|
Simple 0% Fed income tax question
06-20-2021, 11:28 AM
|
#1
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
Simple 0% Fed income tax question
This has probably been discussed to death here but humor me and answer it one more time (I'm second guessing myself). Numbers are rounded of course.
I will work two months next year then retire. My gross income will be $20K. I'll put $10K in my 401K so that will get me down to $10K. 12% tax bracket ends at $81K. Standard deduction for married is $25K. I have some risky investments that I would like to sell. Does this mean that I could make $96K in profit on those investments and pay 0% Federal tax?
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
06-20-2021, 11:43 AM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
Yes, but with a slight hitch. Those profits on investments have to be long-term capital gains and the top of the 0% tax bracket for qualified dividends and long-term capital gains is $80,800... $250 lower than the $81,050 top of the 12% tax bracket.
So if you are MFJ with a standard deduction of $25,100 and had $10k of ordinary income you could have as much as $95,900 of qualified dividends and long-term capital gains and your tax would be $0.
Seems like cheating, doesn't it?
https://www.putnam.com/literature/pdf/II985.pdf
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
06-20-2021, 12:51 PM
|
#3
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
It is very sad to think that keeping MY MONEY is cheating. But yeah, it feels like it.
Wife and I sat down to discuss this and it will take me YEARS to sell all of this stock to stay at 0%. I guess that is a pretty good 1st world problem to have.
OH, I don't feel like pushing it and will be scared to death to go $27.35 over the limit and have a big tax bill so we will stay well below the $80,800.
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
06-20-2021, 01:23 PM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
|
It’s not a cliff. You’ll just pay the tax on the extra $27.35.
__________________
Retired since summer 1999.
|
|
|
06-20-2021, 03:33 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
Yes, any preferenced income above the $80,800 is only 15%... about $4 on $27... unless you go crazy.
So if you are really concerned about the investment don't let the tax tail wag the investment dog for 15% LTCG tax.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
06-20-2021, 03:42 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
|
Quote:
Originally Posted by rmcelwee
...I have some risky investments that I would like to sell. ...
|
Quote:
Originally Posted by rmcelwee
... it will take me YEARS to sell all of this stock to stay at 0%. ...
|
Just be aware and don't fall into a trap of letting the "tax tail wag the dog". For risky investments, it could make very good sense to go up into the top of the next bracket. That's "only" 12% (or 15%?, I forget for LTCG?) on the portion that is gains - a volatile stock could easily drop far more than that at any time.
edit/add - cross-posted with pb4uski...
-ERD50
|
|
|
06-20-2021, 06:22 PM
|
#7
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
Quote:
Originally Posted by pb4uski
So if you are really concerned about the investment don't let the tax tail wag the investment dog for 15% LTCG tax.
|
So, I do want to get out of the stock BUT I want to get out of it at 0%. I am fully confident that on a long enough timeline it will go up so that fits with my risk tolerance. I have a lot of this stuff so it will take me years to get out of it selling in $100K chunks. I have enough stable value fund in my 401K to make it where I don't have to sell if the market is trashed. Is a 10 year downturn going to hurt me (emotionally). Yes, but I think I can weather the market.
I let the tax wag my AOL stock back in the 90's when Time Warner bought them and they dropped in half. I definitely know what you are talking about.
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
06-20-2021, 06:28 PM
|
#8
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
Quote:
Originally Posted by ERD50
a volatile stock could easily drop far more than that at any time.
-ERD50
|
This stuff dropped 75% in 30 days (Covid March). It is up 700% since then. Roller coaster for sure. I've been buying it and others like it for more than 10 years and I am aware of the risk. I would snap my fingers and swap it all for SPY if I could but it just isn't going to happen overnight. I have other stuff to fall back on if the market gets horrible. I think I can ride it out. Thanks again for the reminder. Gives me some food for thought...
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
06-20-2021, 06:36 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2016
Posts: 8,968
|
It's not a cliff, and how many years (years not YEARS) will it take? Is 15% off the next hundred grand more or less than what you think the swing in price will be?
Do you hate the government?
I wonder a lot about all who run their plan about minimizing taxes instead of maximizing net worth.
|
|
|
06-20-2021, 08:05 PM
|
#10
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
+1 if it were me I just get out of it and pay the 15%. Alternatively, buy some put options to protect yourself.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
06-22-2021, 06:25 AM
|
#11
|
Thinks s/he gets paid by the post
Join Date: Jun 2017
Location: Western NC
Posts: 4,600
|
No long-term losses to offset?
I bought (was sold) some risky investments as well and by the time I unwound them years later I ended up with six figures in LTC losses...
Marry me?
|
|
|
01-13-2022, 10:32 AM
|
#12
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
So, seven months later and I get to wrap up the thread.
TQQQ opened on 6/21/21 after my post @ $112.41
I sold it on 1/3/22 @ market open for $169.64 (my cost basis is $6.03). I sold $85,000 for a profit of $81,966 and will wait until later in the year to sell some more to get towards the upper limit of the 0% tax thing. I will probably use the continued sale of this stock up to the 0% limit as my sole source of income for a few years until it is all gone.
My lower limit for a sale was $154 and would have used my 401K or something else for income if the stock had been below that. It had fallen to $146 on 12/20/21 so I was sweating bullets for a bit. It has done nothing but drop straight down ($144 yesterday) 30 minutes after we sold so at least on the short term we picked the right time to do it. FWIW, it split 2:1 today so if you try to look at a chart for this it is a little confusing.
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
01-13-2022, 12:14 PM
|
#13
|
Dryer sheet aficionado
Join Date: Dec 2021
Posts: 25
|
Your plan sounds very similar to mine. Retire early in 2022 at age 49 and use up the rest of the 0% LTCG to soak up some stock sales. In my case, I’m going to have around $85K after 2022 salary. I plan to use around $65K for a stock sale and the rest for a Roth conversion.
Going forward after 2022, I’ll probably use most of the low tax brackets for Roth conversions rather than the 0% LTCG, but it’s going to be a wait and see game each year.
You still going to retire early in 2022?
|
|
|
01-13-2022, 01:07 PM
|
#14
|
Recycles dryer sheets
Join Date: Sep 2018
Posts: 348
|
Quote:
Originally Posted by Drewjd
You still going to retire early in 2022?
|
Actually, my "last day" was two days ago. I was going to make a post about it but did not get around to it. I will go in to work for 4 hours about a month from now and another 4 hours about 6 weeks from now to tie up some loose ends. The March 3rd in my signature ended up being March 1st with 21 days of vacation starting Jan 11th.
__________________
FIREd @ 55 (March 1st, 2022)
“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness”
- Albert Einstein
|
|
|
01-13-2022, 03:30 PM
|
#15
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,862
|
As I usually say on threads like this, the 0% capital gains tax rate is for federal income tax. The gain still affects AGI and thus anything that is AGI-related, like ACA subsidies, FAFSA EFC, state income taxes, college tax benefits, EIP3, etc.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|