Confused - MAGI and stock sales / LTCG

[Steelart99]

Okay ... I'm confused.

2017 will be my first year of ER and I'm trying to plan my income sources. I will likely be in the 10% tax bracket and plan to take advantage of the ACA which is based on MAGI. So obviously I want to minimize MAGI to maximize the ACA subsidies.

I know I have to report investment / stock sales on my tax forms... but are the gains (or total sale value) still considered part of my MAGI?

Since I'm in a tax bracket where LTCG's are not taxed, I had just assumed that any investments (not 401K or IRA) that I sell do not affect my MAGI.

I've never sold stocks/bonds before.

How's this really work

 

[audreyh1]

Yes - realized capital gains in taxable accounts are part of your MAGI, they are considered income. So if you sell some stock or bonds for higher than what you bought them for, that will add to your income for that year.

 

[Steelart99]

Yes - realized capital gains in taxable accounts are part of your MAGI, they are considered income. So if you sell some stock or bonds for higher than what you bought them for, that will add to your income for that year.

Okay .... that was what I was realizing. Gains may be included in MAGI, but the LTCGs are not taxed given my tax bracket.

Thanks

 

[sengsational]

Your best bet would be to just enter your taxes into your favorite tax software (Turbo Tax, H&R Block, various web sites, etc). Enter those things that are done already, and twiddle things that you can control. There are too many "moving parts" to do it by "logic". For instance, you might be able to estimate your MAGI and make sure you're not over the cliff, but there might be other things phasing out or limited by the amount of tax you owe (lines 48 through 54). If you think about the inputs to your income tax forms, most of them can be looked-up early, or estimated very accurately.

 

[Steelart99]

Your best bet would be to just enter your taxes into your favorite tax software (Turbo Tax, H&R Block, various web sites, etc). Enter those things that are done already, and twiddle things that you can control. There are too many "moving parts" to do it by "logic". For instance, you might be able to estimate your MAGI and make sure you're not over the cliff, but there might be other things phasing out or limited by the amount of tax you owe (lines 48 through 54). If you think about the inputs to your income tax forms, most of them can be looked-up early, or estimated very accurately.

Ha .... It while I was tying this with TurboTax that I noted the issue. Faking 1099 inputs to what I 'think' might be the way to go has been tedious.

I've never received any pensions, never sold stocks, never made withdrawals from my 401K/IRA, never attempted to manage my MAGI ... you get the drift here.

 

[sengsational]

I get it. Without an earlier year 1099-xxx to look at, the inputs are confusing.

Do you have specific questions? For stock sales, you should be able to estimate the 1099-B (just the proceeds and the basis are needed, and both of those would be on your financial institution web site). For dividends, you can presume they are all qualified and not be too far off, I think. For IRA distributions or Roth conversions, the 1099-R would have just the amount you pulled. Box 7 would have a "2" for Roth conversions (at least mine did) and the box next to it had an "X".

 

[Steelart99]

I get it. Without an earlier year 1099-xxx to look at, the inputs are confusing.

Do you have specific questions? For stock sales, you should be able to estimate the 1099-B (just the proceeds and the basis are needed, and both of those would be on your financial institution web site). For dividends, you can presume they are all qualified and not be too far off, I think. For IRA distributions or Roth conversions, the 1099-R would have just the amount you pulled. Box 7 would have a "2" for Roth conversions (at least mine did) and the box next to it had an "X".

I'm trying to make estimates on income sources for next year and their effect on MAGI in order to help me make ACA choices. So, I have to assume that any stocks sold are at current value minus the basis (yep, I see the basis at VG). That does tell me what I might expect the LTCG to be which is part of MAGI.

Ugly set of circular calculations ... sigh

 

[RunningBum]

Make sure you see your cost basis option to Specific ID. This will let you choose shares to limit capital gains... or maximize them if you have room to take them at 0%. (The 0% cap gains is not unlimited, btw. If you have too many cap gains they are taxed at 15%.) I think the default cost basis at Vanguard is "average cost". You may have difficulties tracking down the cost basis for older shares bought before 2012, but fund companies have to track and report the basis for shares bought since then. I think 2012 was the year of the cost basis reporting change.


A little more complexity, but it gives you more flexibility. It's not as hard as it sounds. You might even want to sell a very small amount before the end of the year, if you feel you need to see how it all works for next year.

 

[audreyh1]

Okay .... that was what I was realizing. Gains may be included in MAGI, but the LTCGs are not taxed given my tax bracket.

Thanks

That's right - you may pay 0% cap gains tax on them, but they still appear in your MAGI.

 

[bingybear]

If your focus is MAGI and not taxes, it may be easier to just look at what makes MAGI and work the taxes after the fact. If you want to focus on both, it is a little more complicated, but not much.

Start with page 1 of the 1040 and you have most of the needed terms to calculate. There are not that many boxes to add up. Figuring the taxes is more complicated. Figuring the MAGI just require a few more calculations than the boxes on page one which are your inputs

 

[Steelart99]

If your focus is MAGI and not taxes, it may be easier to just look at what makes MAGI and work the taxes after the fact. If you want to focus on both, it is a little more complicated, but not much.

Start with page 1 of the 1040 and you have most of the needed terms to calculate. There are not that many boxes to add up. Figuring the taxes is more complicated. Figuring the MAGI just require a few more calculations than the boxes on page one which are your inputs

I 'think' I was able to get this all worked out and somewhat automated ... gotta love Excel. I had a few errors in my faked inputs into Turbo Tax that was throwing things off until I tracked them down.

Thanks

 

[sengsational]

This is still 2015, and it's a locked down spreadsheet, but it can be an informative exercise to throw your inputs into https://sites.google.com/site/excel1040/