Some stuff about taxes that I don't know

[redduck]

I'm back. And, I have one last (?) question(s).

The facts once again:

Next year I'll be 70 1/2
Single; No mortgage, no dependents
Self-employed

Income:
$ Interest: $1000
Dividends: $8000 qualified; $8000 unqualified
SS Benefits: $26,000
RMD: $$26,000
Net Income from job next year: $0-$35,000. ( I have my choice of working very part-time, or very-very part-time, or not working at all).

If I understand Taxcaster, even if I don't work, I will still be in the 25% tax bracket.

It seems that I can actually earn up to $35,000 from work and still be in the 25% tax bracket. I don't want to earn even close to that amount.

I still don't quite get when I get hurt regarding social security--that is, when I get taxed on 85% of what SS pays to me. And, is it actually a significant amount of dollars?

pb4uski has stated that I will be paying the federal government about 37% of my income in federal taxes. Then, California State taxes get added (thanks for that REWahoo). Guess that puts me at about 40%. And, have we included self-employment taxes yet? (I think we are as per Taxcaster) (I was a bit confused on this).

Anyhow, if anyone can sort of figure out how much total taxes (in terms of actual dollars) I would pay if I had a net income of $20,000 net from work plus the income mentioned above ($69,000, I think) and then again at $35,000 net from work, plus the income mentioned above ($69,000, I think), I sure would appreciate it.
I do have figures from Taxcaster, but I figure the odds are I didn't get it exactly right.

[pb4uski]

Here is what I came up for federal income and self employment taxes using Taxcaster and the data you provided.

No self employment income $8,535
$20k self employment income $15,999 (increase in taxes is 37.32% of $20k)
$35k self employment income $21,605 (increase in taxes is 37.34% of $35k)

Then add another 4.4-6.4% for California, so you're looking at a tax burden (including self employment taxes) in the vicinity of 41-43% on your self employment earnings. I probably wouldn't work knowing that much of what I earn is going to taxes.

[target2019]

One possible gainer in your favor is if you contribute to some type of retirement account. If you have a SEP-IRA, you could achieve a tax credit for some of your self-employment profit. Not familiar with other options, but probably different type of plan would let you put away larger amount.

With Intuit ProSeries I calculate $5,127 Fed inc tax., no self employment.
$20k self emp, $13,806.
$35k self emp, $19,135.

With a SEP contribution of $6505 for the year (based on $35k profit), you would have tax bill of $16,835.

Also, you need to make estimated payments to avoid a penalty.

[pb4uski]

I'm surprised the results differ so much. I wonder why since they are both Intuit products.

[target2019]

Quote:

Originally Posted by pb4uski I'm surprised the results differ so much. I wonder why since they are both Intuit products.

This was 2012 taxes calculated. I used single, 70 years old.

[pb4uski]

Ran same numbers with Taxbrain; 8.711, 15,856 and 21,223 so broadly similar to TaxCaster.

[target2019]

I had used $1,000 less for the RMD and SS for the year. I corrected results in my reply above. The tax is somewhat higher in all cases.

[redduck]

Quote:

Originally Posted by target2019 One possible gainer in your favor is if you contribute to some type of retirement account. If you have a SEP-IRA, you could achieve a tax credit for some of your self-employment profit. Not familiar with other options, but probably different type of plan would let you put away larger amount. With Intuit ProSeries I calculate $5,127 Fed inc tax., no self employment. $20k self emp, $13,806. $35k self emp, $19,135. With a SEP contribution of $6505 for the year (based on $35k profit), you would have tax bill of $16,835. Also, you need to make estimated payments to avoid a penalty.

I do have both a Roth IRA and a SEP-IRA (along with an Traditional IRA).
So, could I continue to put money into both the Roth IRA and the SEP-IRA if I continued to work? (I thought I had to take the RMD out of the SEP-IRA).

[target2019]

Quote:

Originally Posted by redduck I do have both a Roth IRA and a SEP-IRA (along with an Traditional IRA). So, could I continue to put money into both the Roth IRA and the SEP-IRA if I continued to work? (I thought I had to take the RMD out of the SEP-IRA).

The Roth IRA + IRA is 6K max. If you have earned income, then can contribute. I put in 6K for your Roth, and it was not limited.

The SEP-IRA is separate contribution, and is based on your Self Employment profit.

If you are in RMD territory for the IRA, then same goes for the SEP-IRA. But you can still contribute if meeting the requirements.

But all standard disclaimers apply. This is not tax advice.

If you had a copy of Turbotax home and business installed, you'd have better understanding of all this. You could plug in different numbers and decide for yourself if you want to stay in the working game. I admit I can't see myself not staying invloved in some way with self employment. But after starting SS, I will definitely scale back to stay under certain tax limits.

[redduck]

Quote:

Originally Posted by target2019 <snip>... I admit I can't see myself not staying invloved in some way with self employment. But after starting SS, I will definitely scale back to stay under certain tax limits.

Yes, I completely understand this is not tax advice.

Why would you stay in the working game if self-employed?

[target2019]

Quote:

Originally Posted by redduck Why would you stay in the working game if self-employed?

I will try to stay self-employed at a minimal level, say 10-15K per year. I will be able to use this income to pay for a few toys and real estate taxes. Whether the self-employment market wants me will be another story. I have a few skills in demand,.

[pb4uski]

I don't think I would bother with self employment if I had "enough" (eg; 100% success rate with Firecalc) and knowing that such a high portion of my self employment efforts were going to the government. I don't recall what you do redduck but I have a friend who is retired, has more than he needs and just does some work here and there for cheap or free to help people out. He hates paying taxes.

[redduck]

Quote:

Originally Posted by target2019 I will try to stay self-employed at a minimal level, say 10-15K per year. I will be able to use this income to pay for a few toys and real estate taxes. Whether the self-employment market wants me will be another story. I have a few skills in demand,.

Quote:

Originally Posted by pb4uski I don't think I would bother with self employment if I had "enough" (eg; 100% success rate with Firecalc) and knowing that such a high portion of my self employment efforts were going to the government. I don't recall what you do redduck but I have a friend who is retired, has more than he needs and just does some work here and there for cheap or free to help people out. He hates paying taxes.

I like the idea of working two half days a week so I can buy stuff that's a notch better and feel good about it. For example, it's the difference in buying a generic HVAC or getting a Lennox HVAC. Anyhow, I have found over the years I do make mistakes in buying things and working helps alleviate some financial mistakes (big and small). Additionally, I'm not very handy (even though I have three hammers). I pay to get things fixed. Paying for help gives me a sense of freedom, even if I have to work for that freedom. I'm definitely not a DIYer, except when it comes to financial investments (i.e. stocks and mutual funds). Why I think I can do that, I don't know.

I don't hate paying taxes, but perhaps I could learn. I know I won't like paying taxes at high rate. Luckily, my work is often enjoyable and isn't especially stressful. Occasionally I feel I'm overpaid. (I'm not sure that's such a good thing to feel).

As to working next year: I still don't know. For me, it has a bunch of pros and cons (o.k., o.k a few pros and cons). But, now I have helpful information to allow me to make a better informed decision.

What I will hate is, giving up the one big pro: my favorite tax deduction of $8,500--that of my Platinum executive membership to the Early Retirement Board. The Platinum membership apparently comes with a pair of monogrammed pajamas which I have not yet received. Andy, you want to get on that?

[Al in Ohio]

A Lennox is a generic HVAC!

Sub par to a Trane or Carrier unit IMO