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Old 03-23-2021, 09:35 AM   #21
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Originally Posted by EastWest Gal View Post
Welcome to the world of no W-2 withholding and quarterly tax payments. In retirement, you can't really autopilot until March and wonder what happened last year. I found out the hard way long enough ago I don't even remember. I decided to start a Roth late last year to do Roth conversions. Took $100K into the Roth, sold a bunch of equities in taxable to replenish our cash a bit. My taxes were going to be very low last year until we made that decision. We wanted to stay under the ACA cliff this year.

Thanks to this forum, I learned about the dinkytown calculator. I overestimated my tax by $3K, and made a $17K quarterly payment in January. This year I'm going to overpay early, then look again at the calculator in a couple of quarters.

In PA, IRA withdrawals are state tax free if you are over 59.5. I don't know how long that will last though. The state needs more money. They'll get theirs when we die though. We have an inheritance tax.

BTW, It is painful writing those large tax checks. My income careened up and down since 2014. I w****d part time from 2014-2019, a couple of years nearly full time and one 12 month period not at all. In 2018, we put in solar on our roof, after replacing the roof, using our HELOC. $18K refund in 2019.

But after a couple of years of retirement and time to run the numbers monthly, one realizes that the difference is one is paying LESS taxes but feeling it more, simply because it isn't coming out of a W-2.
I haven't had W-2 income for quite a few years either.
But I set up.monthly withholding from my 1099-Rs and my SS.
So the bottom line effect is pretty much the same.

If my withholding total is too high or low compared to my actual tax liability when I do my taxes in February, I can usually tweak just one stream's w/h amount and get a lot closer the following year...
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Old 03-23-2021, 09:45 AM   #22
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Originally Posted by SoReadyToRetire View Post
Despite my username, I retired on 2/7/2020. Today I completed our first post-retirement tax return. Holy moly--writing that check to the gubmint is gonna HURT!

I had time to do some daytrading this year, which was more successful than I realized, AND I did a backdoor Roth conversion in Dec 2020. AND I took a part time job 7 weeks after retiring. And here I was, hoping we might get a refund for the first time in ages this year without my old salary. HA.

This is kind of a pointless post. Just wanted to share my pain.
All depends on your activity.

When I retired my taxes went down so much I actually felt guilty, and triple checked the return because I thought ‘this can’t be right.’ Since then I started doing massive Roth conversions in 2019 - don’t feel guilty at all anymore, as you say “ouch.”
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Old 03-23-2021, 10:28 AM   #23
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I just glanced at my tax spreadsheet. There's a summary tab with a multi-year trend on key lines.

Without Roth conversions, our total tax in retirement is less than 5% of what it was the last year we were both working. Even WITH conversions to the top of the 22% bracket, it's still less than 25%.

There were a few complicated years when we sold some rental properties. And the first 2 years after retirement, I was still exercising vested options and RSUs, which not only generated federal tax but also payroll tax.

We have no withholding of any kind. I used to make quarterly estimated payments. But since turning 59.5, I now do a tIRA withdrawal each December in the amount of our safe-harbor, with 100% withholding. The IRS deems withholding to be equally spread throughout the year. So we don't do quarterlies any more. And by December, I have a pretty good handle on the tax situation.

I even learned on this forum to replace the tIRA withdrawal from savings within 60 days so it's a non-taxable rollover. Result is: I get the safe-harbor amount in the form of withholding but still use taxable funds to pay tax, which has some well-documented advantages when most of our tax is from Roth conversions.
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Old 03-23-2021, 10:07 PM   #24
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Thanks, c-man23 😊
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Old 03-23-2021, 10:36 PM   #25
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2020 is my highest tax year ever by more than double, but at least I had withholding work out close, so no big check due. I broke into 6 figures on fed income tax alone payed for 2020. I earned more than double my next highest year due to severance, "completion bonus" and working massive overtime early in the year due to covid lock downs. I even paid the FICA cap twice (which helps keep my tax due down) by virtue of being transferred from former mega-corp employer to secondee status under a 3rd party contract for the last 6 months. It was a good year to make sure I'm sick of work forever and also for a nice paycheck going out the door. My tax return is amazing to me though, never before and never again. Glad that's over
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Old 03-24-2021, 04:15 AM   #26
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I was outta there 2-28-2020, with working spouse (the best ever) continuing the good fight. After completing 2019 taxes, that is when the real fun started. Filled in the estimated taxes worksheet and found no estimates payments required for 2020. Also used the What-If worksheet for 2020. Inputs were:
- Her income and Fed Tax to be paid throughout 2020.
- My final numbers from Jan & Feb.
- Applied a $2300 refund (2019) to 2020.
- Estimated dividends and qualified dividends
- Annuity income about 50% taxable
- $20K Roth conversion

Tax loss harvesting was used as an opportunity to re-balance some winners and redeploy proceeds carefully.

I checked my numbers in the What-If Worksheet again in December, and decided to send in a $1,500 4th Q payment. Now that I'm finished 2020, I see that I was off by about $1,000, and will apply that refund to 2021.
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Old 03-24-2021, 05:04 AM   #27
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2020 was an awesome year for us. First year / time to utilize the SEP 401k. Socked away a massive % of my coastRE income... We also paid additional taxes via DW's company in Nov and Dec to cushion the blow for my taxes due thanks to the advice here.

We're getting over half of this back due to the SEP 401k surprise. Even with the reduced w*rk, I'm so ready for RE. Just have to wait for her comfort zone (or work event to force our hand). Not that 2020 was a great year for it...

Years like these makes living in TX a tax blessing... Otherwise I'd be back in CA.
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Old 03-24-2021, 07:02 AM   #28
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My spouse did a Roth Conversion, passed away suddenly in Aug. We were slammed. Then 2021 filing as a SINGLE is going to be
a huge hurt.
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Old 03-24-2021, 08:26 AM   #29
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My spouse did a Roth Conversion, passed away suddenly in Aug. We were slammed. Then 2021 filing as a SINGLE is going to be
a huge hurt.
Sorry to read about your loss.

Tax law can be so absolutely unfair, as in your situation.
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Old 03-24-2021, 08:44 AM   #30
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First full year of retirement here. Came out golden on the Federal side. But this was largely due to having been short changed on the two stimulus checks (based on my pre-retirement salary) and recouping the difference on the tax return.

Got dinged a little on state. Didn't realize they too penalize early traditional IRA withdrawals. Never dawned on me to check. Oh well.
Why did you make early T-IRA withdrawals
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Old 03-24-2021, 09:03 AM   #31
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Originally Posted by bada bing View Post
2020 is my highest tax year ever by more than double, but at least I had withholding work out close, so no big check due. I broke into 6 figures on fed income tax alone payed for 2020. I earned more than double my next highest year due to severance, "completion bonus" and working massive overtime early in the year due to covid lock downs. I even paid the FICA cap twice (which helps keep my tax due down) by virtue of being transferred from former mega-corp employer to secondee status under a 3rd party contract for the last 6 months. It was a good year to make sure I'm sick of work forever and also for a nice paycheck going out the door. My tax return is amazing to me though, never before and never again. Glad that's over
I'm not sure exactly how to parse what you're saying here. But if your W-2 wages exceeded the FICA maximum taxable amount of $137,700 in 2020, then you are entitled to a refund of the excess SS (not Medicare) taxes withheld from your paycheck. That refund of excess SS taxes should not affect any other tax items on your return (other than getting you a bigger refund)

See the Form 1040 instructions for line 10 of Schedule 3, which can be found on page 101.

If you've already filed and the amount is worth it, you should be able to e-file an amended return to get the money back.

If you're saying that you already accounted for that excess on your Schedule 3 line 10 and that's why you have less tax due, then never mind.
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No more W-2s!
Old 03-24-2021, 09:10 AM   #32
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No more W-2s!

One nice thing about retirement is that your tax returns are no longer at the mercy of W-2 withholdings. During our working years, we always had either big payments or big refunds. It was maddening.

We now manage our income to stay just under the ACA cliff. Since it's mostly capital gains and dividends, we usually owe zero federal tax. We've had a few rude surprises with state income tax, though. I've learned to overestimate the estimated payments.
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Old 03-24-2021, 09:23 AM   #33
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One nice thing about retirement is that your tax returns are no longer at the mercy of W-2 withholdings. During our working years, we always had either big payments or big refunds. It was maddening.

We now manage our income to stay just under the ACA cliff. Since it's mostly capital gains and dividends, we usually owe zero federal tax. We've had a few rude surprises with state income tax, though. I've learned to overestimate the estimated payments.
Helpful hint for those who are still working - you can calculate how much will be withheld from your pay by referencing this IRS publication https://www.irs.gov/publications/p15t. Or you can just wait for your first paycheck of the year and use that. Then you submit a new Form W-4 to your payroll office to ensure that your total withholding by the end of the year will match your estimated tax obligation. You add dependents to reduce withholding or, as was almost always the case with us, claim zero dependents and add an extra amount per paycheck to increase withholding. I used to adjust our W-4's every January.
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Old 03-24-2021, 10:25 AM   #34
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Last year was the first year I sold fund shares to raise cash for the year--had been mostly living off inheritance 'til now. Before I sold, I'd looked at the estimated gains and thought it wasn't bad. Turns out, they only showed estimated gains on the covered shares, which was a small portion of the sale. My taxes were not fun.
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Old 03-24-2021, 10:38 AM   #35
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Markola, really? That's similar to our situation, except that I had a (what I thought was small) Roth conversion of $30K. Besides, that my hubby made $38K from his j*b and $12K in UE ($10.5K of which isn't taxable, due to the recent legislation); I made $16K from my j*bs; and my daytrading profit was $44K. And we're writing a checks for Federal and State combined of $10,500.

Standard deduction was best for us too.

Do those numbers make sense to people? Or did I goof something up?
Please let me know what recent legislation renders part of the UE not taxable. My daughter was paid $13 K in UE last year and I thought it was ll taxable.

Thanks.
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Old 03-24-2021, 10:51 AM   #36
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Please let me know what recent legislation renders part of the UE not taxable. My daughter was paid $13 K in UE last year and I thought it was ll taxable.

Thanks.
Not the person you asked, but it's Section 9042 of the American Rescue Plan Act, HR1319 which became Public Law 117-2 on 3/11/2021. It's colloquially known as the stimulus bill and is most famous for initiating the $1400 stimulus checks but there's a lot of other stuff in the bill.

https://www.congress.gov/bill/117th-...bill/1319/text

Also, as a minor note, it's only the first $10,200 of unemployment income, not $10,500. And states may choose to make the income taxable at the state level, so your daughter should check on what her state is doing. The law is so new that I think most states likely haven't yet decided or implemented any responsive legislation.

(And you're right, unemployment income is normally taxable. Just not in 2020 for the first portion for those who meet the requirements.)
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Highlighting W-4 guidance
Old 03-24-2021, 10:58 AM   #37
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Highlighting W-4 guidance

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Originally Posted by Gumby View Post
Helpful hint for those who are still working - you can calculate how much will be withheld from your pay by referencing this IRS publication https://www.irs.gov/publications/p15t. Or you can just wait for your first paycheck of the year and use that. Then you submit a new Form W-4 to your payroll office to ensure that your total withholding by the end of the year will match your estimated tax obligation. You add dependents to reduce withholding or, as was almost always the case with us, claim zero dependents and add an extra amount per paycheck to increase withholding. I used to adjust our W-4's every January.
We also used to adjust our W-4s, maybe not every year, but definitely when we had a major change in income to adjust for. Over time, it became clear that we needed to withhold more than the worksheet of the time advised.

I just hope the guidance in current IRS document has improved.
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Old 03-24-2021, 11:03 AM   #38
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Not the person you asked, but it's Section 9042 of the American Rescue Plan Act, HR1319 which became Public Law 117-2 on 3/11/2021. It's colloquially known as the stimulus bill and is most famous for initiating the $1400 stimulus checks but there's a lot of other stuff in the bill.

https://www.congress.gov/bill/117th-...bill/1319/text

Also, as a minor note, it's only the first $10,200 of unemployment income, not $10,500. And states may choose to make the income taxable at the state level, so your daughter should check on what her state is doing. The law is so new that I think most states likely haven't yet decided or implemented any responsive legislation.

(And you're right, unemployment income is normally taxable. Just not in 2020 for the first portion for those who meet the requirements.)
Thanks,

She already filed her return and TurboTax did not pick this up. She is in Texas so no state income tax return to file.
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Old 03-24-2021, 11:17 AM   #39
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Thanks,

She already filed her return and TurboTax did not pick this up. She is in Texas so no state income tax return to file.
According to some popular news articles, the IRS seems to plan to automatically calculate and issue refunds people in her situation and are asking people not to submit amended returns. Here's one:

https://www.cnbc.com/2021/03/19/1020...s-refunds.html

I'm quite dubious. This change affects AGI, which can have a cascading effect on a bunch of other tax items downstream from the AGI line. But who am I to question the IRS?

Anyway, she maybe should keep an eye on things.

Also if she's into tax optimizing, she should reevaluate her 2020 situation and see if her IRA contribution is better off in the Roth or traditional, whether or not an HSA contribution makes sense, etc.
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Old 03-24-2021, 11:53 AM   #40
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According to some popular news articles, the IRS seems to plan to automatically calculate and issue refunds people in her situation and are asking people not to submit amended returns. Here's one:

https://www.cnbc.com/2021/03/19/1020...s-refunds.html

I'm quite dubious. This change affects AGI, which can have a cascading effect on a bunch of other tax items downstream from the AGI line. But who am I to question the IRS?

Anyway, she maybe should keep an eye on things.

Also if she's into tax optimizing, she should reevaluate her 2020 situation and see if her IRA contribution is better off in the Roth or traditional, whether or not an HSA contribution makes sense, etc.
Thanks for the link and update.
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