal income taxes for 2014 were 0, actually less than 0 as I got a refundable tax credit for $1800.

Is the the so called "Earned Income Credit" ?

 

[aaronc879]

My net income puts me in the 15% bracket. My taxable income is near the top of the 10% bracket. 4% state.

 

[gauss]

Pretty much whatever I want it to be! But in 2014 I ran it up to a marginal rate of 28.8%, which was the 25% bracket plus the 3.8% ACA investment tax. I entered 28% in the poll, though 25% might be the better answer.

I am generously curious about how you ended up paying the 3.8% Net Investment Income Tax while remaining in the 25% bracket. Perhaps you have many Schedule A deductions or you are effected by the (cryptic) MAGI calculation for NII described below.

I was under the impression that NII only applies to taxpayers with MAGI over 200,000/250,000 for single/married returns, which I thought would usually imply a nominal marginal tax bracket of at least 28% or 33%.

-gauss

4. What is modified adjusted gross income for purposes of the Net Investment Income Tax?
For the Net Investment Income Tax, modified adjusted gross income is adjusted gross income (Form 1040, Line 37) increased by the difference between amounts excluded from gross income under section 911(a)(1) and the amount of any deductions (taken into account in computing adjusted gross income) or exclusions disallowed under section 911(d)(6) for amounts described in section 911(a)(1). In the case of taxpayers with income from controlled foreign corporations (CFCs) and passive foreign investment companies (PFICs), they may have additional adjustments to their AGI. See section 1.1411-10(e) of the final regulations.

 

[audreyh1]

I am generously curious about how you ended up paying the 3.8% Net Investment Income Tax while remaining in the 25% bracket. Perhaps you have many Schedule A deductions or you are effected by the (cryptic) MAGI calculation for NII described below.

I was under the impression that NII only applies to taxpayers with MAGI over 200,000/250,000 for single/married returns, which I thought would usually imply a nominal marginal tax bracket of at least 28% or 33%.

-gauss

Not at all. You can easily be in within the 15% tax bracket but pay the NIIT if most of your income is from long-term capital gains and qualified dividends. You won't pay the higher income tax brackets on ordinary income. You might even get 0% tax on some of your cap gains/qual dividends. You'll probably be driven to pay some AMT though. That acts like a 26% tax bracket on part of your ordinary income - but only applies to ordinary income.

 

[Hermit]

I'll never be below the 25% bracket. Pensions are wonderful things, so I certainly won't complain about paying the taxes.

I can sympathize. I'm in the same boat. With high pension, I get hit with 85% taxable on the late DW's SS account. It will be worse when I reach 70.5 with RMD and switching to my SS account. I'll be crying all the way to the bank.

25% for me.

 

[harley]

I also did a Roth conversion over the top of the 15% bracket, then recharacterized down to the limit. According to TT my effective tax rate was 4.14%. Not sure exactly how they get that.

 

[RAE]

15% here, and it should stay that way for a long time..........

 

[gauss]

Not at all. You can easily be in within the 15% tax bracket but pay the NIIT if most of your income is from long-term capital gains and qualified dividends. You won't pay the higher income tax brackets on ordinary income. You might even get 0% tax on some of your cap gains/qual dividends. You'll probably be driven to pay some AMT though. That acts like a 26% tax bracket on part of your ordinary income - but only applies to ordinary income.

Thanks Audreyh1 - I can now see that if a single taxpayer with $150,000 in qualified dividends earns $10,000 in additional income, regardless of the source, the additional tax due will be 15%. Therefore his/her marginal tax rate is 15%.

This is counterintuitive in that his taxable income puts him squarely in the 28% tax bracket of the standard IRS rate schedules (for income that does not contain LTCGs or qualified dividends.)

It would take a significant amount of additional non-qualified income to displace all the qualified dividends before a marginal rate other than 15% shows up, and by that time he may be in yet another standard tax bracket.

I guess the moral of the story is that the preferred tax effects on qualified dividends/LTCGs go way beyond the actual dividend/cg income.

-gauss

 

[sanfanciscotreat]

28% bracket; 13% effective. Cannot escape 40K SS and 80K RMD in a couple of years plus dividends and LTCGs. Effective tax rate will then be much higher.

 

[imoldernu]

Pls deduct 1 vote from the 10% poll. Wanted to look.
No state or federal taxes since 1989.
0

 

[Mango1956]

15% while working, should be 15% going forward into retirement. It's a beautiful thing!

 

[Animorph]

I am generously curious about how you ended up paying the 3.8% Net Investment Income Tax while remaining in the 25% bracket. Perhaps you have many Schedule A deductions or you are effected by the (cryptic) MAGI calculation for NII described below.

I was under the impression that NII only applies to taxpayers with MAGI over 200,000/250,000 for single/married returns, which I thought would usually imply a nominal marginal tax bracket of at least 28% or 33%.

-gauss

AGI includes capital gains, which don't count towards the regular tax bracket amounts.

The basics were $41k DW income for last partial year, $100k Roth conversion, $4k interest, $12k non-qualified dividends, $19k qualified dividends, $110k LTCG (active mutual funds went crazy for the most part), $7.5k HSA deduction and $24k itemized deduction. MFJ.

Regular taxable income was about $120k, right in the 25% tax bracket. AGI was about $279k, so $29k was subject to the 3.8% tax. Roth conversions brought us right up to where we would have started to pay AMT, which we purposely avoided. LTCG taxes filled in the rest.

Tax/AGI = 13.9%

 

[pb4uski]

I also did a Roth conversion over the top of the 15% bracket, then recharacterized down to the limit. According to TT my effective tax rate was 4.14%. Not sure exactly how they get that.

I think that TT calculates the effective rate as the total tax (line 56) divided by AGI (line 37).

3.29% for me even though my TI was $73,800 (top of the 15% tax bracket) because ~40% of our income is qualified dividends and LTCG and therefore 0% tax.

 

[scrabbler1]

I answered 15% because that is my federal marginal rate (more or less, read on) for an additional dollar of ordinary, fully taxable income. But......about half of my income, which is all investment income, is not taxable at the federal level. That includes LTCG, Qualified Dividends (QD), and muni bond fund dividends. So the type of source I get that extra dollar from greatly determines my marginal rate.


Another thing I realized a few years ago was that a 0% rate on LTCG and QD does not always translate to no change to my total federal tax bill. If I were deducting my medical expenses, then the 7.5% (back then) or 10% (now) of AGI exclusion from deductible medical expenses would rise and increase my taxable income slightly.


All of this doesn't include the impact of the ACA on MAGI and the total tax credit/subsidy. Last December, I had a spike in my investment income and it decreased my ACA credit whether or not it increased the rest of my tax bill.