Income Taxes After ER

[Retire Soon]

I just reached a milestone in my life by finishing my first full tax year of ER. The past couple of days have been spent using TurboTax to figure what I owe. I'm now experiencing euphoric vibrations with my discovery of just how much my taxes have gone down since I left the w*rk force! I just printed TurboTax's, "Tax History Report" and learned that I am now paying only about 1/10th as much in federal taxes as what I was paying when I was w*rking. My state taxes have been cut in half. Has anyone out there in ER land experienced buckets of joy in learning that less of their hard-saved money would be ending up in government hands?

[template]

I hear you. Retirement is even sweeter if you live in a state which does not tax pensions.

[Rustic23]

Texas does not tax income at all, however, this year my property tax will be three to four times more than my federal income tax. If you add sales tax to the mix and all the state fees, things even get worse.

[youbet]

Originally Posted by Retire Soon

I'm now experiencing euphoric vibrations with my discovery of just how much my taxes have gone down since I left the w*rk force!

I too have now completed my first fiscal tax year of retirement and my tax bracket and total federal tax bill are lower. But I'm not sharing the euphoric feelings you have......... Frankly, if I had been smart enough to rake in some HUGE financial gains that caused my fed taxes to be high, I'd be delighted!

Don't misunderstand, being in a lower tax bracket in retirement is very beneficial to being able to afford retirement and I enjoy that part of it. But I also realize the reason for the low bracket..........

[Retire Soon]

Originally Posted by youbet

I too have now completed my first fiscal tax year of retirement and my tax bracket and total federal tax bill are lower. But I'm not sharing the euphoric feelings you have......... Frankly, if I had been smart enough to rake in some HUGE financial gains that caused my fed taxes to be high, I'd be delighted!

Don't misunderstand, being in a lower tax bracket in retirement is very beneficial to being able to afford retirement and I enjoy that part of it. But I also realize the reason for the low bracket..........

I can do better than that. I keep my "huge financial gains" in my 403b, where there is absolutely no income tax (at least until the fed says I have to begin making minimum withdrawals).

Template,

Yes, indeed retirement would be even sweeter if I lived in a state that did not tax pensions. I am, however, well compensated for this shortfall as I have recently moved one of the only four states in the U.S. that has no sales tax.

[Want2retire]

It's hard to imagine what my taxes might be in ER, so for computations I usually use a pretty conservative figure.

While I am still working, I multiply my earnings by 0.65 (after subtracting out my TSP contributions), and that gives me a rough estimate of my take-home pay after state and federal taxes, SS, medicare, health insurance, etc.

For retirement computations, I estimate my taxes by multiplying everything by 0.70 . I would imagine that it might be better than that. I know I won't be paying social security any more.

[Retire Soon]

Originally Posted by Want2retire

I know I won't be paying social security any more.

That's another nice benefit of early retirement in that one no longer has payroll deductions for social security or government retirement.

[walkinwood]

Retiresoon,

Would you be comfortable telling us what your fed taxes were as a percentage of your annual withdrawal (SWR)?

I have been estimating 4-5% based on some calculations I did based on past mutual fund distributions, unrealized gains in my taxable portfolio, and deductions on medical premiums & expenses, property and state taxes. I don't think my calculations were very scientific, but ESR Bob says the same thing in his book.

Rustic,
I think you can deduct sales tax from your federal taxes. I thought I saw that as an option to deducting state income tax last year. I was thinking of exploiting this if my state income taxes drop after retirement.

[rs0460a]

Originally Posted by Want2retire

It's hard to imagine what my taxes might be in ER, so for computations I usually use a pretty conservative figure.

Try this, and plug in the various assumed income sources (on the income tab):

1040 Tax Calculator - Financial Calculators from Dinkytown.net

- Ron

[Retire Soon]

Originally Posted by walkinwood

Retiresoon,

Would you be comfortable telling us what your fed taxes were as a percentage of your annual withdrawal (SWR)?

I have been estimating 4-5% based on some calculations I did based on past mutual fund distributions, unrealized gains in my taxable portfolio, and deductions on medical premiums & expenses, property and state taxes. I don't think my calculations were very scientific, but ESR Bob says the same thing in his book.

Rustic,
I think you can deduct sales tax from your federal taxes. I thought I saw that as an option to deducting state income tax last year. I was thinking of exploiting this if my state income taxes drop after retirement.

My Federal Income Taxes expressed as a percentage of my SWR was 2.26% for 2007.

[Want2retire]

Originally Posted by rs0460a

Try this, and plug in the various assumed income sources (on the income tab):

1040 Tax Calculator - Financial Calculators from Dinkytown.net

- Ron

Thanks, Ron! That's a convenient calculator. I tried it and it's pretty easy. Now, I just need to figure out how much LT and ST capital gains I can expect so maybe I'll work on that tonight.

[Moemg]

I just did my income taxes and surprize they were not any less than when I was working . So now I have to go over them closely to see what the problems are .