Poll: What is your effective Federal income taxes paid / AGI rate?

[LOL!]

I think some folks still do not realize how low an effective income tax rate that folks really are able to pay if they practice tax-efficient investing even in retirement. So to make people more aware, how about a poll?

Here are the rules: From your Federal return (Form 1040 and siblings), please take your "total tax" and divide by "adjusted gross income" and express as a percentage. This will not take into account non-taxable income such as tax-exempt dividends, foreign exclusion, 401(k)/403(b)/FSA/HSA exclusions, pre-tax health insurance premiums, and so on. But you can comment on those non-taxable income if you like.

This is about Federal income tax and not state tax nor sales tax nor property tax. FICA/medicare is a blurry area because some folks pay that with Form 1040 and some don't.

Do early retirees really enjoy low effective tax rates?

 

[rescueme]

Let's just say that I/DW pay much less (%) than any of the folks running for president (either party) does ...

And as far as state/local tax? We pay nothing (those taxing agencies do not tax retiree's income - not even SS) even though that was not part of the question...

 

[Zathras]

Let's just say that I/DW pay much less than any of the folks running for president (either party) does ...
.

I pay a larger percentage than either as I recall, did you mean less as in dollar amount, or in percentage?

 

[MichaelB]

I hear the sound of sizzling bacon

 

[Alan]

I'm retired and my effective tax rate last year was 14.5%

 

[arebelspy]

I'm not retired, so I didn't vote, but my effective rate was 9.86% (using the calculation provided in the OP.). My marginal rate is 25%.

 

[scrabbler1]

I am retired and mine is a hair under 5% (federal only). State income tax and local property tax are each between 4.5% and 5% of AGI.

 

[5971]

>25%

At least we don't have state income tax

 

[MichaelB]

I think some folks still do not realize how low an effective income tax rate that folks really are able to pay if they practice tax-efficient investing even in retirement. So to make people more aware, how about a poll?

Two income streams subject to different tax rates can result in the same after tax income for someone. An example would be tax exempt munis vs taxable interest income. The rates are different but the new after tax is the same. What conclusion can you draw from just looking at the numbers?

 

[M Paquette]

Since I am gainfully unemployed, with no pension, Social Security, or such, the ordinary income part of the 1040 is pretty darn low. Combined with tax loss harvesting from early 2009, and having dependents, well...

My biggest tax bill is property taxes. Federal? The silly thing goes negative after the education credits for DD go in.

 

[Bestwifeever]

I would have answered I don't know (what, you want me to look at old returns AND do math??). But I don't know what meaning it would have, either.

 

[REWahoo]

I would have answered I don't know (what, you want me to look at old returns AND do math??). But I don't know what meaning it would have, either.

What happened to the spirit of adventure you had as a child. Don't you remember playing "I'll show you mine if you show me yours"?

 

[Danmar]

Total combined tax rate for me was 16%. This is combined provincial and federal. Most of my income were dividends and capital gains. Last year I had an unusually high income that will not be repeated.

 

[Bestwifeever]

What happened to the spirit of adventure you had as a child. Don't you remember playing "I'll show you mine if you show me yours"?

Yeah, but then I found out the only ones who want to show me theirs didn't have enough of it . Wait, you are talking about money, right?

 

[LOL!]

Two income streams subject to different tax rates can result in the same after tax income for someone. An example would be tax exempt munis vs taxable interest income. The rates are different but the new after tax is the same. What conclusion can you draw from just looking at the numbers?

My purpose is to prompt people who are paying at a high effective rate to look for ways to lower their taxes while keeping the same total income.

For example, most people know that CD interest & bond dividends are taxed at a higher rate than stock dividends, right? That knowledge might cause one to place bonds and equities in different kinds of accounts.

 

[RunningBum]

I voted 15/20 and started to think about why it was above 15 since my plan is to go only to the end of the 15% bracket if I can (which should put me well under 15% effective rate), then I remembered that I worked part of last year and got a severance package. I also did a Roth conversion up to the top of the 25% bracket. So if you're keeping it to retirees, I butted in when I shouldn't have.

 

[LOL!]

Everybody is welcome to respond to the poll, whether they are working or retired or something else.

 

[theOAP]

This has lead me to do something I've not done before, compare EU and US rates on my retirement income (excluding the fact the tax year is different).
US is 13.7% (AGI + treaty positions [gross income]. No foreign tax credits. US taxes adjusted accordingly and AGI calculated as if I were US resident and all income was US source.)
EU is 24.4% (gross income worldwide pre-treaty positions, and pre-tax free allowances. Taxes adjusted accordingly.)

It's the only way I can make it apples for apples with US (basically the same AGI income minus EU personal allowance/US std. deduction and exemption). Without apples to apples with the US, it's 13.7% (US) and 16.8% (EU).

 

[MichaelB]

Here's a link to a similar poll from 2010. http://www.early-retirement.org/forums/f52/poll-what-percentage-tax-did-you-pay-49621.html

 

[Amethyst]

Are we the only ones who get stuck paying AMT? Effective rate, 21% whether we deserve it or not. No offshore investments here...

Amethyst

 

[FIREd]

Mine was 20.5% for 2011.

 

[Dawg52]

I fell into the 3rd bracket. That means either I do a fair job of managing my taxes or I'm poor as hell. If you could see me right now sitting in my recliner wearing shorts and an old t-shirt, you would probably vote the latter. Oh yes.......and sipping on a cheap med.

 

[RunningBum]

Are we the only ones who get stuck paying AMT? Effective rate, 21% whether we deserve it or not. No offshore investments here...

Amethyst

I did too large of a Roth conversion and hit AMT and 21%, so I recharacterized a good portion of it and amended my return.

 

[audreyh1]

We pay AMT also. But it only applies against the ordinary income, not against the capital gains and qualified dividends income. So we still end up having <15% effective tax rate since our ordinary income is low compared to cap gain income.

 

[NW-Bound]

I answered a similar question for Ha in a thread of his a while back. I had to pull out my tax return, because I did not remember. And now, I forgot it again.

I will say that my tax was awfully low due to various deductions and education credits. It was low enough that it made me feel guilty, for a guy who had income in the low 6-figure from investment income and part-time work.

This year, my income will be a lot lower since I stopped my part-time work. On the other hand, I have no more college tuition to pay, and my children are no longer dependents. And then, I will be drawing from after-tax accounts for a while, instead of IRAs and 401k's. So, who knows what my tax will be. Zero?

PS. It's about time I look into doing Roth conversion.

PPS. I was referring to FIT only, and not counting SS or Medicare.