Tax Free Income

[ripper1]

How many enjoyed tax free income this year. Being in the 15% bracket I was able to add 6000 dollars in capital gains and dividends to supplement my pension.

[LOL!]

Well, let's see ....
$45,000 contributed to 401(k) plans, that was tax-free
$07,250 contributed to HSA, that was tax-free
$01,500 contributed to FSA, that was tax-free
$10,000 paid for tuition, that was tax-free
$13,000 paid for property taxes that was tax-free
$01,800 paid for health insurance premiums that was tax-free
$15,200 in exemptions/allowances that was tax-free
$06,250 in gains in 529 plan withdrawals, that was tax-free

The above doesn't count unrealized capital gains which are tax-free until realized.

So that's about $100,000 in tax-free income for 2012. I did not include other tax-free income to get above the standard deduction and into itemize land.

[aaronc879]

Quote:

Originally Posted by LOL! Well, let's see .... $45,000 contributed to 401(k) plans, that was tax-free $07,250 contributed to HSA, that was tax-free $01,500 contributed to FSA, that was tax-free $10,000 paid for tuition, that was tax-free $13,000 paid for property taxes that was tax-free $01,800 paid for health insurance premiums that was tax-free $15,200 in exemptions/allowances that was tax-free $06,250 in gains in 529 plan withdrawals, that was tax-free The above doesn't count unrealized capital gains which are tax-free until realized. So that's about $100,000 in tax-free income for 2012. I did not include other tax-free income to get above the standard deduction and into itemize land.

How is the money you paid for property taxes tax-free?

[LOL!]

Property taxes are deducted on Schedule A, so not taxed. In order to get above the standard deduction, we donate enough to charity, so anything above that amount has no taxes paid on it.

[MichaelB]

The tax value of a deduction is the marginal rate so it helps lower the total tax bill but still represents a net cash outflow.

[pb4uski]

All my income this year is tax-free (federal anyway). My income was minor amount of wages and mostly qualified dividends and capital gains. Since I kept my taxable income in the 15% bracket my tax rate on the qualified dividends and capital gains was 0%.

[ripper1]

Quote:

Originally Posted by LOL! Well, let's see .... $45,000 contributed to 401(k) plans, that was tax-free $07,250 contributed to HSA, that was tax-free $01,500 contributed to FSA, that was tax-free $10,000 paid for tuition, that was tax-free $13,000 paid for property taxes that was tax-free $01,800 paid for health insurance premiums that was tax-free $15,200 in exemptions/allowances that was tax-free $06,250 in gains in 529 plan withdrawals, that was tax-free The above doesn't count unrealized capital gains which are tax-free until realized. So that's about $100,000 in tax-free income for 2012. I did not include other tax-free income to get above the standard deduction and into itemize land.

Well, I guess I was talking about gains and dividends taxed at 0%

[LOL!]

We will get a tax credit of about $1200 for foreign dividends, so that's like a US tax-free $8,000 in dividends.

[target2019]

I do get tax-free income from a long-term municipal fund. The amount received has dropped quite a bit over the last few years, say from $2500 to under $1000 this year.

[scrabbler1]

Quote:

Originally Posted by ripper1 How many enjoyed tax free income this year. Being in the 15% bracket I was able to add 6000 dollars in capital gains and dividends to supplement my pension.

Don't forget muni bond income which is also exempt from federal income taxes. Between that and the qualified dividends and long-term cap gains in my portfolio, I have only 62% of my total income (before the standard deduction and personal exemption) subject to federal income taxes.

[kramer]

As a retired guy living off of capital gains and dividends, I have tried to max them out to the top of the 15% bracket each year (2008-2012) and still pay no income taxes. I live abroad so I pay no state income taxes. I purposely realize capital gains each year to try to reach the limit.

You get no benefit from the foreign tax credit when you do this, at least if the amount paid is over $300 for single or over $600 for married (mine is way over these amounts).

Also, you need to watch those last minute unexpected capital gains distributions. I own almost all index funds, but I do own BRSIX (Bridgeway super small stock fund). It had about a 20% distribution this year (ouch), so I accidentally got propelled into the 25% bracket so I will owe some taxes. This will also allow me to use a bit of my foreign tax credit. So I will probably pay something like 12% tax on the amount that I went over.