2019 Effective Federal income tax rate

[Perryinva]

Hmm, if you pull fully tax free funds from a Roth, does it get included as gross income and then deducted as tax free or tou simply don’t include it in the 1040 at all. I have not yet pulled any Roth monies out.

Never mind, you still get a 1099R and it has to be reported as tax free income.

 

[Time2]

So I assume this thread of very low FIT percentages is based entirely on the vast majority or all income being LTCGs and qualified dividends? IE : no one has pensions that automatically propel them in to a higher bracket that eliminates any 0% taxes on those LTCGs & dividends? It had/has never occurred to me that anyone can have almost $140k in income and only pay $10.5k in fed taxes!! I assume of course that no one is bragging low numbers, without stating income, for a specific year because they have everything in a Roth or non retirement accounts. Paying zero taxes because earnings are below the standard deduction while living off of after tax money is good planning but no feat of tax cleverness.

In my case, yes, LTCGs, dividends and some interest. No, I do not have any pension income, nor SS, probably waiting 5 more years for that at 70.
I wonder what we can call income,
I sold $126k of VTSAX, $37k of that was LTCGs. What is the income $126k or $37k, are we basing income on what we spent? In my case I reinvested about $90k of the VTSAX withdrawal. My AGI was $55,300. But in the process of generating that $55,300, I had $154,300 go through the sieve.
So how are we defining income?
It's complicated.

 

[BeachOrCity]

10.41 effective; 32% marginal. I was quite pleased.

 

[BeachOrCity]

42% eff tax rate

Are you sure that isn't a combined Federal and State effective (or even a combined marginal) rate?

Fed rate tops out at 37% marginal (plus medicare surtax)...maybe self employment taxes bump it up a bit on the first 100K of income, but that income is taxed at a much lower marginal rate so even if you pay both sides it is not 42%.

 

[Offgrid Organic Farmer]

Tell that to the folks in this thread trying to figure out how to get out of rental properties.

When we at last got rid of our final rental property, we refinanced it, to extract all equity, two years before putting it up for sale.

That allowed us to walk away with that equity in cash and tax-free.

Little did we know that after 19 years of retirement, we were going to start the process again.

When we had rentals before [1985 to 2009] I had a high wage income that needed the tax sheltering. Today I am on a pension that is exempted from income taxes, so I no longer require the tax shelter.

 

[LOL!]

So I assume this thread of very low FIT percentages is based entirely on the vast majority or all income being LTCGs and qualified dividends? IE : no one has pensions that automatically propel them in to a higher bracket that eliminates any 0% taxes on those LTCGs & dividends? It had/has never occurred to me that anyone can have almost $140k in income and only pay $10.5k in fed taxes!! I assume of course that no one is bragging low numbers, without stating income, for a specific year because they have everything in a Roth or non retirement accounts. Paying zero taxes because earnings are below the standard deduction while living off of after tax money is good planning but no feat of tax cleverness.

Well, no pension, but my wife has a W-2 job where she earns a 6-figure income, so one might consider that a 6-figure pension.

But she can exclude a big fraction of her income (i.e. family income) from our AGI as I have already noted. We are not withdrawing from our retirement accounts (unless you count Roth conversions which get added to AGI), but we do spend qualified dividends from our taxable account. Those dividends are generally not taxed because our qualified ordinary dividend tax rate is 0%. We have no capital gain income, but have the -$3K from capital losses every year. So with income above $140K, one can pay less than $3K in federal income taxes.

 

[copyright1997reloaded]

Federal:
Using AGI, 15.1% effective
Take out deductions, 17.0%
AGI + add back in tax-deferred savings, 12.5%

State, using state AGI: 5.83%

Approximate Property Tax burden (using Federal AGI): 7.6%

 

[Nature Lover]

Pensions - yes
RMDs (Inh IRA) - yes
Divs/Int/CG distributions - of course
Tax free income - yes, (from muni's)...but that's probably not reflected in the TT calculations.

Fed Eff Rate (per TT): 15.56%
State Eff Rate (per TT): 6.44%

 

[scrabbler1]

Even though my federal ETR spiked to 8.2% (of AGI) in 2019, from 2013-2017 it was actually lower than my state (NY) ETR. This inversion was due to having a large percent of QD and LTCG taxed at 0% federally while taxed as ordinary income on the state side. In 2018, thanks to a large LTCG, the state and federal ETRs were basically the same at just over 5%. For 2020, the state ETR will drop below 4% for the first time since 2015.

 

[ERD50]

When we at last got rid of our final rental property, we refinanced it, to extract all equity, two years before putting it up for sale.

That allowed us to walk away with that equity in cash and tax-free.
....

This has some deja-vu ring to it.

I am not a CPA nor a tax expert, but I'd still place a BIG bet that a Capital Gains calculation is not changed one iota by financing. A property value is its value, period. Makes no difference if it is paid for or 90% financed.

I'm pretty sure you are doing it wrong. Doesn't mean you'll get caught, but that doesn't make it right.

As far as depreciation, yes, it comes back at the sale, but If you die before you sell, depreciation is wiped out to your heirs, their cost basis is current value.

-ERD50

 

[youbet]

15.25% Thanks to the RMD &SS tax torpedo.

Yep!

With no RMD requirement for 2020, fed income taxes will be much less painful next spring. Not only less fed income tax, but it will also result in dropping us down an IRMAA bracket and a lower investment income kicker. All good news I guess.........

 

[Cobra9777]

Without Roth conversions, we'd be at 4.6% with two small pensions and some rental income. Qualified dividends and LTCGs, which round-out our spending, are tax free in that scenario. When SS starts, we'll be deep into the 22%/25% bracket just on pensions+SS. RMDs would push us well into 24%/28% territory.

So, in this pre-SS portion of ER, we are converting to the top of the 22% bracket, which unfortunately pushes our QDs and LTCGs into 15% territory and brings our effective rate up to 13.9%. We should be right around that same figure when SS starts in 10 years. By then, the investment portfolio should be 100% Roth+HSA. So, just smoothing things out and taking advantage of the 22% rate while it's available.

 

[Archman]

Effective rate = 8.88%

My taxable income is 37.5% of my total income.

 

[Perryinva]

That’s impressive, to have enough tax free income that it is only 38% of your total! Or are you not collecting SS yet? I could have written Cobra9777’s post plan too, except SS starts in 6 years for me. Also, I don’t likely see getting 100% converted to Roth by then, but enough of it that the RMDs will not affect taxes at all. I’d rather have the $60k+ pension plus $60k in SS each year and pay the taxes rather than the equal in investments and low SS, probably because I’ve never lived with low taxes. It’s still amazing to me to be getting paid for breathing. Just not paying FICA & Med every year any more, nor “having” to save for retirement seems like a huge win. Net spendable is much higher than while w*rking.

 

[Archman]

That’s impressive, to have enough tax free income that it is only 38% of your total! Or are you not collecting SS yet?....

No, it's the taxable income that makes the 38% of the total. We are collecting SS.

 

[Sunset]

This has some deja-vu ring to it.

I am not a CPA nor a tax expert, but I'd still place a BIG bet that a Capital Gains calculation is not changed one iota by financing. A property value is its value, period. Makes no difference if it is paid for or 90% financed.

I'm pretty sure you are doing it wrong. Doesn't mean you'll get caught, but that doesn't make it right.

As far as depreciation, yes, it comes back at the sale, but If you die before you sell, depreciation is wiped out to your heirs, their cost basis is current value.

-ERD50

That's what I was thinking.
Although if he did a 1031 (which is not how it read), then the taxes are delayed again (as I understand it).

 

[Perryinva]

@Archman, yes, the “it” in my sentence referred to your taxable income. I can see how it could be misread. Well planned!

I’m still trying to wrap my head around LOL!’s post “maybe one should have more of their income excluded from income tax”. WTF does that mean? Besides tax DEFERRAL, what else besides HSA and deductions (which are costs) excludes tax from earned income? ( and that amount is peanuts.)