"Tax Bucket" question

[jimbohoward69]

I was FIRE for over a year but decided to go back to work in April with the Veterans Health Administration...and LOVE IT! 2020 was a good year, tax wise that is, since I was able to harvest a bunch of LTCG w/my limited pension income. The tax math was pretty straight forward then...my pension filled up the 10% bucket and a smidgen of the 12%...leaving quite a bit of room up to the $40K threshold for the 0% LTCG/Qualified dividend rate.

This year will be different, obviously, since my ordinary income will be above the 0% LTCG rate. Here are some specifics (projected of course):

Ordinary Taxable Income (Salary & Pension) - $56,099
S/T Capital Gains - ($2,182) Covered call gone wrong
Qualified Dividends - $900
Charitable Deduction - ($300)
AGI - $54,517
Standard Deduction - ($12,550)
Taxable Income - $41,967

My question stems from where/how to account for S/T CG losses and the qualified dividends. Here's what I came up with:

Ordinary Income @ 10% - $9,950 - $995 taxes
Ordinary Income @ 12% - $30,575 - $3,669 taxes
Ordinary Income @ 22% - $542 - $119 taxes
Qualified Dividends @ 15% - $135 taxes
Total Taxes - $4,918

Just trying to figure out if I need to leave the QD's separate like I did or just figure it all in together. I like doing projections like this so I'm not left owing at the end of the year (can adjust withholding accordingly).

Any advice/feedback would be greatly appreciated...thanks!!

 

[RunningBum]

[-]I believe on Schedule D you'll see that your short-term loss covers any short-term gains (which you show none of), then LTCGs and QDivs (erasing your $900), then the rest up to $3000 goes against regular income. So you'll figure it all in together.
[/-]
You could confirm this with a "what if" run with your tax software, or one of the online tax programs like dinkytown https://www.dinkytown.net/java/1040-tax-calculator.html

EDIT: I was wrong, ST losses only count against LT gains, not QDivs. So your method looks right.

 

[SecondCor521]

If you're careful, you can fill out the Qualified Dividends and Capital Gains worksheet in the Form 1040 instructions to properly figure your taxes. For 2020, it was on page 35.

You would need to adjust the threshold amount on line 6 from the 2020 number (of $40,000) to the 2021 number (not sure what it is, but it'll probably be a bit higher) to get it exactly correct.

Doing it by hand is tricky though. Using a good online software estimator is better, like RB suggests. I personally like this one:

https://sites.google.com/view/incometaxspreadsheet/home/download

It takes a bit of time to load, but I think it's one of the most accurate and easy to use calculators out there.

 

[pb4uski]

You nailed it! Actually, you were 24c off according to this calculator.

https://www.irscalculators.com/tax-calculator

 

[FANOFJESUS]

You nailed it! Actually, you were 24c off according to this calculator.

https://www.irscalculators.com/tax-calculator

I love that calculator.

 

[pb4uski]

Yes, it has become my favorite.... followed by dinkytown.

I forgot to mention that the calculator doesn't include a field for up to $300 for charitable contributions even if you use the standard deduction so I just improvised and used the field for deductible health and retirement contributions... it still reduces taxable income by $300.

 

[CRLLS]

Interesting calculator. I just tried it. It does not calculate properly for pensions and tax deferred distributions (IRA and 401K) for my state, Illinois. IL does not tax either yet the calculator lumps it in as unearned income and taxes it. Unless I am doing something wrong?

 

[pb4uski]

I don't think you are doing anything wrong... it just doesn't seem that granular, especially when it comes to state income taxes... I wish it was more granular and had more of the major 1040 categories.

But at least it tries to do state income taxes... most other web-based calculators don't even try.

 

[CRLLS]

Thanks pb... , I wasn't sure if I was doing it right. I think it necessary to bring this forward. It can be a big "error" if decisions are based on it. I agree that many such calculators simplify the inputs and outputs. As such I think they need to mention their limitations instead of give an erroneous result. That is just my opinion.