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taxcaster and dinkytown say I'll pay 0% tax?
05-31-2022, 10:49 PM
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#1
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Confused about dryer sheets
Join Date: May 2022
Posts: 5
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taxcaster and dinkytown say I'll pay 0% tax?
Hi, I'm working on fine tuning my retirement calculations.
The part I'm stuck on is how much tax I'll be paying when I retire early. I entered my data into taxcaster and dinkytown. Intuit Taxcaster says I'll get a refund while dinkytown says I'll owe $0.
Here's what I entered:
* married filing jointly
* 2 kids
* income comes from 3 sources
*** interest: $1,000
*** qualified dividends: $30,000
*** stock sales: $140,000
For stock sale I have no idea how to estimate the cost basis and capital gains. I made a rough guess of 50% would be capital gains and entered that (so I entered $70,000). (I'd love any advice on how to estimate this better.)
This meant my taxable income was around $100,000.
Does a $0 federal tax rate seem reasonable?
Also, any advice on estimating state taxes?
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05-31-2022, 10:58 PM
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#2
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Confused about dryer sheets
Join Date: May 2022
Posts: 5
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Here's a screenshot from taxcaster:
https://imgur.com/hv8wzy6
I'm surprised it says 12% tax bracket for 0% tax rate.
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05-31-2022, 11:17 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,930
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No idea about taxes but I'd love to know how you make $1000 in interest in today's low interest on cash accounts. Just nosy so YMMV.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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05-31-2022, 11:39 PM
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#4
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Confused about dryer sheets
Join Date: May 2022
Posts: 5
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Koolau, thanks for the reply. Here's what I'm estimating my assets will look like when I retire (in today dollars):
* 401k + Roth $963,737
* Brokearage $2,396,982
* Cash $175,742
I calculated the yearly interest income at a 0.6% rate. That's what Ally Bank offers.
My naive goal is to get $30k from dividends and make the remainder from selling stocks in the taxable brokearage account. VTSAX has a 1.21% dividend yield.
(By the way, I paid a financial planner to help me with early retirement planning. Turned out to be a complete waste :-(. The financial planner just used a simple online calculator and didn't even take into account that I'll be decades away from qualifying to take money out of the 401k.)
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06-01-2022, 12:08 AM
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#5
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 869
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Quote:
Originally Posted by leibowitzn
Does a $0 federal tax rate seem reasonable?
Also, any advice on estimating state taxes?
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For 2022, the case study spreadsheet gets $0. For 2021 it gets a $6K refund (given assumed ages for your kids). TaxCaster may still be doing 2021 calculations.
The spreadsheet has some state tax estimation capability. Federal calculations are usually spot on - don't know how good the state calculations are.
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06-01-2022, 12:13 AM
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#6
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Confused about dryer sheets
Join Date: May 2022
Posts: 5
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SevenUp, thanks for the link to the spreadsheet. It's also good to see that such a low tax bracket doesn't immediately raise alarm bells.
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06-01-2022, 12:40 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,930
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Wow, that's too bad about the so-called financial planner. Be sure to give him/her a bad review on Yelp, etc. We need folks in this business specialty that understand the real world of early retirement - not numbers crunchers. So sorry you had a bad experience.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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06-01-2022, 04:30 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: South central PA
Posts: 3,486
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Look at your annual brokerage statements to see what your interest and dividends are, as well as capital gains distributions. Also, what the overall cost basis is of each equity holding.
Schwab gives me the cost basis for each ETF, mutual fund, and individual stock. When I sell any equity, I can chose a particular lot to manipulate the capital gains up or down. That becomes very relevant if your health insurance is through the ACA.
The 0% income tops out at $83,350 for a married couple filing jointly. Add your standard deduction of $25,900 and you can have an capital gains and qualified dividend income of $109,250 before you pay FIT.
But you live in California, per your profile? You will be paying 8% on that income.
Having most of your retirement income in an after-tax account is quite handy. Don’t forget that if you are getting insurance through the ACA, there is a very nasty cliff that returns in 2023. One dollar over the cliff and you could pay nearly $20K more for health insurance.
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06-01-2022, 07:40 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,707
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Quote:
Originally Posted by EastWest Gal
...
The 0% income tops out at $83,350 for a married couple filing jointly. Add your standard deduction of $25,900 and you can have an capital gains and qualified dividend income of $109,250 before you pay FIT.
But you live in California, per your profile? You will be paying 8% on that income...
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That 8% is the marginal rate on only the last few dollars of income. The California state income tax on income of $109,250 for a family of 4 where the parents are under age 65 and taking the standard deduction should be less than $3500, so more like 3.2%. If they can itemize for the state, which many taxpayers in this bracket can, then that rate goes down even further.
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06-01-2022, 09:21 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
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Quote:
Originally Posted by leibowitzn
... Does a $0 federal tax rate seem reasonable?
Also, any advice on estimating state taxes?
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Yes, negligible tax given most of your income is preferenced income (qualified dividends and LTCG) maks sense.
I prefer https://www.irscalculators.com/tax-calculator
It can also estimate state income taxes. See screenshot below.
__________________
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
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06-01-2022, 03:54 PM
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#11
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Confused about dryer sheets
Join Date: May 2022
Posts: 5
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Thanks everyone for their super helpful comments.
The very specific advice here's really great.
Based on the above, I realized I should do a better job calculating my healthcare costs. I didn't know about any cliffs with regard to ACA. Are there any recommended readings on this subject?
(Oh also, we're planning to move from California to North Carolina when we retire)
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06-01-2022, 04:37 PM
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#12
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 869
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Quote:
Originally Posted by leibowitzn
I didn't know about any cliffs with regard to ACA. Are there any recommended readings on this subject?
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Roth Conversion and Capital Gains On ACA Health Insurance is a good article.
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06-01-2022, 05:15 PM
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#13
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Recycles dryer sheets
Join Date: Sep 2006
Location: clearwater
Posts: 439
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Quote:
Originally Posted by leibowitzn
Hi, I'm working on fine tuning my retirement calculations.
The part I'm stuck on is how much tax I'll be paying when I retire early. I entered my data into taxcaster and dinkytown. Intuit Taxcaster says I'll get a refund while dinkytown says I'll owe $0.
Here's what I entered:
* married filing jointly
* 2 kids
* income comes from 3 sources
*** interest: $1,000
*** qualified dividends: $30,000
*** stock sales: $140,000
For stock sale I have no idea how to estimate the cost basis and capital gains. I made a rough guess of 50% would be capital gains and entered that (so I entered $70,000). (I'd love any advice on how to estimate this better.)
This meant my taxable income was around $100,000.
Does a $0 federal tax rate seem reasonable?
Also, any advice on estimating state taxes?
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looks like you are using last years software. Next year the child tax credit is $2000 per child, so if you have 2 children under 16 , $4000 not $6000.
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06-01-2022, 06:15 PM
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#14
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 869
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Quote:
Originally Posted by rothlev
looks like you are using last years software. Next year the child tax credit is $2000 per child, so if you have 2 children under 16 , $4000 not $6000.
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With no earned income, there will be no refundable child tax credit for 2022 (unless Congress once again changes the law...).
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06-01-2022, 07:07 PM
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#15
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Recycles dryer sheets
Join Date: Apr 2021
Posts: 173
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I think you might be able to relate to the blogger called Go Curry Cracker. He talks about how to pay 0 in income taxes while living off of investments and after tax accounts. It's quite simple math.
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06-02-2022, 04:04 AM
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#16
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Recycles dryer sheets
Join Date: Sep 2006
Location: clearwater
Posts: 439
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Quote:
Originally Posted by SevenUp
With no earned income, there will be no refundable child tax credit for 2022 (unless Congress once again changes the law...).
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If he has a tax liability that is wiped by the child tax credit , he will still get it.
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06-02-2022, 04:10 AM
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#17
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Full time employment: Posting here.
Join Date: Nov 2008
Location: Jacksonville
Posts: 637
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Quote:
Originally Posted by leibowitzn
Thanks everyone for their super helpful comments.
The very specific advice here's really great.
Based on the above, I realized I should do a better job calculating my healthcare costs. I didn't know about any cliffs with regard to ACA. Are there any recommended readings on this subject?
(Oh also, we're planning to move from California to North Carolina when we retire)
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Small world.....my BIL made that very same move!
Mike
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06-02-2022, 05:46 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: South central PA
Posts: 3,486
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Quote:
Originally Posted by cathy63
That 8% is the marginal rate on only the last few dollars of income. The California state income tax on income of $109,250 for a family of 4 where the parents are under age 65 and taking the standard deduction should be less than $3500, so more like 3.2%. If they can itemize for the state, which many taxpayers in this bracket can, then that rate goes down even further.
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It’s been 23 years since I was subject to California state income tax. You’re right. I had a moment of sheer dumbness.
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06-02-2022, 06:15 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
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Quote:
Originally Posted by Jenna
I think you might be able to relate to the blogger called Go Curry Cracker. He talks about how to pay 0 in income taxes while living off of investments and after tax accounts. It's quite simple math.
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But keep in mind that $0 income tax might be suboptimal... especially if you are not fully utiizing deductions or even the 10% and 12% tax brackets if you expect to be in the 22% tax bracket later in life... but the opportunities may be limited if ACA is a constraint.
__________________
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
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06-02-2022, 09:38 AM
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#20
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Full time employment: Posting here.
Join Date: Jul 2014
Posts: 869
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Quote:
Originally Posted by SevenUp
With no earned income, there will be no refundable child tax credit for 2022 (unless Congress once again changes the law...).
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Quote:
Originally Posted by rothlev
If he has a tax liability that is wiped by the child tax credit , he will still get it.
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Yes, that would be the non-refundable part of the child tax credit. Based on the OP there will be no tax liability, so no credit.
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