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Old 02-25-2016, 09:29 AM   #41
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We are paying ~500k in taxes this year.

There, EVERYONE can feel better now in this thread.
you win!
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Old 02-25-2016, 09:32 AM   #42
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I thought TurboTax was wrong because it kept calculating our 2015 tax liability as zero and said our refund would be the $8K in estimated taxes I'd made. Then I looked at the capital gains worksheet and, apparently, since our taxable income includes no wages and we've got mostly dividends and capital gains (plus $34K in combined pension and SS) and a lot of deductions, it's right. Day-um. This is our first year with zero wage income since I quit in May, 2014.


There's still some fine-tuning to do and I want to make sure this is legit, but if it is, I plan to do a Roth conversion this year and leave the $8K credit with the IRS to be applied to 2016 taxes.


Somehow it doesn't seem right that we pay zero taxes. Not that I'm going to send Uncle Sam donations out of guilt, but we're blessed. Our share of the cost of Federal services shouldn't be zero.
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Old 02-25-2016, 09:38 AM   #43
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Somehow it doesn't seem right that we pay zero taxes. Not that I'm going to send Uncle Sam donations out of guilt, but we're blessed. Our share of the cost of Federal services shouldn't be zero.
Hey congrats!

Remember all the taxes you paid in the past. That counts, IMO.
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Old 02-25-2016, 09:41 AM   #44
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Hey congrats!

Remember all the taxes you paid in the past. That counts, IMO.
+1

We paid over the $50k mark per year on federal taxes for at least the past 5 or 6 years, and above $20k for probably 20 years. (That is what you get for not having kids or a big fancy home with huge mortgage).

I am guessing we have paid in around $500k or more in federal taxes...maybe closer to $750k.

That is a lot of $800 toilet seats.
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Old 02-25-2016, 09:50 AM   #45
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big fancy homes, no kids (and state income taxes) are overrated - I found out they have this thing called the AMT
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Old 02-25-2016, 11:06 AM   #46
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On behalf of my children (your future SS funders), I'd like to extend my gratitude to the masses in the five digit tax club. And for you, Mr. Six Digit Taxes, I'd like to mail you a hand scribbled (in premium Crayon!) thank you note.
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Old 02-25-2016, 12:50 PM   #47
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Originally Posted by athena53 View Post
I thought TurboTax was wrong because it kept calculating our 2015 tax liability as zero and said our refund would be the $8K in estimated taxes I'd made. Then I looked at the capital gains worksheet and, apparently, since our taxable income includes no wages and we've got mostly dividends and capital gains (plus $34K in combined pension and SS) and a lot of deductions, it's right. Day-um. This is our first year with zero wage income since I quit in May, 2014.


There's still some fine-tuning to do and I want to make sure this is legit, but if it is, I plan to do a Roth conversion this year and leave the $8K credit with the IRS to be applied to 2016 taxes.


Somehow it doesn't seem right that we pay zero taxes. Not that I'm going to send Uncle Sam donations out of guilt, but we're blessed. Our share of the cost of Federal services shouldn't be zero.
Many of us have had that tax epiphany..... just be sure to stay in the 15% tax bracket with those Roth conversions as once you go over your marginal tax rate is 30% for a while.... that is unless you like paying 30%.

And as far as guilt about paying zero... don't forget that the earnings from which your dividends were paid (or retained to increase book value) were all previously taxed at ~35%.
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Old 02-25-2016, 12:58 PM   #48
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Don't forget that the other thing to factor in with conversions is your state's income tax rate. This could almost double your effective tax in some states (I realize this doesn't apply to you).

I live in GA and our state net income was right at the top of the 15% fed bracket last year with the severance pay I got after ER. GA's tax added another 5.6% to the 10.9% we paid to the feds.
You made me curious so I went back and looked... my state taxes were 3.5% on my 2015 Roth conversion... so ~12.5% in total for federal and state... not too bad.
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Old 02-25-2016, 01:05 PM   #49
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All you low-tax retirees can contact the NYTimes and get interviewed on the subject of this thread. Here are the contact details: https://www.bogleheads.org/forum/vie...?f=10&t=185451
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Old 02-25-2016, 04:18 PM   #50
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And as far as guilt about paying zero... don't forget that the earnings from which your dividends were paid (or retained to increase book value) were all previously taxed at ~35%.
Thanks- I just ran our state taxes and discovered that we owe about $2k on top of the $2k I paid in installments. Neither the state where we lived the first half of the year nor our current state gives preferential treatment to dividends or long-term gains. I guess we're fat cats again. End of guilt!
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Old 02-25-2016, 04:39 PM   #51
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On behalf of my children (your future SS funders), I'd like to extend my gratitude to the masses in the five digit tax club. And for you, Mr. Six Digit Taxes, I'd like to mail you a hand scribbled (in premium Crayon!) thank you note.
I'll be waiting!

As much as it does suck, it makes it much less painful when reading how much taxes the above posters are paying once you get to that totally FI phase.

I think it is just hard has a business owner because you get taxed so high compared to the amount we pay ourselves. For example, our company made around 1 ml in net profits this year, we pay ~500k in taxes, another ~300k or so in extra inventory purchases/capital expenses to help grow the business for future years and you're not left with a ton left. Yes I understand my basis in the business goes up, but still.

This country is mostly comprised of small businesses and we get the shaft. It just doesn't make sense to me why a small business, who is creating jobs and creating products that help its customers, gets taxed the same as ordinary individuals. You'd think there would be some sort of incentive.

</rant>
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Retirement year tax joy!
Old 02-26-2016, 08:12 AM   #52
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Retirement year tax joy!

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It almost seems like there are some people who would rather make $90K and pay 0% taxes than make $1M and pay 90% taxes. I don't get it.

Your ranges are not realistic but the directionality of discussion is spot on -

Depends how hard one has to work. One needs to compute the marginal cost and benefit of the differences in income and in taxes.

It's the proverbial promo at work discussion. A promo brings bit more money, but the higher income brings a higher marginal tax rate so a bit more tax to pay, and usually the promo brings more hours/responsibility and possibly much bigger headaches

So yes, income-max and tax-max is not always the best situation..

When my effective income tax rate hit 52 percent ...and I was working January to July for "the man". I decided I had made enough contributions to society by way of taxes and FIREd...especially since I don't like how the powers that be choose to spend/waste it !
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Old 02-26-2016, 08:33 AM   #53
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Yes big difference in income and taxes. 2015 was my first full year of retirement and I will be getting a refund. When I e filed my taxes in the past and was owed a refund I would get it in a week or so. This year I e filed on the 9th of February and I received my refund from the state in a couple of days but I'm yet to receive it from the feds. I'll bet the IRS computer was baffled by the big drop in income that it pushed it aside for examination especially when the low income allowed for a big deduction in medical expenses that in years past would not exceed the 7.5% income threshold.
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Old 02-26-2016, 08:43 AM   #54
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I e-filed on Feb 8 and my returns were accepted the same day and my federal refund hit my bank on Feb 17... so 9 days. Still waiting on state refund.
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Old 02-26-2016, 08:47 AM   #55
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Yes big difference in income and taxes. 2015 was my first full year of retirement and I will be getting a refund. When I e filed my taxes in the past and was owed a refund I would get it in a week or so. This year I e filed on the 9th of February and I received my refund from the state in a couple of days but I'm yet to receive it from the feds. I'll bet the IRS computer was baffled by the big drop in income that it pushed it aside for examination especially when the low income allowed for a big deduction in medical expenses that in years past would not exceed the 7.5% income threshold.
Did you get an e-file notification that your federal return was accepted?
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Old 02-26-2016, 08:53 AM   #56
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I have been paying 6-digit taxes for many years. When I ER in a few more years, my plan is to do enough Roth conversion to just hit the low 4-digit in taxes.
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Old 02-26-2016, 09:06 AM   #57
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I have been paying 6-digit taxes for many years. When I ER in a few more years, my plan is to do enough Roth conversion to just hit the low 4-digit in taxes.
I'm probably not telling you anything new, but are you sure that is likely to be the best approach? (recognizing that future taxes/returns are inherently uncertain)

For us, we tentatively plan to convert up to top of 28% bracket for first few years of retirement, then recalibrate/reguestimate based on what we then think our RMDs will lead to ... But, YMMV; we are likely far more lopsided than most in our allocation between deferred and "regular" accounts.
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Old 02-26-2016, 09:09 AM   #58
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The federal treasury has been cutting me a check for the last couple of years, and that's with zero withholding. Thanks .....! I've got only smallish Roth conversions, smallish dividend/interest totals, plus a kid in college (that spells credit$). The check would even be bigger if I didn't take the advance PTC, and instead waited until after the fact to collect the PTC. But the RMD tax torpedo awaits, so this will all come to an end at some point. A bird in the hand though.
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Old 02-26-2016, 09:13 AM   #59
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Did you get an e-file notification that your federal return was accepted?
Yes. I got it via Turbotax and an email from the IRS.
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Old 02-26-2016, 10:05 AM   #60
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I'm probably not telling you anything new, but are you sure that is likely to be the best approach? (recognizing that future taxes/returns are inherently uncertain)

For us, we tentatively plan to convert up to top of 28% bracket for first few years of retirement, then recalibrate/reguestimate based on what we then think our RMDs will lead to ... But, YMMV; we are likely far more lopsided than most in our allocation between deferred and "regular" accounts.
If I read your message correctly, you are suggesting I should convert more aggressively?

The reason I am taking it "easy" on the conversion is that after I ER, I have about 20 years to do the conversions before RMD. So I don't need to convert so much as to reach the top of the 28% bracket. I only plan to reach the top of the 15% bracket.
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