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Thanks for chiming in OR planner. Can you answer one question for me? Does ORP calculate and include the AMT where appropriate, and also the loss of exemptions?
Do you use i-orp.
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Thanks for chiming in OR planner. Can you answer one question for me? Does ORP calculate and include the AMT where appropriate, and also the loss of exemptions?
orplanner
Recycles dryer sheets
ORP
No. Invoking the AMT assumes some knowledge of itemized deductions which the model does not include. ORP assumes personal exemptions and standard deductions.
Thanks for chiming in OR planner. Can you answer one question for me? Does ORP calculate and include the AMT where appropriate, and also the loss of exemptions?
No. Invoking the AMT assumes some knowledge of itemized deductions which the model does not include. ORP assumes personal exemptions and standard deductions.
Inspired by this thread, I'm still trying to grapple with ROTH conversion strategies.
I'm not very experienced at Excel programming. But, I think this entry over at the Bogleheads wiki describing a spreadsheet by BigFoot48 provides a starting point for me. The spreadsheet doesn't properly model the tax situations that apply to me. But, BigFoot48 has done some admirable work and I think I can piggyback on it.
I'm sure no one would disagree that our tax laws are exceedingly complicated. As noted above by it's developer, i-orp ignores these complications when it gives its tax advise. The BigFoot48 spreadsheet does a better job of modeling the tax code. But, it's still a simplification.
I've been doing some trial runs through TurboTax. I want to see if there are any obvious short term actions that I should take. Further, I need to see what factors I should include in a long term model.
I made two statements above. First, that any extra income I realize beyond the top of the 15% bracket would be taxed at 30%. Second, that one should also consider state taxes. My short term conclusion is that, my statement about 30% is only partially true. Also, I should follow my own advice about state taxes.
Briefly, the way an extra dollar beyond the 15% bracket is taxed at 30% is that it pushes a dollar of Qualified Dividend from the special 0% treatment into 15% taxation. Plus, that dollar gets taxed at 15% as well. The way I was wrong about this is that I have foreign income in our taxable portfolio. I fill out the very non-intuitive Form 1116 to claim a Foreign Tax Credit. I can only claim part of the foreign taxes that our investments paid. If I increase our income by converting more ROTH, I can claim more.
Our state excludes $20,000 of retirement income (SS, Pension, ROTH conversion) per individual if over 55 ($24,000 if over 65). Then, there is a 4.63% flat tax.
Before reading this thread, I'd already made partial ROTH conversions for 2014. I used a strategy of converting up to the top of the 15% bracket. This was less than the $40,000 ($20,000 self + $20,000 spouse) that gets special state tax status. TurboTax tells me if I convert up to $40,000. The tax on the additional amount is ~25% Federal (because of the Foreign Tax Credit quirk) plus 0% state. If I delay, it'll be taxed at least 25% Federal + 4.63% state (SS will fill the state retirement income exclusion).
Bumping our conversions to $40,000 now seems to be a no brainer. Converting more may also make sense. OR planner makes a good point about this. I need to delve deeper to convince myself.
I tried to describe this a simply as I could. It still sounds complicated. This is just my situation. Everyone is going to have their own complications. IMHO, most tax strategy recommendations ignore these complications.
I'm not very experienced at Excel programming. But, I think this entry over at the Bogleheads wiki describing a spreadsheet by BigFoot48 provides a starting point for me. The spreadsheet doesn't properly model the tax situations that apply to me. But, BigFoot48 has done some admirable work and I think I can piggyback on it.
I'm sure no one would disagree that our tax laws are exceedingly complicated. As noted above by it's developer, i-orp ignores these complications when it gives its tax advise. The BigFoot48 spreadsheet does a better job of modeling the tax code. But, it's still a simplification.
I've been doing some trial runs through TurboTax. I want to see if there are any obvious short term actions that I should take. Further, I need to see what factors I should include in a long term model.
I made two statements above. First, that any extra income I realize beyond the top of the 15% bracket would be taxed at 30%. Second, that one should also consider state taxes. My short term conclusion is that, my statement about 30% is only partially true. Also, I should follow my own advice about state taxes.
Briefly, the way an extra dollar beyond the 15% bracket is taxed at 30% is that it pushes a dollar of Qualified Dividend from the special 0% treatment into 15% taxation. Plus, that dollar gets taxed at 15% as well. The way I was wrong about this is that I have foreign income in our taxable portfolio. I fill out the very non-intuitive Form 1116 to claim a Foreign Tax Credit. I can only claim part of the foreign taxes that our investments paid. If I increase our income by converting more ROTH, I can claim more.
Our state excludes $20,000 of retirement income (SS, Pension, ROTH conversion) per individual if over 55 ($24,000 if over 65). Then, there is a 4.63% flat tax.
Before reading this thread, I'd already made partial ROTH conversions for 2014. I used a strategy of converting up to the top of the 15% bracket. This was less than the $40,000 ($20,000 self + $20,000 spouse) that gets special state tax status. TurboTax tells me if I convert up to $40,000. The tax on the additional amount is ~25% Federal (because of the Foreign Tax Credit quirk) plus 0% state. If I delay, it'll be taxed at least 25% Federal + 4.63% state (SS will fill the state retirement income exclusion).
Bumping our conversions to $40,000 now seems to be a no brainer. Converting more may also make sense. OR planner makes a good point about this. I need to delve deeper to convince myself.
I tried to describe this a simply as I could. It still sounds complicated. This is just my situation. Everyone is going to have their own complications. IMHO, most tax strategy recommendations ignore these complications.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Do you qualify for the simplified method of claiming foreign tax credit?
https://www.franklintempleton.com/r...ax/answers_questions/tax_faqs_foreign_src.jsf
https://www.franklintempleton.com/r...ax/answers_questions/tax_faqs_foreign_src.jsf
Alas, we fail to qualify for the simplified method because of condition #2.
In fact, for the first time in 2013 I fell into the trap that exists in Form 1116. I exceeded $20,000 in Foreign Income by a small amount. This is a cliff in the determination of Foreign Tax Credit. It requires me to exclude Qualified Dividends on which I received preferential tax treatment (i.e. taxed at 0%) from my Foreign Income. This disallowed counting the majority of my Foreign Income.
This is actually an example of my claim that "most tax strategy recommendations ignore these complications". It's often asserted that you should hold your foreign investments in taxable so that you can take advantage of the Foreign Tax Credit. This is true. Until, it's not. From my understanding, the higher the Foreign Income is, the larger the advantage; until you hit the $20,000 cliff.
This year, I've taken some evasive maneuvers that I think will keep this from happening to us again. I'm still evaluating if I need to do more.
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