What is the Sweet Spot for Taxable Income?

[Fermion]

Quote:

Originally Posted by bingybear if you are in the 15% bracket and you have LTCG, then they would be taxed at 0%

Agree.

I am sick with cold and bored so I will run your scenario on my 2016 tax software, single guy with $18,000 of gains and standard deduction. I don't even think you would owe $5,000 even if it was all short term gains.

[FANOFJESUS]

Quote:

Originally Posted by bingybear if you are in the 15% bracket and you have LTCG, then they would be taxed at 0%

Not the amount of gains that I have. The gains will kick me out if I did them all in one year. I think I will sell over two years.

[Fermion]

I ran the numbers if you generated $18,000 of income as a single adult with no deductions except the standard deduction.

If you had $3000 in interest income, $2000 in qualified dividends, and $13,000 in short term capital gains, you would owe $568 in federal tax and have a MAGI of $18,000 for ACA calculations.

If you just went with all $18,000 as short term capital gains you would owe $668 and have a MAGI of $18,000 for ACA calculations.

There is no way to get to owing $5k in federal tax unless you just write them an extra check for the fun of it.

[Sue J]

Quote:

Originally Posted by Curmudgeon By the way, I put together a spreadsheet so that I could calculate what the marginal loss rate was as a result of losing premium credit as income went up. I was surprised to find it was 17%! That is, for every extra dollar in income I claim, I lose 17 cents of it from my premium credit. This will differ, depending on what your income is and what the LCSP is in your locale, but I was surprised that it was so much higher than the 9.69% cap on premium expenses that is baked into ACA.

Yep, it's around 16-17% of any additional income that will be lost to reduced ACA subsidy.

DHs pension gets us to just under 250% FPL. I've been putting my entire gross income from my little part time job into a Traditional IRA so that it doesn't affect our ACA subsidy.

I turned 62 in Feb and I'm waiting to take my SS because 16% would be lost to health insurance premium increase due to reduced subsidy and then there is also Federal tax of 15% on at least 50% of the SS benefit.

Hanging in there until Medicare.

[FANOFJESUS]

Quote:

Originally Posted by Fermion I ran the numbers if you generated $18,000 of income as a single adult with no deductions except the standard deduction. If you had $3000 in interest income, $2000 in qualified dividends, and $13,000 in short term capital gains, you would owe $568 in federal tax and have a MAGI of $18,000 for ACA calculations. If you just went with all $18,000 as short term capital gains you would owe $668 and have a MAGI of $18,000 for ACA calculations. There is no way to get to owing $5k in federal tax unless you just write them an extra check for the fun of it.

I am also counting state tax and my increase in my obamacare payment it all comes up to around $4400
I will have $1200 in interest income, $9000 in qualified dividends, $9000 in non qualified dividends and $26000 in long term capital gains

[Fermion]

Quote:

Originally Posted by rec7 I am also counting state tax and my increase in my obamacare payment it all comes up to around $4400 I will have $1200 in interest income, $9000 in qualified dividends, $9000 in non qualified dividends and $26000 in long term capital gains

Oh. I thought you were targeting $18k, nevermind. That is a MAGI of $45,200 you listed.

[FANOFJESUS]

Quote:

Originally Posted by Fermion Oh. I thought you were targeting $18k, nevermind. That is a MAGI of $45,200 you listed.

The in one year or two I will be at 18k Got to sell some stuff in taxable which is painful.

[SecondCor521]

I haven't finalized my decision, but for this year and next I am probably going to aim to be just under one of the two limits associated with the Simplified Needs Test (SNT) for financial aid.

This year and next are the base years for my two youngest kids for their freshman year for FAFSA. In addition to all of the other tax benefits to a low income (ACA credits, 0% cap gains, etc.), financial aid or lack of it can also serve as a form of progressive taxation. (It isn't taxation in any real sense, but it is money flowing out of my pocket based on my tax return, so it acts like it.)

So considering financial aid plus the ACA and other tax credits and deductions, it seems like my marginal tax rate gets rather high at the breakpoints above the SNT levels. Maybe later this year I'll mock some of it up in a tax return and a FAFSA EFC calculation.

I am also watching my cash balance and my Roth pipeline balance and keeping those funded. Fortunately for me I think I can make my cash needs and my AGI targets line up, at least for a few years.

For some reason I don't want my kids to be on Medicaid - I guess it is something I am unfamiliar with and I am concerned that not many doctors accept it - maybe true, maybe not - so I will keep my income high enough to avoid that.

[Curmudgeon]

Quote:

Originally Posted by Sue J DHs pension gets us to just under 250% FPL. I've been putting my entire gross income from my little part time job into a Traditional IRA so that it doesn't affect our ACA subsidy.

Wait, what? ACA premium credit is based on MAGI, and you can't deduct IRA contributions from MAGI (or, to put that more accurately, your MAGI is your AGI with certain deductions added back, including any deductible IRA contributions.) So contributing to an IRA should not affect your ACA premium credit one way or the other.

[pb4uski]

Quote:

Originally Posted by Fermion We target $23,000. .... Since it is very hard to exactly peg 23,000, I do a quick simplified estimated tax return in late December then decide if I want to take some long term capital gains from SPY I bought in 2009 (for like $109 or some ridiculously low basis) or do a IRA to Roth conversion ...

If you do Roth conversions you have the flexibility to recharacterize anytime before filing your return and hit your $23,000 on the dot.

[pb4uski]

Quote:

Originally Posted by Curmudgeon Wait, what? ACA premium credit is based on MAGI, and you can't deduct IRA contributions from MAGI (or, to put that more accurately, your MAGI is your AGI with certain deductions added back, including any deductible IRA contributions.) So contributing to an IRA should not affect your ACA premium credit one way or the other.

No, deductible IRA contributions reduce tax return AGI and similarly reduce Obamacare MAGI.

See http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

[Curmudgeon]

Quote:

Originally Posted by pb4uski No, deductible IRA contributions reduce tax return AGI and similarly reduce Obamacare MAGI. See http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

Well that's interesting, all of my sources say the opposite: to get MAGI you have to add back certain deductions to AGI, including deductible IRA contributions:

Turbotax: What is the difference between AGI and MAGI?
IRS: adjusted-gross-income-agi-vs-modified-adjusted-gross-income-magi

So, who is right? Or, what am I missing?

[alaska55]

Quote:

Originally Posted by Blue Collar Guy Maybe I should file this under pet peeve. I find gaming the ACA for subsidies when your sitting on more wealth than 90 % of Americans equal to transferring assets to children to qualify for medicaid. Both are legal , just not the intended spirit of the laws. But more power to you, its legit , just not my style.

Don't they go back 60 months? Its called a look back I think.

[bingybear]

Quote:

Originally Posted by Curmudgeon Well that's interesting, all of my sources say the opposite: to get MAGI you have to add back certain deductions to AGI, including deductible IRA contributions: Turbotax: What is the difference between AGI and MAGI? IRS: adjusted-gross-income-agi-vs-modified-adjusted-gross-income-magi So, who is right? Or, what am I missing?

MAGI is not MAGI
MAGI is used in taxes to determine if you can use a TIRA deduction and other things. The ACA uses a MAGI specific for it. This happens in the taxes when they say "start with line 37, add line X subtract line Y, stand on your head and drink a beer....

Search for the specific MAGI that you want.... of look at the actual calculation used on the taxes.

[MrLoco]

Quote:

Originally Posted by alaska55 Don't they go back 60 months? Its called a look back I think.

Yes. You are 100% correct. Medicaid uses a 5 year look back provision to determine the transfer of assets. Unfortunately, some try to impose guilt on those well off when using strategies to minimize taxes or maximize benefits.

[USGrant1962]

I found the table in the following article summarizing tax phaseouts to be useful, but it is quite a bit broader than OPs question. https://www.forbes.com/sites/baldwin.../#39657f087aba

[CRLLS]

My situations is slightly different. I have a PT consulting gig. I manage that income to keep at least some ACA subsidy. I do that by sometimes offering my client the occasional rebate, or not charging him for some travel expenses. I still get to play the business deduction on them so I get some benefit.

The remaining part of our income stream is presently coming from after-tax bank accounts so it doesn't affect the subsidy.

So far we have not had to hit our IRA's and 401K's because we had a healthy ( maybe too healthy) cash buffer that we have been relying on to fill the gap.

DW joined Medicare earlier this year and I join in November, so that game will be ending soon. Another game will start up with Roth conversions vs taxable SS amounts.

[pb4uski]

Quote:

Originally Posted by Curmudgeon Well that's interesting, all of my sources say the opposite: to get MAGI you have to add back certain deductions to AGI, including deductible IRA contributions: Turbotax: What is the difference between AGI and MAGI? IRS: adjusted-gross-income-agi-vs-modified-adjusted-gross-income-magi So, who is right? Or, what am I missing?

There are different definitions of MAGI that are used for different purposes in the tax code but the are both called MAGI.... sometime here we refer to the MAGI used for ACA as O-MAGI (for Obamacare MAGI).

From Form 8962, Premium Tax Credit (PTC) Instructions

Quote:

Modified AGI. For purposes of the PTC, modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). Use Worksheet 1-1 and Worksheet 1-2, later, to determine your modified AGI. ..... Enter your modified AGI on line 2a. Use the worksheet next to figure your modified AGI using information from your tax return. Worksheet 1-1. Taxpayer's Modified AGI—Line 2a 1. Enter your adjusted gross income (AGI)* from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 ......................... 1. 2. Enter any tax-exempt interest from Form 1040, line 8b; Form 1040A, line 8b; or Form 1040NR, line 9b . . 2. 3. Enter any amounts from Form 2555, lines 45 and 50, and Form 2555-EZ, line 18 ............. 3. 4. Enter the excess, if any, of Form 1040, lines 20a over 20b; or Form 1040A, lines 14a over 14b ...... 4. 5. Add lines 1 through 4. Enter here and on Form 8962, line 2a ......................... 5. *If you are filing Form 8814 and the amount on Form 8814, line 4, is more than $1,050, you must enter certain amounts from that form on Worksheet 1-2. See Form 8814 under Line 2b, later.

https://www.irs.gov/pub/irs-pdf/i8962.pdf

[jim584672]

Quote:

Originally Posted by MrLoco Yes. You are 100% correct. Medicaid uses a 5 year look back provision to determine the transfer of assets. Unfortunately, some try to impose guilt on those well off when using strategies to minimize taxes or maximize benefits.

Look back only applies for traditional Medicaid which considers assets and income, not the ACA expansion group which only considers income.

[Curmudgeon]

Quote:

Originally Posted by pb4uski There are different definitions of MAGI that are used for different purposes in the tax code but the are both called MAGI

Oh, well that makes perfect sense.
Thanks all for setting me straight! Off to correct some spreadsheets now...