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View Poll Results: What is your effective income tax rate
0-4.99% 19 13.38%
5.0-9.99% 28 19.72%
10.0-14.99% 33 23.24%
15.0-19.99% 25 17.61%
20-24.99% 18 12.68%
25% or more 19 13.38%
Voters: 142. You may not vote on this poll

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Old 01-19-2021, 10:21 AM   #61
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Originally Posted by pb4uski View Post
What tax bracket will you be in once you start SS and have RMDs?
When I called in to SS last year I was shocked how much SS I will get without ever working again. I plan on taking it at 70, that has been my plan for decades. If I took it at age 62 I would be getting about the exact same amount I am currently spending monthly. If I take it at 70(which is what I will do) I will be getting close to 1.5 times the amount I'm currently spending per month. To me I will be living like a king with SS plus whatever else I have my net worth at at that time. I'm not planning on SS being there but if it is, great.

22.5% of my net worth is in tIRA's/t403b's. I'm 17 years from having to take RMDs. I really dont know what my tax bracket will be then but I would imagine it will be the lowest or next to lowest. Who knows if I live to 72. I'm spending like I'll live to 172 but I dont know if I'll live through today. One never knows.
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Old 01-19-2021, 01:07 PM   #62
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You can get a decent idea by putting your age 70 SS and age 72 RMDs (current tax-deferred account value/27.4) in the moneychimp calculator.

Tax Calculator - Estimate Your Income Tax for 2020 and 2021 - Free!

Since SS and tax brackets grow with inflation and tax-deferred money grows as well that is a place to start.... you could also reduce the account value used for RMDs by 17 years of Roth conversions.

But I suspect with only 22.5% of you net worth in tax-deferred that you probably don't have much of a tax torpedo.

ETA: Actually, use this one... I like this one better: https://www.dinkytown.net/java/1040-tax-calculator.html
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Old 01-19-2021, 02:56 PM   #63
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Effective = 21.2%
Marginal = 35%
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Old 01-19-2021, 03:50 PM   #64
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I answered the poll estimating I would be in the 12% tax bracket.

Then I read the question.

After doing the math and using 2019 numbers since I haven't done my 2020 taxes yet I came up with 0.0313768495482519 which I guess works out to about 3.14%.

I'll see what changes for 2020 after I get my taxes done at the accountant.
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Old 01-19-2021, 03:57 PM   #65
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I answered the poll estimating I would be in the 12% tax bracket.

Then I read the question.

After doing the math and using 2019 numbers since I haven't done my 2020 taxes yet I came up with 0.0313768495482519 which I guess works out to about 3.14%.

I'll see what changes for 2020 after I get my taxes done at the accountant.
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Old 01-19-2021, 05:41 PM   #66
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Who wins on this? Low or high?
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Old 01-19-2021, 05:52 PM   #67
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I think you should order Pi tonight.
I don't know how to order Pi. But I did order pizza tonight. Does that count?
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Old 01-19-2021, 06:18 PM   #68
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Maybe zero. Covid killed all the travel plans and most eating out, so we didn't have to withdraw from IRAs. RMDs start this year; my birthday qualified for the delay to age 72 by one day. Covid also clobbered half the income from our office condo, so most income is SS and not taxable due to such low AGI; the standard deduction will cover all of it.
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Old 01-19-2021, 09:10 PM   #69
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Its a little too early to know as the tax forms have not been released yet...

I normally just wait and I'll do several what if tax returns on Turbotax with different reporting methods and I finally figure out which one is the best to file... some times you just don't know how much money you need to hide from one year to the next year... you don't have to report losses in the same year they happen... and you may need a bigger write off in a different year...

I have a feeling i will be living off of after tax dollars in 2021.. so for 2021 at least there won't be any taxes paid
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Old 01-19-2021, 09:18 PM   #70
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I calculate it to be 9.6% for federal but it'll probably be less as I used the standard deduction to estimate it but my itemizations are always a smidgen higher.
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Old 01-19-2021, 09:33 PM   #71
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you don't have to report losses in the same year they happen... and you may need a bigger write off in a different year...
Uh, pretty sure you do have to. At least for Schedule C expenses, rental depreciation, and realize capital losses from investments you do.

Can you provide an example and perhaps a citation from the IRS that says you don't? I can't think of a situation offhand but maybe it does exist.
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Old 01-20-2021, 06:32 AM   #72
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Who wins on this? Low or high?
When it comes to taxes, it should be scored like golf.
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Old 01-21-2021, 11:19 AM   #73
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When it comes to taxes, it should be scored like golf.


Then Iím losing! But Iím still thankful for position Iím in.
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Old 01-27-2021, 08:58 AM   #74
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Income Tax Load: 12% Income Tax/Gross income (Earned plus div and capital gains realized)

Federal Tax Load: 19% Income Tax+OASDI+Medicare/Gross income/Income tax
Total Tax Load (FL): 22% (Income Tax+OASDI+Medicare+Property+Sales Tax)/Gross income (Earned+dividend, interest, and capital gains realized)/Income tax
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Old 01-27-2021, 09:25 AM   #75
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2.4% effective 24% marginal (if I count loss of subsidies as a tax).

Can you give us a clue how you did this? I'm at the top of the 12% bracket and paying almost twice what you are.
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Old 01-27-2021, 09:38 AM   #76
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I'm seeing percentages that I don't understand, as in, a very low effective rate but a high marginal rate.
My understanding of terms.
Effective tax rate- Tax due divided by Gross income, 2020=4.25%

Marginal tax rate- tax on last dollar earned. 2020=12%


2019, I used all LTCGs and paid $0 and 0% tax


2020, I've only entered data in Dinkytown so far. MFJ, I have tax planned up to the top of the 12% Tax Bracket. The approximate numbers are below

Gross is $114,600, I had $28K of LTCGs, $75k of Roth conversions, approx. $7k dividends and interest, $1.5k Short term gain. we put $8,1k into an HSA.
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Old 01-27-2021, 09:46 AM   #77
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So far it looks like I will be at 32% (federal) and 9.3% state for 2020 driven by taxable interest income and trading gains from flipping securities last March. My pension alone puts me in the 22% Federal and 9.3% state brackets.
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Old 01-27-2021, 10:17 AM   #78
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Originally Posted by Time2 View Post
I'm seeing percentages that I don't understand, as in, a very low effective rate but a high marginal rate.
My understanding of terms.
Effective tax rate- Tax due divided by Gross income, 2020=4.25%

Marginal tax rate- tax on last dollar earned. 2020=12%

2019, I used all LTCGs and paid $0 and 0% tax
A progressive tax system will generally result in having a lower effective, or average, tax rate on all dollars earned up to a given point than a marginal rate on the next dollar after the same given point. You probably knew that already.

As for me, between the Standard Deduction and QD/LTCGs, only 28% of my (federal) income is taxable, and at 10%. So, my effective tax rate is 2.8% even though my marginal rate of ordinary income is 10%. And that doesn't include how additional income reduces my ACA premium subsidy, at a rate of about 18%. Taken together, that's a 28% marginal rate, and that doesn't count state taxes which include a 6% rate. So, all 3 items together results in seeing 34% of additional (ordinary) income taken away in taxes and ACA premium subsidies, an overall rate I hadn't seen since my working days.
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Old 01-27-2021, 02:57 PM   #79
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Quote:
Originally Posted by Time2 View Post
I'm seeing percentages that I don't understand, as in, a very low effective rate but a high marginal rate.
My understanding of terms.
Effective tax rate- Tax due divided by Gross income, 2020=4.25%
Marginal tax rate- tax on last dollar earned. 2020=12%
My understanding of the terms matches yours. I am one such person who has a very low effective tax rate but a very high marginal tax rate.

In my situation, this is primarily due to three things: non-refundable tax credits, being on the ACA with two kids in college, and choosing to dial my AGI to the point where my tax obligation exactly soaks up my non-refundable tax credits but no more.

In my case, the non-refundable credits include a $500 credit for other dependents for my DD19, the $1500 non-refundable portion of the AOTC for that same DD19, plus a $93 residential energy credit for some insulation I added last year. Total of $2093 on line 21 of my 1040.

Using tax software, I then dialed up my AGI through Roth conversions until my tax due on line 16 was just above that $2093 number. My line 9 AGI ended up being a five figure amount, and my line 24 tax due ended up being a single digit amount. The ratio of those two, my effective rate, is well under 1%.

If I increased my AGI further beyond that sweet spot, I would face the following tax consequences, all in parallel:

* federal income tax of 12%
* Idaho state income tax of 6.925%
* ACA subsidy loss of ~16%
* increased FAFSA EFC for DS21 of ~9%
* increased FAFSA EFC for DD19 of ~9%

Add that all up and you get approximately 52.625%. Since I calculate my age 75 tax rate at 36.805%, doing more Roth conversions did not make sense.

Even tax gain harvesting wouldn't make sense. It would not be subject to the 12% federal income tax, but the other taxes above would still occur, so that would be a rate of 40.625%, still more than 36.805%.

As the EFC tax impacts go away in a few years, my calculus will change and I will likely do more Roth conversions, and possibly some tax gain harvesting. I plan to make similar adjustments once the ACA subsidy loss no longer impacts me, which at this point I expect to be age 65.
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Old 01-28-2021, 07:44 AM   #80
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0%. I have to keep our AGI low to get the ACA subsidy. This will change when I start receiving social security.
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