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Old 12-10-2008, 09:53 AM   #21
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The exemption and deduction rollbacks have been my bane for a few years now, making my capital gains rate higher than 15%. There's sort of a "doughnut hole" effect there too, with cap gains returning to 15% when all of the rollbacks have limited out. A couple of years I actually took extra capital gains because I was getting the 15% rate back.

ESPP's, stock options, self employment income, home equity loans, foreign taxes paid by mutual funds, end of year fund distributions and estimated taxes have all been just so much fun. I had to retire to spend enough time on my taxes. I'm hoping to simplify in retirement, but I'm sure time will bring more interesting fun. I'm looking forward to Roth conversion, SS taxation, RMD's, medicare...
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Old 12-10-2008, 09:59 AM   #22
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Originally Posted by jIMOh View Post
My understanding was an AMT patch was attached to the bailout plan already approved?

Right, they passed it on Oct 3rd, 2008.

Reform AMT - Home Page

But that was awful late in 2008. And it was no 'sure thing'. That is my point - you can't "plan" your W4 and/or estimated Quarterly payments throughout the year, if the rules are not defined until October of the tax year. That is why I say they should be finalized Jan 1 of the beginning of the tax year in which they are due. Jan 1 , 2008 for 2008 taxes.

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Old 12-10-2008, 11:14 AM   #23
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Thanks, ERD. I downloaded TaxACT preview a few days ago to figure out how much I should convert to a Roth.

How much did you decide on?
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Old 12-10-2008, 11:37 AM   #24
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Thanks, ERD. I downloaded TaxACT preview a few days ago to figure out how much I should convert to a Roth.

How much did you decide on?
I decided on no conversion. To keep my 'effective marginal rate' at under 17%, I could convert only ~ $10K, and I just felt it was not worth the hassle. At $30K converted it was up to 22.5%. It usually involves converting more than that, because you don't have final numbers, and then re-characterizing before April 15th, so you end up with the actual amount you would have wanted converted. But the conversion needs to be done before EOY.

The re-characterization is more 'fun'. You need to go in and adjust the amount of the re-characterization for any change in value that the fund had since you converted it. I never get the calculation right, though the diff is small and not really an issue. It just bugs me that all these hoops are required, esp when a Roth conversion has so many unknowns associated with it.

Did I mention that I think our tax code is far, far too complex?

Also, since DW is still working, I set it up so that she is contributing most of her paycheck to a Roth 403B (she was thrilled with that!), and I can still use her earned income to contribute to Roth IRAs. Which seems like 'double dipping', but from everything I can tell, that is allowed. So I am getting money into Roths from other means anyhow.

Did I mention that I think our tax code is far, far too complex?

An unintended consequence of me paying zero Fed tax this year is... I will probably cut my Charitable contributions somewhat, to the point that I pay a small amount of tax, to get the full deduction. Yes, that stinks, but I did boost them in a year that I had high earnings, so this is my cut back year. I don't think tax issues should affect what people give to charity. Yes, I think charitable contributions should NOT be tax deductible. Give for the reason of giving, not to get some % back.


Did I mention that I think our tax code is far, far too complex?

Let me know how TaxAct preview works for you. I'm running the online version. I don't like it. The forms are not finalized (thanks Congress), so they don't allow printing/viewing of the forms. So I am very much in the dark - I put numbers in, see the result in the 1040 form, but I can't see any of the intermediate form calcs, to see how/why they got that number - so I can't tell what is limiting it. What a royal pain.

Did I mention that I think our tax code is far, far too complex?


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Old 12-10-2008, 11:45 AM   #25
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Every year I convert some of my traditional IRA's over to Roth IRAs. I used to try and use newer turbotax software which I had to obtain early copies of, or I even used the previous years copy, plugging in 'what if' numbers. This was extremely cumbersome at best. I found the following calculator, which simplified the whole process. While I can't verify it's accuracy yet, as this is the first year I have used it, I seriously doubt it could be worse than the previous way I used to calculate how much to convert.



1040 Tax Calculator
Thanks, I just tried it and it is a nice tool for 'quick and dirty' calcs.

One potential problem though is - if you itemize deductions, it just asks you to enter your deduction amount (in total, not by category). Since different categories are affected by different % of AGI - this won't really be accurate. If you take the standard deduction, or if your situation is close to last year, probably OK.

Same with those edu credits - they just ask for a number. That number interacts with other entries so you can't really tell.

But it is easy to use and quick for some things. I bookmarked it - thanks.

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Old 12-10-2008, 11:47 AM   #26
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At the risk of getting this thread thrown into the Soapbox, heck a guy got to speak his mind sometimes,

My income for the last several years has been all over the map. One year, AMT, no IRA, no college education credit. Next year, I scrambled to get some cash to fund the IRA.

You are talking about tax planning?

What tax planning if I cannot even plan my income

YES THE TAX CODE IS FAR TOO COMPLEX
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Old 12-10-2008, 11:51 AM   #27
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As with any tax software program it is good if you have a basic understanding of the tax code and a Pub 17 handy for reference. The tax code changes every year and is somewhat complicated and arbitrary to say the least depending upon your situation. I took the H&RB course and currently work for Block during the tax season not for the money but to meet people and keep my brain from going into atrophy. I really like working on complicated tax situations as it is kind of like putting a puzzle together, and once the client sees and realizes you are working for them it can be a very rewarding experience as well.



From the H&RB website

Available Education Credits


There are 2 credits allowed for higher education: the Hope Credit and the Lifetime Learning Credit. You can claim the credits for eligible expenses paid on behalf of yourself, your spouse or a dependent for whom you can claim an exemption.
  • Hope Credit — The credit is allowed for the first 2 years of college. It may not be claimed for more than 2 years, and the student must be enrolled in at least half of a full-time load in a degree program. Plus, the student can't be convicted of felony possession of a controlled substance.
  • Lifetime Learning Credit — This credit can be claimed for any number of years. The number of hours the student is enrolled and drug felony convictions aren't factors for the Lifetime Learning Credit.

You can claim both credits for one year, but you can claim only 1 of the credits for any student. For example, you can claim a Hope Credit for 1 of your children and the Lifetime Learning Credit for another, but you can't claim both credits on behalf of either of the children.

To claim the credit, modified adjusted gross income (MAGI) must be less than $58,000 for Single, Head of Household and Qualifying Widow(er) ($116,000 for Married Filing Jointly), and the student must be attending an eligible institution. Those who are Married Filing Separately can't claim the credits.

If the parents are eligible to claim the student as a dependent, they claim the credit unless they choose not to claim the exemption for the student. The student can't claim his or her exemption even though he or she can claim the credit.

Note: For students who attended an eligible educational institution in a Midwestern disaster area, the Hope Credit can be as much as $3,600. The Lifetime Learning Credit for such students is 40% of eligible expenses with a maximum credit of $4,000. These provisions apply for 2008 and 2009.

Tuition and Fees Deduction

If your MAGI is $65,000 ($130,000 if Married Filing Jointly) or less, you can deduct up to $4,000 of eligible tuition and fees for yourself, your spouse or a person for whom you claim a dependent exemption. If your MAGI is between $65,000 and $130,000 ($130,000 and $160,000 if Married Filing Jointly), you can deduct up to $2,000 of eligible tuition and fees. If your MAGI is more than $80,000 ($160,000 or more if Married Filing Jointly) you can't claim the tuition and fees deduction.

You can't claim the deduction if you're Married Filing Separately, if another person can claim you as a dependent, or if you were a nonresident alien for any part of the year (unless you elect to be treated as a resident alien).

You can claim the tuition and fees deduction or an education credit for a student, but not both. Choose the benefit that results in the larger tax savings. You can't use expenses used to figure this deduction when figuring the exclusion for savings bonds interest or the exclusion for income from a distribution from a Coverdell ESA or QTP. You also must reduce the expenses used to figure this deduction by the amount of tax-free scholarships and nontaxable employer-provided educational assistance you received.
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Old 12-10-2008, 11:57 AM   #28
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I just realized how taxes could be dramatically simplified.

The complexity comes from gadzillions of deductions/credits built into the tax code. I say just separate them from our taxes. I'd rather see them eliminated, but this would be a baby step. Because there are gadzillions of deductions/credits, the tax software has to ask you gadzillions of questions, because they cannot know if they apply to you or not. That makes it complex.

My suggestion: Income Tax is just income tax. Standard deduction/exemption. That's it. Done in 15 minutes.

The offset: If Congress wants to offer an Education credit or mortgage credit or whatever (it does not seem like we can stop them from shuffling our own money around), fine - fill out a form, submit it and get a rebate. To keep it really simple, eliminate the means testing. To compensate, raise the marginal brackets a bit. IOW, yes, the 'rich' get the deduction too, but they are going to be paying more overall, so it is awash. Alternately, make it based on some simple number like a 3 year average AGI.

This way - it is all separate from our tax filing, tax software probably would not even be needed, and tax filing becomes simple. The only people affected by the other stuff are the people who make use of it. Simple?

Like that's gonna happen!

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Old 12-10-2008, 12:01 PM   #29
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We are heading to the soap box for sure, ERD50.
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Old 12-10-2008, 12:08 PM   #30
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Originally Posted by NW-Bound View Post

My income for the last several years has been all over the map. One year, AMT, no IRA, no college education credit. Next year, I scrambled to get some cash to fund the IRA.

You are talking about tax planning?
exactly where I found myself when I mistakenly took a big cap gains hit last year (rubbing salt into the wound.... I decided to buy it back, and of course it is down 50% now, so I paid gains, and lost all my deductions/credits for nothing... )

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Originally Posted by frayne View Post

From the H&RB website

Available Education Credits


To claim the credit, modified adjusted gross income (MAGI) must be less than $58,000 for Single, Head of Household and Qualifying Widow(er) ($116,000 for Married Filing Jointly), and the student must be attending an eligible institution. Those who are Married Filing Separately can't claim the credits.
frayne, thanks, but even that long article is incomplete. Yes, the MAGI must be below $116,000 for MFJ, but it does not mention that it is phased out starting at $96K MFJ. That is where one can see their 'effective marginal rate' creep up above the 'published marginal rate'.

I gotta stop posting - yesterday I told DW I spent all day on taxes, today I'm spending all day talking about taxes !

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Old 12-10-2008, 12:09 PM   #31
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Originally Posted by ERD50 View Post
I just realized how taxes could be dramatically simplified.

The complexity comes from gadzillions of deductions/credits built into the tax code. I say just separate them from our taxes. I'd rather see them eliminated, but this would be a baby step. Because there are gadzillions of deductions/credits, the tax software has to ask you gadzillions of questions, because they cannot know if they apply to you or not. That makes it complex.

My suggestion: Income Tax is just income tax. Standard deduction/exemption. That's it. Done in 15 minutes.

The offset: If Congress wants to offer an Education credit or mortgage credit or whatever (it does not seem like we can stop them from shuffling our own money around), fine - fill out a form, submit it and get a rebate. To keep it really simple, eliminate the means testing. To compensate, raise the marginal brackets a bit. IOW, yes, the 'rich' get the deduction too, but they are going to be paying more overall, so it is awash. Alternately, make it based on some simple number like a 3 year average AGI.

This way - it is all separate from our tax filing, tax software probably would not even be needed, and tax filing becomes simple. The only people affected by the other stuff are the people who make use of it. Simple?

Like that's gonna happen!

-ERD50
This would put CPAs out of business and companies like HR block out of business too.

Then taxes go up to pay more unemployment...

the complex tax code keeps some businesses in business which is good for business.
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Old 12-10-2008, 12:13 PM   #32
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Originally Posted by jIMOh View Post

the complex tax code keeps some businesses in business which is good for business.
We Americans have been too efficiently productive, so have to slow ourselves down so that other countries can catch up.

Soapbox, here we come...
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Old 12-10-2008, 12:21 PM   #33
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This would put CPAs out of business and companies like HR block out of business too.

Then taxes go up to pay more unemployment...

the complex tax code keeps some businesses in business which is good for business.
I hope you are not serious.

Non value added 'services' do nothing for society. It isn't sustainable.

We might as well pay anybody who applies $100/hour to do nothing, and say that we have solved unemployment and poverty in one fell swoop. And we can pay for health care with the income taxes we collect on all these new 'rich' people.

It's a circle game. I don't wanna play.


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Old 12-10-2008, 12:25 PM   #34
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It's a circle game. I don't wanna play.
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Sorry, but it's the only game in town.

Ha
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Old 12-10-2008, 12:34 PM   #35
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I hope you are not serious.

Non value added 'services' do nothing for society. It isn't sustainable.

We might as well pay anybody who applies $100/hour to do nothing, and say that we have solved unemployment and poverty in one fell swoop. And we can pay for health care with the income taxes we collect on all these new 'rich' people.

It's a circle game. I don't wanna play.


-ERD50
If the tax code was simpler, would HR block be in business?
If the tax code was simpler would accounting firms need more or fewer CPAs?

I was serious.
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Old 12-10-2008, 01:01 PM   #36
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Sorry, but it's the only game in town.

Ha
Ha, I gotta commend you on your ability to bring me down to Earth. And in so few words! You are correct sir. I wish I could say you are wrong, but I cannot.

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If the tax code was simpler, would HR block be in business?
If the tax code was simpler would accounting firms need more or fewer CPAs?

I was serious.
I don't mean to say this to offend, but if you are serious, you do not understand economics. You are not a member of Congress, are you? <j/k>

People employed in non-productive work are just a drain on society. The only reason they are employed is to do work that is not needed. It's a form of welfare. So that increases costs for everyone, and makes us non-productive as a nation. The money they 'make' is just shuffled from other people.

The country needs to *create* value. You need to do stuff like take iron ore out of the ground, and refine it into something more useful and valuable. Or plant seeds and collect more seeds in return to feed people. Things where the activity results in *more* than you had before, not less.

We already are having trouble competing in the world market - time wasted preparing taxes does not help.


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Old 12-10-2008, 01:03 PM   #37
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Think of the productivity gains with a simple tax system. Every taxpayer will have more time for other things. [I wrote this while ERD50 was writing his reply.]
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Old 12-10-2008, 01:17 PM   #38
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Here's an interesting document from a bipartisan panel ( for those who dislike the current/exiting admin, please ignore the source and please look at the content). It is just five pages, and I think it makes a good deal of sense.

President's Advisory Panel on Federal Tax Reform
http://www.taxreformpanel.gov/final-...orm_ExSumm.pdf
Quote:
Federal Tax Reform

On January 7, 2005, President Bush announced the establishment of a bipartisan panel to advise on options to reform the tax code to make it simpler, fairer, and more pro-growth to benefit all Americans.
The Advisory Panel will submit to the Secretary of the Treasury a report containing revenue neutral policy options for reforming the Federal Internal Revenue Code as soon as practicable, but not later than November 1, 2005. These options should:
  • simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws;
  • share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society; and
  • promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace.
It does not go as far as I would like, but it would be progress.

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Old 12-10-2008, 01:18 PM   #39
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If the tax code was simpler, would HR block be in business?
If the tax code was simpler would accounting firms need more or fewer CPAs?

I was serious.

If tax preparers go out of business, then all the tax software companies go out of business.

If there is no longer a need for estate tax planning, then all the estate tax attorneys go out of business.

There would be a drastic hit to the paper companies, toner suppliers, printer and copier manufacturers and repairmen as well.

But the hardest hit would be the politicians. Think of all the extra free time they would have if there were no tax policy to reshape.
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Old 12-10-2008, 01:44 PM   #40
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If tax preparers go out of business, then all the tax software companies go out of business.

If there is no longer a need for estate tax planning, then all the estate tax attorneys go out of business.

There would be a drastic hit to the paper companies, toner suppliers, printer and copier manufacturers and repairmen as well.

But the hardest hit would be the politicians. Think of all the extra free time they would have if there were no tax policy to reshape.
Even if the tax code were simple, some people just can't do percentages and tax companies would still be in business. Maybe not as much as they do now. And I would bet the tax prep companies have some serious lobbying power to keep the tax code as screwed up as possible.
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