Tax question

[brewer12345]

Looks like I will be way beyond the point that the phase-out for itemized deductions kicks in in 2007, which has never happened to me before. Two questions:

- Does this apply to mortgage interest on a primary residence?
- Am I allowed to take the full standard deduction of it is larger than my phased-out itemized deductions?

I think my 2007 tax bill will be greater than my gross income in 2004.

 

[Dawg52]

Looks like I will be way beyond the point that the phase-out for itemized deductions kicks in in 2007, which has never happened to me before. Two questions:

- Does this apply to mortgage interest on a primary residence?
- Am I allowed to take the full standard deduction of it is larger than my phased-out itemized deductions?

I think my 2007 tax bill will be greater than my gross income in 2004.

You must be getting one of those multi-million dollar UBS bonuses. Congrats!

 

[LOL!]

brewer was probably still in school in 2004 and had virtually no income. If I paid no taxes, my spouse's entire take-home could be said to go to taxes. I suggested to her once that she change her W4 to have everything withheld. She did not like that idea.

For phase-out, do you mean the 3% reduction at the bottom of Schedule A? That's not a big deal and I cannot imagine that taking the standard deduction instead would help you at all. The 3% reduction applies to the bottom line on Schedule A, so it does apply to mortgage interest.

 

[brewer12345]

brewer was probably still in school in 2004 and had virtually no income. If I paid no taxes, my spouse's entire take-home could be said to go to taxes. I suggested to her once that she change her W4 to have everything withheld. She did not like that idea.

For phase-out, do you mean the 3% reduction at the bottom of Schedule A? That's not a big deal and I cannot imagine that taking the standard deduction instead would help you at all. The 3% reduction applies to the bottom line on Schedule A, so it does apply to mortgage interest.

Heh, no, I wasn't in school in '04 (thank Gawd - finished MBA in 2003).

I don't really have much in itemized deductions - $10k of mortgage interest, $5k in RE taxes. That's about it. As I read it, I will be hit with the maximum phase-out, 80% IIRC, plus no kiddie credit, reduced personal exemptions, etc. The standard deduction is more than 20% of $15k, so I really would love to know if I can just take the standard.

 

[LOL!]

You should have about $10,000 in charitable deductions. Get with the philanthropy program.

 

[brewer12345]

You should have about $10,000 in charitable deductions. Get with the philanthropy program.

OK, so do charitable contributions get hit with the phase out, too? I suspect not.

 

[Martha]

I am feeling lazy today as I OD'd on insurance yesterday, so I won't find a link for you. But home mortage interest, state taxes and misc taxes, and charitable contributions are subject to phase out.

Investment interest isn't.

Yes you can resort to the standard deduction if you aren't forced to itemize for other reasons.

 

[retire@40]

The nice thing about 2006 is that there will be a phase out of the phase out

 

[Martha]

Yeah. Supposed to be a total phase out of the phase out by 2010. Want to lay bets on that happening?

 

[shiny]

Brewer, Yes, you can still take the standard deduction!

 

[Gumby]

Heh, no, I wasn't in school in '04 (thank Gawd - finished MBA in 2003).

I don't really have much in itemized deductions - $10k of mortgage interest, $5k in RE taxes. That's about it. As I read it, I will be hit with the maximum phase-out, 80% IIRC, plus no kiddie credit, reduced personal exemptions, etc. The standard deduction is more than 20% of $15k, so I really would love to know if I can just take the standard.

Don't forget state income tax. It will probably be substantial.

 

[brewer12345]

Don't forget state income tax. It will probably be substantial.

Yeah, forgot about that.

 

[LOL!]

I haven't figured out which "phaseout" you are talking about.
The phaseout reduces our itemized deductions by 3%, not by 20%, not by 80%. I cannot imagine the standard deduction being larger than the itemized deduction even with the phaseout.

http://www.irs.gov/pub/irs-pdf/i1040sa.pdf

 

[brewer12345]

I haven't figured out which "phaseout" you are talking about.
The phaseout reduces our itemized deductions by 3%, not by 20%, not by 80%. I cannot imagine the standard deduction being larger than the itemized deduction even with the phaseout.

http://www.irs.gov/pub/irs-pdf/i1040sa.pdf

AsI understand it, the phase out takes your income over a certain amount times3% and reduces your itemized deductions by that amount, up to 80% of your gross itemized deductions.

 

[bongo2]

Congrats Brewer, that's a nice haul!

The state income tax is key. If your state tax is 8% then the phase-out is only taking back 3%, so you never cap out.

You may have the fun of the AMT as well, unless you have made enough to get through to the other side.

On this topic -- I don't really mind the tax rates, but to tell me that I'm in the 25% bracket, but then put me in a 28% AMT bracket, and oh, by the way it's really 32% because each $1 counts as $1.25 until you've eaten up your exemption, and another 5% for the child tax credit phase out, and I start to get really yanked off. Just call it 37% and be done with it.

 

[mathjak107]

depending how much your income is and if you get hit with the amt, keep in mind once you exhaust the phase out the amt makes no distinction between married and single. its the same rate regardless . since my wife was the one with the large capital gains last year we filed seperatly and it kept my income from being hit with the amt too.

 

[shiny]

I'm guessing with your big state tax bite you'd probably still be better off itemizing.

I agree with Bongo2 - it should be easier just to know what you owe and pay it without all the games.

 

[mathjak107]

once your on the amt itemizing is gone. its phased out 100% after a certain amount of income

 

[donheff]

I haven't figured out which "phaseout" you are talking about.
The phaseout reduces our itemized deductions by 3%, not by 20%, not by 80%. I cannot imagine the standard deduction being larger than the itemized deduction even with the phaseout.

http://www.irs.gov/pub/irs-pdf/i1040sa.pdf

Can anyone explain all of that if, line 6 is bigger than line 7, then multiply time .8; then x .03, then choose the lesser stuff in simple English so someone can understand the basic principle?

 

[mathjak107]

well i was referring to the phase out on the amt. if your subject to the amt tax your on an alternate tax system which gives you a standard 58,000 or so in deductions. that starts to get phased out little by little starting at 160,000 or so until about 221, 000.00 or so when the entire 58,000 in deductions is gone and you get nothing.

it hit us because we sold property last year for a big capital gain and it will hit us again this year because of the whopping amount of state and local taxes we paid on the gains as well as some uncovered dental implants i had done this year. it added about 12,000 dollars to whatever our real tax bill would have been for this year..

 

[mathjak107]

the way it normally works is everyone must check their taxes 2 ways. running it first on the conventional tax system and then on the alternate amt system.

which ever system has you paying more thats the one you must figure. so while everyone gets that 58,000 in deductions on the amt assuming income is below 160,000 or so it normally will bring your taxes due down to a very small amount and so you pay based on the regular syatem most of the time which is higher.

 

[donheff]

the way it normally works is everyone must check their taxes 2 ways. running it first on the conventional tax system and then on the alternate amt system.

which ever system has you paying more thats the one you must figure. so while everyone gets that 58,000 in deductions on the amt assuming income is below 160,000 or so it normally will bring your taxes due down to a very small amount and so you pay based on the regular syatem most of the time which is higher.

DW and I don't do our own taxes because she has partnership income in multiple states. I plan to start doing them when she quits in a year or two and have been trying to figure out likely taxes in the changed circumstances of full ER. We will still have substantial income but people have advised me that it won't be worth doing itemized deductions since the AMT will get us - so we can probably forget keeping track of all that and just run the standard deduction and the AMT. If I understood what the basic principles were I could run some simple scenarios to see if what people say makes sense. Without any general guidelines, I guess the best way to figure it out is to buy a program like Turbo tax and run some stuff through it.

 

[bongo2]

Can anyone explain all of that if, line 6 is bigger than line 7, then multiply time .8; then x .03, then choose the lesser stuff in simple English so someone can understand the basic principle?

Cut back your itemized deductions by 3% of your AGI over X, but don't take away more than 80% of them.

 

[saluki9]

Brewer, looks like your question is pretty much answered. If you want me to run any calcs, let me know and I have some tax planning software.

BTW: you think this is bad, just wait until your party is in charge!

 

[brewer12345]

Brewer, looks like your question is pretty much answered. If you want me to run any calcs, let me know and I have some tax planning software.

BTW: you think this is bad, just wait until your party is in charge!

So just so I get it: 3% income above roughly 150k for a married couple uis the amount used to reduce one's itemized deductions, up to 80% of one's itemized deductions. That a cortrect statement?

Unlike many others, I don't get wortked up about paying taxes. I know what the tax rates are and (mostly) how I get taxed, and I cannot change it. Plan accordingly, write the checks, and don't spend a lot of time getting worked up over it. Oh yeah: and be thankful you get the chance to make that much.

BTW, if my withholdings for 2007 will be well in excess of 2006's tax, I don't think I have to pay quarterly, right?