I am reading the book many have suggested here, Work Less/Live More. Great book. But, I have always just rounded off taxes at about 20% in my projections. But, I believe Bob Clatt, the author, is suggesting an estimate of only 3% for state and federal income tax! If gross income from interest, rents, pension, etc, is say, 100,0000, is he saying put aside 3,000 to cover income tax? I'm sure i read this wrong. How could it be?
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 10,537
The short answer is that taxable income willl be diferent for everyone. If you want a really good idea of what your taxes will be, fill out a pro forma tax return using your best guess at inputs during retirement. If you use turbotax, it is somewhat less painful to do.
When I go through the above exercise, the tax bill I am presented with is peanuts.
But, I still think the minimum tax rate is something like, 25% federal.* And, capital gains is about 15%....
It would be great if I end up being one of those who gets taxed at 3%, but I think i will stick with my estimate of approx 20% of gross goes to income tax.
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,526
We're seeing about 6-7%. The minimum rate is 0% if you're below a certain level of earned income+taxable interest/dividends that arent capital gains. Capital gains can be 5% at a low earned/taxable income level. I keep the income low by using dividend paying stocks (taxed at the capital gains rates) and by stuffing as much income as possible into a 403b.
If you're getting by on just capital gains and dividends taxed at capital gains rates, after your exclusions, deductions and limitations you might actually be able to get down to 3% of your total income.
__________________
Many an optimist has become rich by buying out a pessimist
A few months ago, I ran a scenario with Turbotax with $100K income which showed for us that we would pay about $5K in taxes. I was really surprised, but the advantages of the 0% tax bracket for the first ~$16K of income, the lower tax rate for qualified dividends and capital gains, our itemized deductions, the kids, and contributions to 401(k) all helped to reduce the tax hit.
You mentioned "interest" which is fully taxable, so try to have "dividends" instead of "interest".
I understand I can turn interest income into dividend income relatively easily, and this would be taxed at a lower rate. What about rental income? Pension and SSI? And there will always be some interest income. I feel I may have estimated high at 20% off the top for my income tax liability. And I am glad to hear from yu that this is high. As Brewster stated, everyone is taxed different. I just feel it is a little misleading for the author of Work Less/Live More, to estimate such a low 3% income tax liability in general. Again, I think it is a great book and I just started chapter three.
It appears the average income in ER for many on this board is around 40 to 60 thousand. I think the 3% tax liability figure is a little low for most. Especially if income exceeds 60k.
BTW, even when making more than $200K a year, we never paid more than about 18% of it in income taxes. So I've got to think that your 20% is probably too high an estimate. You must be paying out the wha-zoo now for you to entertain the 20% number.
Unless you get hit by AMT, taxes for married filing jointly on ordinary income for 2006 are:
10% on the taxable income between $0 and $15,100
15% on the taxable income between $15,100 and $61,300; plus $1,510.00
25% on the taxable income between $61,300 and $123,700; plus $8,440.00
28% on the taxable income between $123,700 and $188,450; plus $24,040.00
33% on the taxable income between $188,450 and $336,550; plus $42,170.00
35% on the taxable income over $336,550; plus $91,043.00
The standard deduction for married filing jointly is $10,300 for 2006. Personal exemptions at $3300 each. So this automatically reduces your taxable income. For example, if you and your spouse had income of $10,600, you would pay no taxes because your deductions would wipe out the taxes. If you itemize you may have substantially less taxable income.
Long term gain tax brackets for 2006:
5% for taxpayers in the 10% and 15% tax brackets
15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets
Edited to clarify as per CFBs and LOLs comments, sorry guys, rushed through this post.
__________________ .
Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.
Sorry guys, in too much of a hurry. I corrected my post.
__________________ .
Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.
Now I know why some of you are paying so little in taxes, you're married.
For singles
10% on the taxable income between $0 and $7,550
15% on the taxable income between $7,550 and $30,650; plus $755
25% on the taxable income between $30,650 and $74,200; plus $4,220
28% on the taxable income between $74,200 and $154,800; plus $15,108
33% on the taxable income between $154,800 and $336,550; plus
It hurts to go any further.
__________________
I look to the present moment because that's where I live my life.
You think that married thing is great, you should try throwing in a couple of kids...
Never said marriage was great just that a lot of this talk about low% or 0% tax bracket appears to be due to that status. I would be happy to lower the bulk of my tax to 15% without the enjoy of marriage and kids. Having 75% of my portfolio in CDs and MM makes it difficult to lower my tax bracket.
I guess I can't complain too much about making enough money that puts me in a 25% (Fed/State) bracket.
__________________
I look to the present moment because that's where I live my life.
...
Having 75% of my portfolio in CDs and MM makes it difficult to lower my tax bracket.
I guess I can't complain too much about making enough money that puts me in a 25% (Fed/State) bracket.*
OK, what interest rate do your CDs and money market funds pay?*
Let do a fer-instance.* Suppose you invest in the Vanguard Prime MM fund.* It pays a taxable 4.96%.* You pay 25% of that in tax.* That leaves you with an effective after-tax rate of 0.75 * 4.96 = 3.72%.* But look, you can invest in the Vanguard TaxExempt MM Fund.* It pays 3.69%. Close, but no cigar.* But if you pay any state income tax or if that interest caused your social security benefits to be taxed, then it's a no brainer to use some tax-exempt investments.
Or increase your income to get you into the 28% tax bracket. Then tax-exempt wins handily.
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,526
Quote:
Originally Posted by vagabond
just that a lot of this talk about low% or 0% tax bracket appears to be due to that status.
Sure is nice to be ER'd, get married, have your wife cut her schedule in half (because YOU'RE RICH!) and then put most of her taxable income into 40x's and Roths...and then get the nice tax rates on top.
Quote:
I would be happy to lower the bulk of my tax to 15% without the enjoy of marriage and kids.
Sorry pal...no free lunch! Get on board the sufferin' train with the rest of us!
Quote:
Having 75% of my portfolio in CDs and MM makes it difficult to lower my tax bracket.
Then cut that stuff out.
__________________
Many an optimist has become rich by buying out a pessimist
Quote:
except that the deck is stacked somewhat against us lonely singles. 
Linear Mode
