2019 Effective Federal income tax rate

[RunningBum]

Me too for the first time since I started working. $0 dollars paid Federal and I don’t pay any state tax.... Depreciation is our friend!

Yours maybe. No depreciation for me. Isn't that just kicking the tax can down the road? But I did get hit with 5.1% state income tax. Most of my taxable income was qualified dividends.

 

[NoiseBoy]

I am still working. For gross income I used Medicare wages + interest & dividends. Is that how you all are defining "gross income", at least for working stiffs?

Feds
15.2% effective
24% marginal

Fed & State
19.5% effective

 

[littleb]

2018 0%

2019 0%

State Income tax

2018 - 90.00

2019 - 75.00

2020 is the last year to pay State Income Tax since it has been dissolved. Tennessee.

 

[Maidensong]

0% in 2019 but it won't be that way this year. We took about 62K in capital gains back in February so we'll be paying for it. MO has a mandatory 6% on capital gains, either long or short term. Doubt we'll fall under the 80K income limit to have 0% on our gains for the feds.

 

[Bdroc]

IIRC $75k can be taxed at 0% for married couples, but the amount is reduced by other income. In other words, that $75k is reduced by income from wages, interest, and IRA distributions.

Things could change if Biden wins. He proposes to tax capital gains as ordinary income and eliminate the stepped up basis.

 

[RunningBum]

Things could change if Biden wins. He proposes to tax capital gains as ordinary income ....

on income over $1M. No slanted politics here, please.

 

[MichaelB]

We need to keep election rhetoric out of the conversation.

 

[SumDay]

10% effective
24% marginal (thanks Roth Conversions )

 

[Offgrid Organic Farmer]

Yours maybe. No depreciation for me. Isn't that just kicking the tax can down the road?

I don't think so.

When you run your Cost-Basis down, then you must also make improvements to bring your Cost-Basis back up again.

I have used depreciation on rental real estate for years, and I have never seen any bad effect from it.

When you sell one property you roll the equity into a different property, and keep depreciating.

 

[Time2]

I'll be the 7th one to post $0 tax.


2019, I sold $126k of VTSAX realizing $34k of capital gains, had $7,500 of Qualified Dividends, $12k of regular dividends and $4k of interest.
I later reinvested $90k of that VTSAX sale resetting the base. I have a lot in non-taxable accounts, but now that I'm retired, I wonder if the taxed account isn't better. I can keep selling LTCGs, paying zero tax and reinvest at a higher base. Three or four more years and I will have used all my LTCGs in the 0% bracket.

This tax planning is starting to get fun.

 

[grasshopper]

Close here but no cigar, .65% Lots of LTCG, QD, , SS, and Roth conversions, lost foreign tax credit. Both over 65.

 

[RobbieB]

Seven and a half percent.

 

[Murph]

16%
I’m doing it wrong!

 

[LOL!]

How does one calculate "effective Federal income tax rate"? Does one exclude all their non-taxed income that went to places such as 401(k), HSA, health insurance, college tuition? I don't use TurboTax, but I know it has a bogus way of calculating the effective tax rate.

 

[youbet]

16%
I’m doing it wrong!

Not as wrong as me!

17.79%

 

[RobbieB]

How does one calculate "effective Federal income tax rate"? Does one exclude all their non-taxed income that went to places such as 401(k), HSA, health insurance, college tuition? I don't use TurboTax, but I know it has a bogus way of calculating the effective tax rate.

I do use Turbo Tax and I don't know what's bogus;

Adjusted Gross Income $ 139,524.00
Taxable Income $ 113,637.00
Total Tax $ 10,500.00
Total Payments/Credits $ 10,000.00
Payment Due $ 500.00
Effective Tax Rate 7.53%

 

[LOL!]

I do use Turbo Tax and I don't know what's bogus;

Adjusted Gross Income $ 139,522.00

For one thing, AGI does not include one's $26K to their 401(k), their $8K to their HSA, their $5K in health insurance premiums, wife's 401(k) which were paid out of income. Many people have a lot of untaxed income that doesn't show up in AGI and you are very likely one of them.

Our income is about yours if we add back 401(k), but using the TT algorithm, our effective Federal income tax rate is under 2% and even less if we include all our income.

 

[corn18]

I don't think so.

When you run your Cost-Basis down, then you must also make improvements to bring your Cost-Basis back up again.

I have used depreciation on rental real estate for years, and I have never seen any bad effect from it.

When you sell one property you roll the equity into a different property, and keep depreciating.

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

https://www.early-retirement.org/forums/f28/sell-apartment-buildings-or-keep-forever-104676.html

 

[RobbieB]

So TT bases the calc on AGI, what's bogus about that?

 

[scrabbler1]

While it is perfectly reasonable to use AGI in the denominator, does anyone here ever use AGI + muni bond interest instead? It wouldn't change things much for me in recent years, maybe lower the ETR by one or two tenths of a point. But years ago, when I had more of that income, and the tax rates were higher, and I was in a higher tax bracket, the spread was usually between half a percent and 1 percent.

 

[LOL!]

So TT bases the calc on AGI, what's bogus about that?

It's OK, but call it "Effective Federal adjusted gross income tax rates." A good chunk of our income does not appear in AGI at all by design and is thus not taxed.

Or another way to think about this: If a taxpayer doesn't have a lot of income excluded from income tax, then maybe the taxpayer should see if they can have a lot of income excluded from income tax.

 

[Golden sunsets]

15.25% Thanks to the RMD &SS tax torpedo.

 

[RobbieB]

Yeah, I started drawing the IRA down at age 63.

 

[Perryinva]

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.

 

[Dash man]

It's OK, but call it "Effective Federal adjusted gross income tax rates." A good chunk of our income does not appear in AGI at all by design and is thus not taxed.

Or another way to think about this: If a taxpayer doesn't have a lot of income excluded from income tax, then maybe the taxpayer should see if they can have a lot of income excluded from income tax.

Not everyone’s health insurance premiums are excluded. If your insurance is provided by your employer, it probably is because it’s paid mostly by the employer. I pay my own premiums and can only deduct the premiums if all medical expenses are over 7.5% of my income and all deductions over the standard. Mine were and I itemized, but most people don’t.