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Old 04-15-2016, 09:51 AM   #21
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I prepare taxes for elderly and low income people through the AARP/IRS program. Out of all the ones I have done this tax season, only one did not have to file.
I am assuming I have a biased sample, that the ones that do not owe anything do not come in to have their taxes done.
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Old 04-15-2016, 11:37 AM   #22
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Originally Posted by athena53 View Post
So, we got all our Federal estimated payments back. Some went to pay additional state taxes due and the rest was divided between our granddaughter's 529 and my HSA. I feel a bit guilty- it makes no sense when we can afford to fly to Reykjavik in Business Class for the second year in a row- but I'll live with it.
People who have a lot amassed in taxable investments that they draw down now, with very low taxes, paid a lot of taxes while they were building that pile, so no reason to feel guilty. Just remember the taxes you've already paid!
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Old 04-15-2016, 11:50 AM   #23
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Why not help her out if it's financially painful for her?
She can afford it and she would refuse help anyway. But it is still a slap in the face (and the wallet) to see your tax burden doubled on lower income the year after grieving the loss of a spouse.
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Old 04-15-2016, 11:53 AM   #24
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In the case of my parents, and the last 7 or so years of their lives, they paid virtually no taxes not because of no income, but instead because of astronomical deductible medical expenses.

I can assure you, given the choice, that they would've far preferred to pay income taxes.
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Old 04-15-2016, 11:54 AM   #25
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It's called tax bracket management and is a very important part of retirement planning. Fees and taxes are what eat into PF returns. It can be surprising the degree to which taxes can be minimized in retirement.
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Old 04-15-2016, 11:57 AM   #26
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For the few years prior to 2015, I paid just some bitty Federal income tax due to living off my after-tax cache. However, the after-tax dividend was not enough for the expenses, and I have been spending down capital too. It was not really a choice, as I could not get to the tax-deferred accounts before 59-1/2 without penalty, and I did not want the hassle of 72(t) distribution.

I could keep going like this for a few more years, but eventually all that before-tax savings will be taxed at some point. And I want to keep some money in the after-tax accounts for some warm fuzzy feeling, and do not want to deplete it too much. So, I started to draw from the IRA, and got hit by taxes again.

You pay now, or you pay later. I want to spread out the pain. If one is lucky to have a lot more after-tax money, he is golden. I am not in that fortunate situation.
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Old 04-15-2016, 11:58 AM   #27
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Hell, I am not even very old yet (45) and when we retired our federal taxes went from $60,000 a year to $1,500. Negative if you count ACA subsidy as sort of a tax break.
I was laid off from Megacorp in 2013. In 2014 our federal income tax burden was a whopping $84, and that was only because we had to pay about $650 in ACA subsidies back to Uncle Sam.
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Old 04-15-2016, 12:04 PM   #28
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It's called tax bracket management and is a very important part of retirement planning. Fees and taxes are what eat into PF returns. It can be surprising the degree to which taxes can be minimized in retirement.
Taking this statement further: anyone with tax-deferred savings is surely making a mistake if they pay zero taxes. IMHO, you should always withdraw enough tax-deferred money to hit the top of the 10% or 15% tax bracket (after deductions and allowances) to lock in favorable tax rates and avoid LT capital gains on taxable investments. It seems foolish to me to keep tax deferred savings when later RMDs will likely push you into the 25% or higher bracket.

But perhaps I'm missing something (not an unusual occurrence).
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Old 04-15-2016, 12:14 PM   #29
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Taking this statement further: anyone with tax-deferred savings is surely making a mistake if they pay zero taxes. IMHO, you should always withdraw enough tax-deferred money to hit the top of the 10% or 15% tax bracket (after deductions and allowances) to lock in favorable tax rates and avoid LT capital gains on taxable investments.
Almost, though for some people the ACA cliff subsidies add complexities to this. For example, you may not want to use *all* of the 15% bracket if it puts you above 400% of the FPL, for example. You may want to stop at just under 300% or 350% or 400% of FPL, since taking just a few more bucks out wouldn't only be taxed at 15% but cost a lot of money in lost ACA subsidies.

Still, in the absence of ACA considerations what you say is pretty much how I've long felt. If taking out as little as possible today was likely to put me in much higher tax brackets (say 25% and up) later, it's better to get as much as you can out while you can lock in 10% and 15% tax rates on the proceeds -- even if you don't need the current income. You can always move the excess to a taxable investment.

But for someone who isn't 59.5 or higher (or 55 with a 401K) and isn't using Rule 72T to take SEPPs from retirement accounts, it's a moot point anyway -- they can't take out tax-deferred distributions to use up lower tax brackets, not unless they want to get socked with a big tax penalty.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 04-15-2016, 12:19 PM   #30
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Taking this statement further: anyone with tax-deferred savings is surely making a mistake if they pay zero taxes. IMHO, you should always withdraw enough tax-deferred money to hit the top of the 10% or 15% tax bracket (after deductions and allowances) to lock in favorable tax rates and avoid LT capital gains on taxable investments. It seems foolish to me to keep tax deferred savings when later RMDs will likely push you into the 25% or higher bracket.
I have to admit I missed the boat on that this year. I was thinking that I could do this conversion in the same time frame as IRA and HSA contributions, by 4/15 of the following year. Nope.

I do plan to do a Roth conversion before the end of this year, so we'll need to ante up the taxes on that a year from now.
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Old 04-15-2016, 12:40 PM   #31
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Taking this statement further: anyone with tax-deferred savings is surely making a mistake if they pay zero taxes. IMHO, you should always withdraw enough tax-deferred money to hit the top of the 10% or 15% tax bracket (after deductions and allowances) to lock in favorable tax rates and avoid LT capital gains on taxable investments. It seems foolish to me to keep tax deferred savings when later RMDs will likely push you into the 25% or higher bracket.

But perhaps I'm missing something (not an unusual occurrence).
Yes! This is exactly what I am doing (pulling from a taxable account which has almost no LTCG's while converting/recharacterizing Roths to the top of the 15% bracket) until age 70 while deferring SS. I was just too lazy to post the details.
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Old 04-15-2016, 01:13 PM   #32
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Years ago a friend's grandfather just stopped paying his taxes. "I've paid enough in my life!!" (harumpff!)

He got a few bills and legal notices and wrote "Deceased" on them and returned them! It was years before computers were chasing down these things and I doubt he'd not get bagged nowadays.

Despite a fairly good income he probably went 5 or 6 years without paying any taxes and then died before there were any consequences!
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Old 04-15-2016, 01:21 PM   #33
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.......
Despite a fairly good income he probably went 5 or 6 years without paying any taxes and then died before there were any consequences!
I guess the old death and taxes saw is only half right...........
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Old 04-15-2016, 01:29 PM   #34
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Not poor, not wealthy, but 40-50 years of working and doing without has them still paying tax after all these years.
Why shouldn't they? Are they not still benefitting from the security provided by the infrastructure their taxes go to support? Is there some sort of arbitrary cutoff limit (monetary or age?) where someone has paid "enough" and should get to freeload off of the system while they run out the clock?
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Old 04-15-2016, 02:44 PM   #35
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Years ago a friend's grandfather just stopped paying his taxes. "I've paid enough in my life!!" (harumpff!)

He got a few bills and legal notices and wrote "Deceased" on them and returned them! It was years before computers were chasing down these things and I doubt he'd not get bagged nowadays.

Despite a fairly good income he probably went 5 or 6 years without paying any taxes and then died before there were any consequences!

Surprised that SS and Medicare wouldn't fairly quickly be stopped given his "strategy".


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Old 04-15-2016, 02:57 PM   #36
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I've always thought it kind of sucked the SS distributions can be taxed because after all you paid tax on it when it went to Uncle Sam the first time. Isn 't this in reality a form of double taxation ?

On the other side of the coin I suppose we shouldn't bitch and be thankful because we have additional income streams that give us a higher standard of living.

Done with rant.
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Old 04-15-2016, 03:15 PM   #37
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Why shouldn't they? Are they not still benefitting from the security provided by the infrastructure their taxes go to support? Is there some sort of arbitrary cutoff limit (monetary or age?) where someone has paid "enough" and should get to freeload off of the system while they run out the clock?
Wasn't complaining. My response and actual taxes paid was to counter the original topic. They are far from freeloading.

Sometimes the point gets lost.

To directly answer your question, in their case I think they have paid long, and enough. They both served. One was a nurse for like forever. Worked shift work as a supervisor in state institution. They raised 4 children who all work continuously and pay taxes.

I can't give you an absolute number, but I think they've done enough now that they are losing hold of life. But I am not holding my breath waiting for tax man to get out of way.
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Old 04-15-2016, 03:17 PM   #38
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I've always thought it kind of sucked the SS distributions can be taxed because after all you paid tax on it when it went to Uncle Sam the first time. Isn 't this in reality a form of double taxation ?
I've not done the math, perhaps someone else has. That is, to compare how of the SS benefit is untaxed vs how much one contributed. If it were an annuity the entire amount, less the contribution, would be taxable income.
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Old 04-15-2016, 03:43 PM   #39
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She can afford it and she would refuse help anyway. But it is still a slap in the face (and the wallet) to see your tax burden doubled on lower income the year after grieving the loss of a spouse.
I'm completely sympathetic to your mom Ziggy. But, remember you mom has a higher individual income now if you consider that before your dad's passing the income was divided by two. That is, she has more than 50% of the income today than she and your dad had while he was alive.

I think one of the hurdles a surviving spouse has to overcome is sizing most expenses down to one half. Live in less square footage, go to one car, consume groceries and household goods at half the previous rate, etc., etc.

We went through this with my MIL and it was tough. She eventually sold the house and moved to a small condo and made several other similar moves. It goes beyond the single vs MFJ tax rates.

I guess the other alternative would be to find a roommate.
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Old 04-15-2016, 03:51 PM   #40
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I've not done the math, perhaps someone else has. That is, to compare how of the SS benefit is untaxed vs how much one contributed. If it were an annuity the entire amount, less the contribution, would be taxable income.
My understanding is that Congress considered taxing SS the same way annuities are: return of capital (your contribution) is untaxed and the rest is. But there is an issue with doing it that way for SS. With annuities, you receive a payment directly linked to the amount you contribute and the age you begin payments. With SS, there are a lot of social engineering and welfare-like payments involved. You might be collecting a spousal benefit. You might be a child under 18 (or a full time student) whose parent is collecting SS. You might be collecting SS due to a disability. And the SS formula is built so that low level contributors receive a higher percentage of their contribution than high level contributions. And on and on.

So they just came up with today's rules and called it a day.......... (That's the urban legend around here anyway.)
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