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Old 07-23-2020, 09:14 AM   #41
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I wonder if you might be in that inbetween where $100 of additional ordinary income is being taxed at 12% and ends up pushing $100 of LTCG/qualified dividends from 0% to 15%... so $27 increase in tax that somehow gets rounded down to $25.

So for example, if your income was $80k before any adjustments and your ordinary income was in the 12% bracket but not near the top of the 12% bracket... if you add $100 of tIRA withdrawals that is taxed at 12% and pushed $100 from the 0% preferenced income bracket to the 15% preferenced income bracket.

Or maybe the reported tax bracket is just wrong.

I think you might have it! If I add $100 to LTCGs, my tax goes up $10, if I add $100 to tIRA distributions it adds $25. Maybe that's 10% LTCGs and 15% tIRA distributions, but still not 12%.
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Old 07-23-2020, 09:28 AM   #42
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What is the taxable income and qualified dividends/LTCG before you add the $100?
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Old 07-23-2020, 11:04 AM   #43
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Isn't the reported tax bracket based on taxable income?.......so if LTCG is moved into 22% bracket (where CG taxed at 15%), the reported tax bracket would normally be called 22% .
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Old 07-23-2020, 11:06 AM   #44
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What is the taxable income and qualified dividends/LTCG before you add the $100?

Here is the data.
MFJ, $6500 Qualified divi's, $70,000 LTCGs, tIRA dist, $37,700, HSA contribution $8,100, one person 65yrs old.($26,100 standard deduction)
To your question, not sure which line, Taxable income is $80,000, AGI is $106,100, Income $114,200.


P.S.

The Qualified Divi's may have some unqualified in them. I don't know yet, adjustments may be made!
Mostly VTSAX or VTI.
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Old 07-23-2020, 11:32 AM   #45
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Here is what is happening.

Of the $80,000 of taxable income, $76,500 ($70,000 LTCG + $6,500 qualified dividends) is qualified income and $3,500 ($37,700 tIRA distb - $8,100 HSA contribution - $26,100 standard deduction) is ordinary income and in the 10% tax bracket.

Add $100 of ordinary income and the increase in ordinary income is taxed at 10% and it bumps $100 of preferenced income from the 0% bracket to the 15% bracket.... so the total tax increases by $25 or 25% of the incremental income.
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Old 07-23-2020, 12:13 PM   #46
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A different form of tax torpedo. But isn’t it hard to coordinate LTCGs and qualified divs to an exact amount in advance?
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Old 07-23-2020, 01:10 PM   #47
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OK,I thought I had a good plan, but your questions pushed me to look further.
Previously, I had $340 tax when I took $71,100 of LTCGs and $6500 divi's , $37,600 tIRA and $8100 HSA.

Now if I push my tIRA withdrawal up to $72,700 and my LTCGs/Divi's down to $35,000, I pay $4,228 in tax, but if I Roth Convert the $72,700, I did it at 12%. I do want to maximize my Roth Conversions at 12%.
Again adding $100, bumps me to a higher bracket.

A problem? I have about $15k of divi's so far, as income this year, and I only paid $1000 in quarterlies, thinking I was going to pay $340 total tax.
How do I handle that?
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Old 07-23-2020, 01:13 PM   #48
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A different form of tax torpedo. But isn’t it hard to coordinate LTCGs and qualified divs to an exact amount in advance?
It won't be perfect, I'd probably rather pay a little extra tax at 22% than not maximize my Roth Conversion.
I think I can get the LTCGs pretty close, but won't know the exact Divi's until it's to late.
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Old 07-23-2020, 03:48 PM   #49
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I think you might have it! If I add $100 to LTCGs, my tax goes up $10, if I add $100 to tIRA distributions it adds $25. Maybe that's 10% LTCGs and 15% tIRA distributions, but still not 12%.
perhaps you might have switched things around? If I add 100 to CG, tax goes up 15; if I instead add 100 to TIRA dist, tax goes up 25 as explained by pb4uski.
The 12% bracket is because your taxable income w/ the 100 extra income is 80100......which is within the 12% bracket w/ upper limit of 80250. The behavior is a bit weird because the 0% bracket for CG ends at 80000.

You can find the bracket limits in the linked calculator below the main calculation........the ordinary income brackets first, then the CG brackets down below.
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Old 07-23-2020, 04:24 PM   #50
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Question about the dinkytown calculator. https://www.dinkytown.net/java/1040-tax-calculator.html

I put in all my numbers, LTCGs, Divi's, HSA contribution and tIRA withdrawals. If I add $100 more to tIRA withdrawals, I get $25 more tax, but, just above the bar chart there is a paragraph that ends with, "This puts you in the 12% tax bracket." We know $25 tax on $100 is 25%. So, am I missing something or is their calculator just not reporting what I expect?
If you want to see a chart of marginal rates for your specific situation, the case study spreadsheet in Excel is reasonably easy to use.
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Old 07-23-2020, 08:23 PM   #51
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OK,I thought I had a good plan, but your questions pushed me to look further.
Previously, I had $340 tax when I took $71,100 of LTCGs and $6500 divi's , $37,600 tIRA and $8100 HSA.

Now if I push my tIRA withdrawal up to $72,700 and my LTCGs/Divi's down to $35,000, I pay $4,228 in tax, but if I Roth Convert the $72,700, I did it at 12%. I do want to maximize my Roth Conversions at 12%.
Again adding $100, bumps me to a higher bracket.

A problem? I have about $15k of divi's so far, as income this year, and I only paid $1000 in quarterlies, thinking I was going to pay $340 total tax.
How do I handle that?
If you want to maximize Roth conversions, then I would work backwards:

Top of 0% tax bracket for preferenced income........ $80,000
Standard deduction......................................... .......26,100
HSA contribution...................................... ................8,100
Total income............................................ ............114,200

Dividends received ($15k for 1/2 year so double?).....-30,000
Roth conversion........................................ ..............84,200

Your tax would be $5,608.... 6.7% of the Roth conversion... pretty good IMO.

Or another way on your Roth conversion.... $34,200@ 0%* + $19,750 @ 10% and $30,250 @ 12%

*covered by standard deduction and HSA contribution
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Old 07-24-2020, 12:11 AM   #52
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A problem? I have about $15k of divi's so far, as income this year, and I only paid $1000 in quarterlies, thinking I was going to pay $340 total tax.
How do I handle that?
If you haven't done any Roth conversions yet, then you haven't incurred the corresponding tax liability. You may send in a quarterly estimate that matches the tax liability once you incur it.

Might require filing Schedule AI of form 2210 next year, but there will be no penalty.
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Old 07-24-2020, 05:35 AM   #53
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If you want to see a chart of marginal rates for your specific situation, the case study spreadsheet in Excel is reasonably easy to use.
Yes, I used the CCS before I used the Dinkytown calculator. On my original income proposal, the two were $3 different.
Thanks for the input on my thought about a possible under payment.
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Old 07-24-2020, 08:36 AM   #54
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If you want to maximize Roth conversions, then I would work backwards:

Top of 0% tax bracket for preferenced income........ $80,000
Standard deduction......................................... .......26,100
HSA contribution...................................... ................8,100
Total income............................................ ............114,200

Dividends received ($15k for 1/2 year so double?).....-30,000
Roth conversion........................................ ..............84,200

Your tax would be $5,608.... 6.7% of the Roth conversion... pretty good IMO.

Or another way on your Roth conversion.... $34,200@ 0%* + $19,750 @ 10% and $30,250 @ 12%

*covered by standard deduction and HSA contribution

That scenario doesn't work for me, I need some spendable income. Also, I mislead with my Dividends. At the end of the 2nd quarter, I have received $5k in Divi's and $14k of LTCGs. So, by year end I expect $10k of Divi's, and I have already generated $14k of LTCGs.
So, a fresh start.
I have an $11k LT loss.
$10k Divi's, $39k LTCGs, ($50k* - $11k = $39k), $65,200 tIRA distributions, $8.1k HSA, MFJ, one over 65.
With those numbers I generate $3,328 of Tax, and any addition $100 is taxed at more than 12%.
Are there any apparent errors using this scenario.



* I would sell $66.7K of VTSAX to realize $36k of LTCGs, add the $14k of LTCGs I have already realized and I get $50k. Now subtract the $11k loss and I get $39k for LTCGs.
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Old 07-24-2020, 09:29 AM   #55
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With those numbers I generate $3,328 of Tax, and any addition $100 is taxed at more than 12%.
Are there any apparent errors using this scenario.
If that is what the case study spreadsheet shows then based on everything I've seen it is correct.
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Old 07-24-2020, 10:06 AM   #56
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If that is what the case study spreadsheet shows then based on everything I've seen it is correct.
I used Dinkytown for my data, but they should agree with CSS. and from your input, looks like the do!
Thanks
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