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Old 12-16-2019, 01:31 PM   #41
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OP, thanks for putting this list together. I spent an insane number of hours this week trying to "thread the needle" for a Roth conversion before the EOY.

In the process, I ran across another phase out: For those with kiddos in college that have exhausted the 4 years of the AOTC, there's the Lifetime Learning Tax Credit (LLTC) that phases out for taxpayers with income between $58,000 and $68,000 (single) or $116,000 and $136,000 (MFJ). The income limits are adjusted annually for inflation.

The LLTC is 20% of qualified expenses up to a max tax credit of $2k per taxpayer or dependent per year.
Yep, we're done with AOP in 2019, but DS has another year so we'll be using the Lifetime Learning Credit for 2020. Not as good as the AOP, but still we'll be letting Uncle Sam pay for another $2,000 of college. Over 5 years of credits we will have made use of $12,000 of credits, plus a decent amount of taxable earnings saved using 529 savings. Thanks, Uncle Sam!
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Old 12-20-2019, 04:31 PM   #42
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I have added the lifetime learning credit, recalculated the social security taxation levels to fix my earlier math error and made a list for single filers. As always, corrections or additions are welcome.
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Old 12-24-2019, 08:21 AM   #43
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This is incredibly helpful, although in our case (both retired but spouse has a hefty pension) our options are somewhat limited. I was hoping to do some IRA to Roth conversions over the next 4-5 years but it looks like we get bit in the ass one way or another between the different threshold types. Worst case is we'll try to stay below the 218K level.

I ran a boatload of simulations (both online and my own spreadsheet) for when to take Social Security and Roth conversions, and in the end it really didn't make a huge amount of difference in end-of-year portfolio value over the long haul (a few percent one way or another). So no point in stressing out in order to squeeze every last dollar, as we have more than enough to have a good life for the next 30-40 years.
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The important "trigger" income levels 2020
Old 12-28-2019, 02:49 PM   #44
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The important "trigger" income levels 2020

For those using the Qualified Business Income (QBI) deduction under Section 199A, such as rental property owners operating as a pass-through business, this deduction is limited or phased-out as taxable income exceeds $321,400 MFJ or $160,700 single. https://www.nolo.com/legal-encyclope...deduction.html
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Old 01-06-2020, 07:45 AM   #45
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Thank you Gumby for a very informative and useful post, I agree this info should be a sticky. This continues to be a fantastic website with information that has been very helpful to me in my journey from early semi to full retirement.
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Old 01-06-2020, 09:44 AM   #46
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Gumby deserves our praise for putting this information together. It's another example of the useful information one can acquire by being part of this illustrious group.
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Old 01-06-2020, 12:03 PM   #47
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Another thumbs up to Gumby for putting this together, good idea and a useful resource.

After looking at the numbers for SS, I found myself saying huh? I was surprised at how high the income values for full SS taxation are. I'd always figured if you have $44K of non SS income for MFJ it would all be taxable at 85%. Key point on the form is "up to 85%". As a result of seeing Gumby's numbers, and since I'm entering the timeframe where we have one small SS check and some years before RMD where I'm planning on Roth conversions, I looked into the calculations in more detail.

As others have said, it's difficult to look at the form and understand it. I know I couldn't. Since these calculations include how much SS you get, which is different for everyone, it's also tough to simplify it down to some numbers in a chart.

I've looked around the forum and haven't found a thread on the subject. I'm wondering if there's one out there and I can't find it. Not sure if this thread is the right place to have a discussion, or perhaps start one elsewhere. After spending some time wrapping my mind around how it affects our situation I feel comfortable with how it works, and suffice it to say the reality is different than I expected before this exercise based on my reading of the form without comprehending the underlying equations.

I'm wondering if others would find this useful? Or if it's just too individual to get something that explains it?
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Old 01-06-2020, 02:23 PM   #48
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Another thumbs up to Gumby for putting this together, good idea and a useful resource.

After looking at the numbers for SS, I found myself saying huh? I was surprised at how high the income values for full SS taxation are. I'd always figured if you have $44K of non SS income for MFJ it would all be taxable at 85%. Key point on the form is "up to 85%". As a result of seeing Gumby's numbers, and since I'm entering the timeframe where we have one small SS check and some years before RMD where I'm planning on Roth conversions, I looked into the calculations in more detail.

As others have said, it's difficult to look at the form and understand it. I know I couldn't. Since these calculations include how much SS you get, which is different for everyone, it's also tough to simplify it down to some numbers in a chart.

I've looked around the forum and haven't found a thread on the subject. I'm wondering if there's one out there and I can't find it. Not sure if this thread is the right place to have a discussion, or perhaps start one elsewhere. After spending some time wrapping my mind around how it affects our situation I feel comfortable with how it works, and suffice it to say the reality is different than I expected before this exercise based on my reading of the form without comprehending the underlying equations.

I'm wondering if others would find this useful? Or if it's just too individual to get something that explains it?
This thread http://www.early-retirement.org/foru...ts-101263.html should be a good place to continue the discussion. You'll find there a link to the IRS worksheet and a link to a third party calculator suggested by pb4uski.

Edit to add: When I calculated the income levels in post 1, I did it by reverse engineering the IRS form, using a married couple with $2k per month each in social security. Then I calculated straight from the top to check my work. The total income levels for 50% and 85% taxation naturally change as you change the amount of the social security payments.
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Old 01-06-2020, 02:43 PM   #49
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Very informative. Thanks Gumby. It's kinda like the cheat codes for the video game...(or probably more like the instructions that nobody reads)
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Old 01-06-2020, 02:53 PM   #50
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Thank you! This is a very helpful format
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Old 01-06-2020, 04:40 PM   #51
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Edit to add: When I calculated the income levels in post 1, I did it by reverse engineering the IRS form, using a married couple with $2k per month each in social security. Then I calculated straight from the top to check my work. The total income levels for 50% and 85% taxation naturally change as you change the amount of the social security payments.
For what it's worth, here is how I calculated the total income level at which you will hit taxation of 85% of your social security.

This calculation requires that you use the IRS worksheet found here. https://www.irs.gov/pub/irs-pdf/p915.pdf#page=16 This calculation is for Married Filing Jointly. The principles work the same for Single although the precise numbers are different, as shown in the form.

Line 1 of the sheet is known. It is your total social security for the year. What we are going to do is work backward from Line 19 to calculate Line 3 and then add it to Line 1. So let’s get started:

1. Put your total Social Security payment for the year (monthly x 12) in Line 1 and put of that number in Line 2.

2. Put $32,000 in Line 9 and $12,000 in Line 11. Note that, together, these constitute the maximum $44,000 exclusion from the beginning of the 85% taxation.

3. Now look at Line 19, which tells you how much of your SS is taxable. Note that it is the lesser of Line 18 or Line 17.

4. Look at line 18. Note that it is 85% of Line 1, because by law that is the maximum amount of your social security that can be taxable. So we put 85% of Line 1 here.

5. We are looking for the case where Line 17 - the calculated amount -- is exactly equal to Line 18 – the legal maximum. Because if Line 17 is less than Line 18, then the percentage taxable is less than 85%, and if Line 17 is greater, the calculated amount would be greater than 85% and Line 18 would control to keep it at 85%. So, we put the amount of Line 18 (85% of Line 1) also in Line 17.

6. Since we are assuming that your income is over the $44,000 exclusion amount, we can assume that Line 10 will always be larger than Line 11 (which is $12,000, as noted above). Accordingly, in Line 13 (the smaller of Line 10 or 11) we will also put $12,000. Line 14 is 50% of line 13, so we put in $6000.

7. Then we put in Line 15 either $6000 or of your social security (smaller of Line 14 or line 2)

8. Now, as the form shows, Line 17 equals Line 15 plus Line 16. But we have previously determined that we want to make Line 17 = Line 18 = 85% of Line 1. So, we can calculate Line 16 by subtracting Line 15 from Line 17.

9. Note the Line 16 is 85% of Line 12, so we divide Line 16 by 0.85 to get Line 12.

10. Then we add Line 11 ($12,000) and Line 12 to get Line 10. We then add Line 10 and Line 9 ($32,000) to get Line 8. This is our total provisional income that results in taxation of 85% of social security.

11. Assume there are no adjustments in Line 7, then Line 6 = Line 8. It comprises of your social security (Line 2) plus your other income for the year (Line 3 = total roth conversion income, dividends, etc.) (Assuming that there are zero adjustments in both lines 4 and 5). So we subtract Line 2 from Line 6 and that tells us how much income other than social security you can make.

12. So, for your total income, including 100% of social security, add Line 3 to Line 1. If you make more than this amount, 85% of your social security is taxable.

AND HERE IS THE SHORTCUT: Yearly social security = SS; Other Income = OI; Total Income = TI

TI = OI +SS

FOR SS > $12,000 per year

OI = ((.85 x SS) – 6000))/.85) + 44000 - (.5 x SS)
TI = ((.85 x SS) – 6000))/.85) + 44000 - (.5 x SS) + SS
= .85SS/.85 – 6000/.85 + 44000 +.5SS
= SS – 7059 + 44000 + .5SS
TI = 1.5 SS + 36941

FOR SS < $12,000 per year

OI = (((.85 x SS) – (.5 x SS))/.85) + 44,000 – (.5 x SS)
TI = (((.85 x SS) – (.5 x SS))/.85) + 44,000 – (.5 x SS) + SS
= .35SS/.85 + 44000 + .5 SS
= .4118 SS + 44000 + .5 S
TI = .9118 SS + 44000
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Old 01-06-2020, 08:44 PM   #52
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That's an awesome list of trigger levels. Thank you!

Since you have the other main education credits, you might also want to include the tuition and fee deduction that was recently approved (tax extender). The deduction is capped at $4,000 for individuals with adjusted
 gross income(AGI) up to $65,000 ($130,000 for joint filers) and $2,000 for individuals with AGI up to $80,000 ($160,000 for joint filers).

Also, here's another decent source of info:
https://www.fool.com/taxes/2020/01/0...ing-guide.aspx
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Old 01-06-2020, 09:01 PM   #53
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Originally Posted by Gumby View Post
This thread http://www.early-retirement.org/foru...ts-101263.html should be a good place to continue the discussion. You'll find there a link to the IRS worksheet and a link to a third party calculator suggested by pb4uski.

Edit to add: When I calculated the income levels in post 1, I did it by reverse engineering the IRS form, using a married couple with $2k per month each in social security. Then I calculated straight from the top to check my work. The total income levels for 50% and 85% taxation naturally change as you change the amount of the social security payments.
Besides the excellent further explanation in post #51 by Gumby, the SS worksheet can be mimicked in Excel fairly easily if one uses simple @IF formulas for some of the various lines.
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Old 01-07-2020, 07:11 AM   #54
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Agree w/ the others that Gumby has done a great service and that this should be a sticky. Minor issue: suggest that the * in the table either be footnoted or
placed as a note at top of table (or both). I eventually found it noted in the pre-table discussion but even tho I was looking for it , it took a while . Make it idiot-proof............lots of us around.

Perhaps also make it clear that AGI is often MAGI and that there are different definitions of MAGI for different purposed. Maybe clarify that some limits are indexed and others are not.
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Old 01-07-2020, 07:30 AM   #55
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Hi Audrey, Is the NIIT imposed on capital gains? Thank you.
yes but on other investment income also: most notably taxable interest and dividends (not just QDIV).
The calculation is a 2 part one and you take the minimum of the 2 calculations.
e.g. if you have a lot of net investment income but your AGI (MFJ) is < 250K,
you pay nothing. As the AGI increases, just the amount that is above 250K is taxed, until the alternate calculation is lower.

https://www.irs.gov/newsroom/questio...ent-income-tax

"8. What is included in Net Investment Income?
In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469). To calculate your Net Investment Income, your investment income is reduced by certain expenses properly allocable to the income (see #13 below)."
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Old 01-07-2020, 07:43 AM   #56
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That's an awesome list of trigger levels. Thank you!

Since you have the other main education credits, you might also want to include the tuition and fee deduction that was recently approved (tax extender). The deduction is capped at $4,000 for individuals with adjusted
 gross income(AGI) up to $65,000 ($130,000 for joint filers) and $2,000 for individuals with AGI up to $80,000 ($160,000 for joint filers).

Also, here's another decent source of info:
https://www.fool.com/taxes/2020/01/0...ing-guide.aspx
Good suggestion. I have put these in.
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Old 01-07-2020, 07:44 AM   #57
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Agree w/ the others that Gumby has done a great service and that this should be a sticky. Minor issue: suggest that the * in the table either be footnoted or
placed as a note at top of table (or both). I eventually found it noted in the pre-table discussion but even tho I was looking for it , it took a while . Make it idiot-proof............lots of us around.

Perhaps also make it clear that AGI is often MAGI and that there are different definitions of MAGI for different purposed. Maybe clarify that some limits are indexed and others are not.
I have integrated your suggestions. Thanks.
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Old 01-20-2020, 09:03 AM   #58
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Great work Gumby
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Old 01-22-2020, 09:19 AM   #59
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Thank you Gumby! Most helpful.
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Old 02-13-2020, 06:35 AM   #60
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Looking at a couple of links for 2020, it appears the Lifetime Learning Credit phaseout has increased to $118,001 - $138,000. Thanks!
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