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Old 05-11-2020, 07:58 PM   #21
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I find the Turbo Tax what-if spreadsheet to be a good quick and dirty tool IF my current facts are fairly similar to the prior year. However, if a lot of parts of my return are moving I do a “save as” to my prior year TT file and then start changing the income/expense items that I think will be materially different. Unlike the what-if worksheet, this will allow you to look at the full AMT calc and see what is driving you into AMT or any other form/tax that you didn’t realize you needed to be concerned about. Yes, the tax calc, std deductions, etc will still be at the prior year amounts, but it will get you a pretty good ballpark figure. I also find that just printing a blank form (AMT for example) and manually entering each line or doing the required math can lead to some ah ha moments. It won’t necessarily help you understand why the calc is what it is, but if you can understand how changing A impacts B it can be really enlightening for your tax planning.
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Old 05-11-2020, 09:28 PM   #22
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Originally Posted by jollystomper View Post
Taxes are also used to encourage or discourage behaviors, which changes based on the economic/political slant du jour.
^This Do not underestimate the social engineering power of the tax code. Retirement savings, home ownership, energy efficiency...the list goes on and on if you look hard enough.
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Old 05-11-2020, 10:43 PM   #23
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^This Do not underestimate the social engineering power of the tax code. Retirement savings, home ownership, energy efficiency...the list goes on and on if you look hard enough.
FIFY :-)

It seems to me that the primary purpose of taxes is social engineering and that revenue generation is a distant second.

I think it would be relatively easy to make a social engineering argument for almost every line on a tax return except maybe your name and the Presidential Election Fund.

Filing status? Promotes marriage and benefits widows and widowers.
Address? Used to determine ACA FPL levels and thus your ACA subsidy.
SSN? If you don't have one it affects some tax things, thus promoting citizenship and registering with the SSA.
Age/blindness? Obviously benefits elderly and blind people with a bigger standard deduction.
Dependents? Promotes taking care of others.
Income? Stuff is income or not income for a myriad of reasons, and some income is exempt or preferenced.
...
Then once you get to adjustments, deductions, tax calculations and credits, I think it's obvious how those are social engineering items.
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Old 05-12-2020, 12:15 AM   #24
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I graduated HS in 1976 and guarantee neither bookkeeping or filing taxes were even an elective at either HS I attended. The only time I paid to have my taxes done (required as part of a divorce to “make sure I was honest”), they were done wrong and I had to amend them. I let the ex get screwed by the IRS and didn’t tell her. Every other year I’ve done my own, last 20 via programs. I’ve only amended twice on my own taxes, both times for the same reason, massive confusion about college cost credits, in order to get my $2000 credit. My taxes have always been pretty simple, but I can easily agree with the ridiculous number of forms and incoherent instructions for all kinds of items.
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You think yours is complex?
Old 05-12-2020, 03:19 AM   #25
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You think yours is complex?

You could be in this situation.
https://www.bloomberg.com/news/artic...s?srnd=premium
Stranded Super-Rich Confront Tax Chaos After Pandemic Lockdowns
“ As nations have closed borders, some affluent individuals are confronting unexpectedly complex tax situations. These include the prospect of higher levies from spending too many days in a foreign locale, or having to shelve plans to obtain tax breaks by moving abroad.”
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Old 05-12-2020, 05:22 AM   #26
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The tax system rewards those who diligently study the rules. Since 1977, I have always prepared my own tax returns and have never had a problem.

It may be too late for some, but this post identifies many of the income limits and thresholds for 2020. You may find it helpful.

https://www.early-retirement.org/for...-a-101090.html

Thanks to reading this post I have learned that I wasn't eligible to contribute to my Roth IRA in 2019. Taxes are already filed and 2020 Roth IRA is already maxed.

The "good" thing is I anticipate less income in 2020 and this won't be a problem as I'm retiring this year.

OOPS. Off to do some research to see how I can correct it with the least amount of account juggling and pain.
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Old 05-12-2020, 05:46 AM   #27
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The AMT, for example, has been around since 1969. The AOTC has been around since 2009. The NIIT was enacted in 2010 and didn't take effect until 2013.

It is very valuable to be aware of the tax code and consider any tax consequences when making financial decisions, rather than just making decisions first and finding out about the tax consequences later.
OP here.

I think that this is exactly my point. I'm not even griping about "new" things that I did not know about. I have my own spreadsheets, I have 3rd party spreadsheets, I have Turbo Tax, and I'm fairly literate in the complexity of taxes. I knew that I would be paying my tax bracket rate on short-term gains and 15% on long-term gains etc. But for example, the NIIT caught me completely off guard. Maybe I've never even heard of it. If I had heard of it, I glossed over it because it never applied.

There is no defense of AMT, no matter how old it is.

Ohh - I dont think any one as commented on the use of AGI as a metric. I still don't understand why a person might be ineligible for a Roth, like @FDC319, just because they decided to sell some stocks. Or similar, If I decide to contribute to a tIra, I might be eligible to get the AOTC. But if I choose a Roth, I'm not. That should not matter.

I realize I'm asking for logic when there isnt any.
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Old 05-12-2020, 07:22 AM   #28
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The tax system rewards those who diligently study the rules. Since 1977, I have always prepared my own tax returns and have never had a problem.
I have to agree. I have been preparing my own tax returns since 1985, and have been preparing the tax returns of my ladyfriend and my best (male) friend since 2004. I have made a few fairly small, usually careless mistakes with these returns over the years, but not due to any misunderstanding of the tax code. Once I bought my first PC in 1995 and began creating spreadsheets to aid in my tax return preparation, it became easier to do them. With those spreadsheets came the ability to do what-if scenarios and predict how my taxes due would change based on income changes such as large cap gain distributions or ACA premium subsidy changes.

My ladyfriend's tax returns have become easier since 2013 because she no longer itemizes her deductions. I can do her returns in 10 minutes although the recent tax law changes added some forms because things previously shown on a single form got split up. My best (the snake-bit one) friend's returns are more complicated, since 2012, when an inheritance added a lot of investment income to his portfolio. We have since simplified his portfolio some.

Even without spreadsheets, I remember back in mid-1985 how I was able to figure out, armed with only a calculator and payroll withholding charts, how to increase my W4 withholding exemptions so that I would avoid getting a big refund in early 1986 and get that refund throughout the second half of 1985 in each higher paycheck when I began working at my first full-time job. Not having to file for that large refund meant I could afford to buy my first car in early 1986.

I tried TurboTax a few years ago as a check on my spreadsheets but found it to be totally useless. It gave me totally nonsense numbers so I threw it away and never considered it again. From my admittedly warped perspective, I can't figure out how it actually works correctly for anyone!

I will agree that there are some quirks and flaws in the tax code, and the tinkering over the years has only made things somewhat worse. But some of the tinkering has made things better even if it has become more complicated.
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Old 05-12-2020, 07:29 AM   #29
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Talk about tax code being complex, take a look at the bills that get passed in congress that also drive desired behaviors and results while the drafters do not even realized the overall consequences.
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Old 05-12-2020, 07:35 AM   #30
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For more than 40% of US families that pay no federal income taxes, I think income taxes are not complex and are easy.

For the others, I will just ask: Have you ever read IRS Publication 17? If not, then you don't have a leg to stand on. That means if you are relying on Intuit Turbo Tax to help you, then you have been suckered by a business into treating you like a baby.
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Old 05-12-2020, 07:37 AM   #31
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I LIKE THE FEDERAL TAX SYSTEM. Despite a much higher than average income, there are so many deductions and credits, that I have managed to not pay any federal taxes for most of the past 10 or 15 years.

When I was in the military, as a FL resident, there were no state income taxes either. However, because of where I now live, I have to pay thousands to the commonwealth of Virginia, and many many thousands to the county for property tax.
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Old 05-12-2020, 07:39 AM   #32
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Even without spreadsheets, I remember back in mid-1985 how I was able to figure out, armed with only a calculator and payroll withholding charts, how to increase my W4 withholding exemptions so that I would avoid getting a big refund in early 1986 and get that refund throughout the second half of 1985 in each higher paycheck when I began working at my first full-time job.
I'm not saying certain things can't be done, but that does not make them needlessly complicated. The old way of w4 withholding allowances (equal to exemptions) was CRAZY. "I plan on selling some stock next year, so this year i better tell the IRS that I have less kids for next year."

A colleague of mine as 3 children. To get his yearly taxes about right he had to claim 12 W4 allowances. "Hey IRS, I plan to give some money away that you and the law say is deductible. Therefore, consider me to have 9 more kids than I really do."
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Old 05-12-2020, 07:49 AM   #33
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We were "introduced" to how to file a tax return in a class in highschool. Jr High we were taught how to run a checkbook.
I've done my own taxes every year except one year I pharted with a rental property and the depreciation forms where nuts.

As a lean FIRE, I'm playing with the very bottom rungs of the tax brackets so things are extremely simple... it only gets complex when you're in the upper brackets trying to wiggle through every "loop hole" (they're intentional, so not really loop holes).

While I think the tax code as a whole should be trashed and greatly simplified (if it exists at all... I'm also a closet libertarian... "TAXATION IS THEFT!" my only personal complaint is the lack of certainty in planning for future taxes. Every legislators whim is a stroke of a pen from becoming reality in the next "must pass" bill that floats across their desk.
Its like getting a degree in college... when you start a degree the required course catalog for you is frozen... course requirement changes after that only effect new students. Same should apply for tax code changes.
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Old 05-12-2020, 07:50 AM   #34
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I'm not saying certain things can't be done, but that does not make them needlessly complicated. The old way of w4 withholding allowances (equal to exemptions) was CRAZY. "I plan on selling some stock next year, so this year i better tell the IRS that I have less kids for next year."

A colleague of mine as 3 children. To get his yearly taxes about right he had to claim 12 W4 allowances. "Hey IRS, I plan to give some money away that you and the law say is deductible. Therefore, consider me to have 9 more kids than I really do."
Last time I did a W4, admittedly a long time ago, I could put down the correct marital status and # of kids, and add an extra withholding amount in $ for the extra income. Or one could make quarterly estimated tax payments for online very easily. This seems like a case where you are the one making things needlessly complicated.
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Old 05-12-2020, 07:52 AM   #35
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Last time I did a W4, admittedly a long time ago, I could put down the correct marital status and # of kids, and add an extra withholding amount in $ for the extra income. Or one could make quarterly estimated tax payments for online very easily. This seems like a case where you are the one making things needlessly complicated.
The only way to do that was to then tell the IRS that you had no kids (no allowances) and then withhold extra. Of course, when tax time rolled around you would still claim exemptions.
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Old 05-12-2020, 08:00 AM   #36
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I'm not saying certain things can't be done, but that does not make them needlessly complicated. The old way of w4 withholding allowances (equal to exemptions) was CRAZY. "I plan on selling some stock next year, so this year i better tell the IRS that I have less kids for next year."

A colleague of mine as 3 children. To get his yearly taxes about right he had to claim 12 W4 allowances. "Hey IRS, I plan to give some money away that you and the law say is deductible. Therefore, consider me to have 9 more kids than I really do."
W4 withholding allowances, at least through 2008 when I last had to file that form, were never solely about how many kids you had. It was a means to get the total taxes withheld for the year to be close to what your total tax liability was going to be. When my investment income began to rise in the late 1990s, I reduced by 1 my W4 withholding exemptions to avoid underpayment penalties and to minimize or eliminate 4th quarter estimated tax payments. That's what I learned in 1985 but in the opposite direction - to avoid a big refund and to get that money as I earned it. In 1985, I put a "12" on my W4 because I was entitled to 12 exemptions, not because I had 12 kids. It makes perfect sense to me.
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Old 05-12-2020, 08:20 AM   #37
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It makes perfect sense to me.
Again - I'm not saying the w4 issue could not be worked out. But you think it makes perfect sense that you had to figure out you needed 12 x $4300 (recent value of an allowance/exemption) for a total of $51600? And that you could then calculate that it meant your employer would withhold some progressive amount less equally in your paychecks?

Perfect sense = "Please withhold $573 from my checks"
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Old 05-12-2020, 09:20 AM   #38
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Again - I'm not saying the w4 issue could not be worked out. But you think it makes perfect sense that you had to figure out you needed 12 x $4300 (recent value of an allowance/exemption) for a total of $51600? And that you could then calculate that it meant your employer would withhold some progressive amount less equally in your paychecks?

Perfect sense = "Please withhold $573 from my checks"
You would need to have every payroll system in the country be changed to handle a feature most of us would rarely, if ever use. Most people are not going to be able to determine how much they need to reduce their annual income (AGI) in order to make their taxable income come out right. W4 exemptions are a simple currency to get there. The only time one needs to specify exact dollar amounts to withhold from pay is when putting a zero on the W4 exemptions doesn't withhold enough. Should we really want to offer W4 users a way to have zero taxes withheld via exemptions (i.e. putting a '99' in there, the way some people might have once done) then figuring out 1/26th or 1/12th or 1/24th or 1/52nd of their total estimated tax liability to include in its place? Yes, that would have been helpful to me in 1985 and a very few others over the years, but IMHO it would have been a needlessly confusing to anyone who didn't choose that option, or to anyone who chose it but calculated incorrectly. W4 exemptions are a simple currency to get there.
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Old 05-12-2020, 09:26 AM   #39
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I share clobber's desire for a way to indicate a specific dollar amount to be withheld, but that is mainly because at the beginning of the year I can figure what my taxes will be at the end, to within a few hundred dollars. But I realize I am unusual in that regard. The W-4 is designed for the vast majority of people who either cannot or will not make that calculation. It also ensures that people don't take all of the money now, spend it and leave nothing to pay the taxes when due next April. You know many people would do that if they could.
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Old 05-12-2020, 11:56 AM   #40
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OP here.

I think that this is exactly my point. I'm not even griping about "new" things that I did not know about. I have my own spreadsheets, I have 3rd party spreadsheets, I have Turbo Tax, and I'm fairly literate in the complexity of taxes. I knew that I would be paying my tax bracket rate on short-term gains and 15% on long-term gains etc. But for example, the NIIT caught me completely off guard. Maybe I've never even heard of it. If I had heard of it, I glossed over it because it never applied.

There is no defense of AMT, no matter how old it is.

Ohh - I dont think any one as commented on the use of AGI as a metric. I still don't understand why a person might be ineligible for a Roth, like @FDC319, just because they decided to sell some stocks. Or similar, If I decide to contribute to a tIra, I might be eligible to get the AOTC. But if I choose a Roth, I'm not. That should not matter.

I realize I'm asking for logic when there isnt any.
Ah, well, I see your point. I defend against the NIIT-style of surprise mostly by generally reading articles about tax topics, so even though the NIIT doesn't and hasn't yet applied to me, I know roughly where it starts coming into play. But for people who don't want to or don't like to or just were unlucky enough not to read the articles about NIIT, I think that's a valid criticism - the tax system has gotten so complex that it's quite unreasonable for people to try to read the whole thing every year and apply it to their situation.

The other defense I utilize against NIIT is that I complete my taxes based on what I know about my own financial situation and all the tax laws I happen to know. I try to read the "what's changed in taxes this year" articles and at the beginning of the IRS instructions and see if any of it applies. Beyond that, I don't go reading through everything every year looking for NIIT chestnuts that might bite me. If something falls through the cracks, then I will be reasonable when the IRS comes knocking, pay my additional taxes and interest and penalties, and hope to avoid jail time by demonstrating that I was reasonably diligent and honest.

I don't care too much about AMT, but the argument for it was that high income people with lots of deductions should still pay some tax. (Aside, I wonder how Amazon avoids AMT. It is popularly claimed that they make a lot of money and still pay $0 in federal income taxes. Not sure if it's true, but if it is, it doesn't exactly square with the argument for AMT.)

In general, although I don't think it's explicitly stated, the reason for most AGI-related phaseouts are that it is popular for Congress to social engineer in favor of the low income and in disfavor of the higher income. Take, for example, the coronavirus stimulus payment. It has an AGI phaseout of 5% starting at $75K individual and IIRC $150K MFJ. The stated or implied reason is that lower income people need the money more. Also, the lower income people will spend more of it, and since it's purpose is to stimulate the economy, it's more effective.

I don't really have any problem with any of this. I've arranged my financial life - and happen to have low interest in spending money - so that I am able to have a low AGI, very low taxes, and generally be quite content.

I do think that Congress has gone a little too far in the sense that they have made so many things phase out, so that the progressiveness of the tax code is too extreme for middle income earners. I've commented before that for every dollar I add to my AGI, it has many different marginal rates applied simultaneously:

1. Federal income tax
2. State income tax
3. ACA subsidy phaseout, which acts like a tax (about 15%)
4. FAFSA EFC increase, which acts like a tax (about 5%)
5. Coronavirus stimulus phaseout, which acts like a tax (5%)

In addition to these four, I also have AOTC, retirement savings tax credit, and possibly others I haven't thought of.

The fact that the phaseouts are all at various AGI levels just makes the planning that much more fun. And by fun I mean difficult.

I'll reiterate the original point along with another poster from earlier: Because the tax system is so complex, there are opportunities for the diligent to save money. It would be better if this weren't the case, but it is, so we might as well take advantage as best we can.
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