Tax Question

[cardude]

I'm fiddeling with some numbers on this online TaxAct program, and I have a question.

If I sit on my a** for a full year and don't work, and if I have, say $25,000 in dividend income and $20,000 in interest income and a huge $31,000 in home mortgage interest, will I have to pay any tax? The TaxAct program says no-- is that right? Can I still take that huge mortgage deduction if I have no earned income?


Thanks

 

[Martha]

Yes you can take a home mortgage deduction without earned income.

 

[LOL!]

Lots of folks forget that the first tax bracket is 0%. A family of 4 can have over $50,000 of income without paying any income tax. I think that with child tax credits, 401(k) contributions and 0% tax on cap gains and dividends, you might even be able to make over $100K without paying any income taxes.

For example, suppose I have 2 kids, my spouse and I are both over 50 and we work jobs that pay us about $50K each. We can both contribute $22K to our 401(k) plans, so that's $44K off the AGI already. Our health insurance and our flexible spending account also comes out "above the line", so subtract say $6K for that. That leaves us with $50K of AGI (not the same as taxable income). Run the numbers and you may be surprised.

 

[ziggy29]

For example, suppose I have 2 kids, my spouse and I are both over 50 and we work jobs that pay us about $50K each. We can both contribute $22K to our 401(k) plans, so that's $44K off the AGI already. Our health insurance and our flexible spending account also comes out "above the line", so subtract say $6K for that. That leaves us with $50K of AGI (not the same as taxable income). Run the numbers and you may be surprised.

Those of us who have no kids and no mortgage interest to deduct say "you're welcome."

 

[cardude]

Lots of folks forget that the first tax bracket is 0%. A family of 4 can have over $50,000 of income without paying any income tax. I think that with child tax credits, 401(k) contributions and 0% tax on cap gains and dividends, you might even be able to make over $100K without paying any income taxes.

For example, suppose I have 2 kids, my spouse and I are both over 50 and we work jobs that pay us about $50K each. We can both contribute $22K to our 401(k) plans, so that's $44K off the AGI already. Our health insurance and our flexible spending account also comes out "above the line", so subtract say $6K for that. That leaves us with $50K of AGI (not the same as taxable income). Run the numbers and you may be surprised.

Wow, that's amazing. I've paid in big tax amounts the last few years butsing my tail trying to run my business. Wrote a check to the IRS last year for over 150K, and most years it was about that. I'm warming to this idea of sitting on my butt not doing anything, and it would thrill me to death to pay NOTHING in taxes while doing that. My expenses are currently in the 100K+ range, and I'm working on getting those down, but if I can shelter 100K in passive income that will make me happy.

Those of us who have no kids and no mortgage interest to deduct say "you're welcome."

I've paid in my share and then some, but still, "thank you" if I'm able to swing this.

 

[frayne]

All depends on your filing status and other itemized deductions and credits.

 

[Bikerdude]

When I first retired I had to convert money (a lot) from my regular IRA to a Roth IRA in order to pay taxes. That was nice! And in your case, no more self employment taxes.

 

[LOL!]

C'mon cardude, didn't you put your wife and kids in your advertisements and pay them actor and model fees? They should all have very nice Roth IRAs by now.

 

[ERD50]

I'm warming to this idea of sitting on my butt not doing anything, and it would thrill me to death to pay NOTHING in taxes while doing that.

The issue is not whether you are working or not, it is that you only had ~ $45,000 taxable income, plus a large deduction. If you had toiled miserably for that $45,000, same result.

This is our progressive tax rate structure in play.

I

've paid in big tax amounts the last few years butsing my tail trying to run my business. Wrote a check to the IRS last year for over 150K, and most years it was about that.

An this is also our progressive tax rate structure in play.

-ERD50

 

[TromboneAl]

Don't forget, as biker dude alluded to, that you can figure out how much IRA money you can convert to Roths without paying tax on it.

 

[cardude]

When I first retired I had to convert money (a lot) from my regular IRA to a Roth IRA in order to pay taxes. That was nice!

I'm thick. I don't understand that statement.

And in your case, no more self employment taxes.

I do understand this one! Yea!

 

[OAG]

Previously deducted Traditional IRA converted to a ROTH IRA requires payment of taxes on the amount converted to ROTH.

 

[45th Birthday]

It is hard to believe, but you can have a very nice income and not pay a dime in federal taxes. I'm looking at pro forma 2008 returns. With a little over $400K in income (lots of munis, some dividends, option premiums offset by tax loss harvesting), my federal tax is zero. I'm actually getting a $1,000 "recovery rebate credit." Family of four with high itemized deductions. I could have earned about $20k more in dividends without owing any tax (although the rebate credit goes away).

I feel on some level that this is not right, but it is correct. I do remember being in the 40+% tax bracket and paying more in taxes every year than my primary house cost, so maybe this evens that out.

I set this up more or less knowing this would be the result, but it is still somewhat shocking to see it on the return.

 

[Bikerdude]

Previously deducted Traditional IRA converted to a ROTH IRA requires payment of taxes on the amount converted to ROTH.

What OAG said.

 

[ERD50]

With a little over $400K in income (lots of munis, some dividends, option premiums offset by tax loss harvesting), my federal tax is zero.

Doesn't the AMT kick in on that? -ERD50

 

[45th Birthday]

No, very little of the muni income is from private activity bonds and the rest of the return is very plain vanilla.