Lets talk tax torpedos: Pension, QBI, RMD and SS

[kgtest]

Trying to figure out a tax problem...or better yet the optimal way to fund RMD.

Let's say a person has the following in terms of income come RMD time this year at 72/RMD date:

$20k Pension (income tax rate)
$30k QBI (income tax rate)
$50k RMD where 30K comes from Qualified Dividends, 20k from selling stock shares...
$50k SS ($33.335 + $16.665)

Total income = 150k

I am trying to check my math on this but I believe we need to make some assumptions:

1. Capital Gains Tax Threshold is $83,350 MFJ for 0% & anything greater is 15% rate
2. Up to 85% of a taxpayer's benefits may be taxable if they are: MFJ with more than $44,000 income.
3. Its currently a bear market and we want to "avoid selling low"
4. the 20k stock shares gets transferred "in-kind"

What is the tax liability for this 72 yr old?

20k pension income taxed at 12% - 20(.12)= 2.4
30k QBI taxed at 12% - 30(.12)= 3.6
30k RMD from Divvies taxed at 0% - 0
20k RMD from stock sales - 30(.12)= 3.6
50k SS - 50(.85)*0.12= 5.1



TOTAL TAX = 2.4+3.6+0+3.6+5.1 == $14,700 federal income tax

Am I missing anything? and am I using the right bracket at 12% err would this really be the 22% bracket (re the TAX TORPEDO)??

83,500( .12) + (120-83.5).22 = 10.02 + 8.03 == $18,500 ??

 

[SevenUp]

A Required Minimum Distribution (RMD) from an IRA or 401k will be treated as ordinary income, regardless of how it was held in the IRA or 401k.

 

[kgtest]

There is no way the above solution could be correct. I think I am missing something with that 1st assumption...

1. Capital Gains Tax Threshold is $83,350 MFJ for 0% & anything greater is 15% rate But my head is spinning trying to figure out my errors.

 

[kgtest]

A Required Minimum Distribution (RMD) from an IRA or 401k will be treated as ordinary income, regardless of how it was held in the IRA or 401k.

Aha! That changes EVERYTHING! Taxman wants his taxes!

 

[kgtest]

Based on SevenUp's response my math must have to be :

83,500( .12) + (150-83.5).22 = 14.63 + 10.02 == $24,650 ??

 

[SevenUp]

Assuming the $30K is net Schedule C income, the case study spreadsheet suggest the following:

AGI           $140,381        
Std. Deduct.  $ 27,800        
QBI ded.      $  5,576        
Taxable       $107,005        
1040 Tax      $ 15,038

You could download that tool for your own what if?s.

 

[RunningBum]

I'd run it through a tax calculator or get your 2021 tax program soon and run it through there, rather than trying to piece it together like this. You're missing the small 10% bracket you go through before you hit 12% for one thing. It doesn't look like you're using the standard deduction for another.

 

[USGrant1962]

QBI is a 20% deduction, so in the 12% bracket your effective tax on the QBI income is 80%x12%=9.6%. That assumes it is not self-employment income. If it is you have another 15.4% self employment tax, but get to deduct a portion of that.

Aside from the QBI, I don't see the standard deduction or the 10% bracket accounted for in your math. The later won't make much difference - it is only 2% delta on the first ~$10K.

You should probably enter your numbers in an online tax estimator like https://www.irscalculators.com/tax-calculator or https://turbotax.intuit.com/tax-tools/calculators/taxcaster

 

[VanWinkle]

I ran the numbers here, not knowing if the Business income is subject to SS and Medicare taxes and assuming MFJ under age 65.




https://www.mortgagecalculator.org/calcs/1040-calculator.php

 

[kgtest]

I'd run it through a tax calculator or get your 2021 tax program soon and run it through there, rather than trying to piece it together like this. You're missing the small 10% bracket you go through before you hit 12% for one thing. It doesn't look like you're using the standard deduction for another.

Good call! just got my copy ot TT Premier so I should be able to run it through the gambit Totally forgot about that sliver of 10% bracketed income lol. It was late when I posted this, but more a ponder for a future scenario my DF will be running into.

 

[kgtest]

I ran the numbers here, not knowing if the Business income is subject to SS and Medicare taxes and assuming MFJ under age 65.




https://www.mortgagecalculator.org/calcs/1040-calculator.php

Super helpful tool! Thanks VW!

 

[TheWizard]

I ran the numbers here, not knowing if the Business income is subject to SS and Medicare taxes and assuming MFJ under age 65.




https://www.mortgagecalculator.org/calcs/1040-calculator.php

Earned income is subject to SS and Medicare taxes regardless of your age and status receiving those benefits...

 

[pb4uski]

QBI is a 20% deduction, so in the 12% bracket your effective tax on the QBI income is 80%x12%=9.6%. That assumes it is not self-employment income. If it is you have another 15.4% self employment tax, but get to deduct a portion of that.

Aside from the QBI, I don't see the standard deduction or the 10% bracket accounted for in your math. The later won't make much difference - it is only 2% delta on the first ~$10K.

You should probably enter your numbers in an online tax estimator like https://www.irscalculators.com/tax-calculator or https://turbotax.intuit.com/tax-tools/calculators/taxcaster

I get $15,411 using the first calculator above based on MFJ both over 65, $94k of unearned income ($20k pension, $30k QBI, -$6k QBI deduction, $50k RMD) and $50k of SS (only 85% is taxable). For some reason the tool only puts in a $27,700 standard deduction and I change it to $27,800.