Firecalc and taxes

[Meadbh]

you wrote ..."There are strategies I can use to reduce my tax liability" [when you are pulling money out for RMD etc]...I find (forecast) myself to be in the same position, that is paying the highest level of taxes on my taxable earnings...frighteningly sensing I need to pay 39% fed and 7% state and 2% local tax continuously and for the rest of my days and nights. Its enough to make me want to "pass" early. But that seems a poor approach to reducing taxes indeed. So I wonder, what strategies are you / others thinking about to reduce taxes in a situation like this.

The subject is probably worth a thread of its own, its so important. One strategy I know, of course, is to gift to the max to kids (but that reduces estate tax, not ordinary income tax on taxable earnings).

I would be very interested (as I am certain so would be others) on approaches to minimize tax and taxable earnings during retirement please.

-Allan

You were asking....

I live in Canada, so YMMV. Two potential strategies for me would be:

1. Purchase a whole life insurance policy through my professional corporation. This would reduce tax liability of the corporation at death and allow investments within the corporation to accumulate in a tax advantaged manner. I do not know all the pros and cons yet but will investigate. Here is a link with some information that applies to my situation:

https://mdm.ca/wealth-management/insurance/wealth-optimization/index.asp

2. Consider inter vivos charitable giving beginning at the time my RMDs kick in. Let's say for simplicity that my marginal tax rate was 50% and I made a charitable donation of $100K. I would receive a tax credit of $50K, effectively reducing the true cost of the donation to $50K. Of course I would have to make the donation to get the tax credit, but the point is that I will not be making any significant donations until it is advantageous for me to do so.

This is probably worth a thread of its own. I will start one.

 

[MichaelB]

The subject is probably worth a thread of its own, its so important. One strategy I know, of course, is to gift to the max to kids (but that reduces estate tax, not ordinary income tax on taxable earnings).

I would be very interested (as I am certain so would be others) on approaches to minimize tax and taxable earnings during retirement please.

-Allan

You will probably get more discussion on this if you post in the Fire and Money forum.

we may be saying the same thing...putting in a pretax ss amount and then taking say 45% of it and placing that as an incremental expense is the same thing as just inputting post tax SS amount. Correct?

Possibly, but your approach seems overly complicated. Easier to look at total portfolio, gross income, and total spending, including taxes.

 

[Meadbh]

You will probably get more discussion on this if you post in the Fire and Money forum.

I have started a new thread in the Fire and Money Forum. See you there!

http://www.early-retirement.org/forums/f28/tax-reduction-strategies-in-er-66768.html#post1322067

 

[MichaelB]

I have started a new thread in the Fire and Money Forum. See you there!

http://www.early-retirement.org/forums/f28/tax-reduction-strategies-in-er-66768.html#post1322067

Thanks!

 

[KingB]

I am frankly quite disturbed by FIRECALC's ignoring taxes. Other than this it would be a great tool. But to ignore taxes and leave it to a user to estimate taxes as part of expenses is pretty bad.?

Tax code changes every year. I don't think it is fair to expect Firecalc to estimate taxes.

 

[Rustward]

I am frankly quite disturbed by FIRECALC's ignoring taxes. Other than this it would be a great tool. But to ignore taxes and leave it to a user to estimate taxes as part of expenses is pretty bad. The reason it is bad is you can't estimate taxes for each of the approx 100 scenarios FIRECALC runs, and the tax will be a function of the scenario. That is each 30 year period has substantially different income streams. Each therefore would have different tax expenses. You can just estimate a single tax expense, and apply it, but then that doesn't differentiate all the scenarios FIRECALC calculates. But I guess there is no real alternative. Any thoughts?

I bet if you ask the owner of FireCalc to refund the purchase price he will happily oblige.

When it comes to software, sometimes the simpler it is, the better. Once the developer starts adding all kinds of whizbang functionality, the likelihood of introducing bugs (or things that different people believe should work differently) increases dramatically. Try to imagine something like Turbo Tax (with multiyear projections) embedded into FireCalc . . .

 

[allanlevy]

I have started a new thread in the Fire and Money Forum. See you there!

http://www.early-retirement.org/forums/f28/tax-reduction-strategies-in-er-66768.html#post1322067

Cool--glad you did this!

 

[allanlevy]

I bet if you ask the owner of FireCalc to refund the purchase price he will happily oblige.

When it comes to software, sometimes the simpler it is, the better. Once the developer starts adding all kinds of whizbang functionality, the likelihood of introducing bugs (or things that different people believe should work differently) increases dramatically. Try to imagine something like Turbo Tax (with multiyear projections) embedded into FireCalc . . .

you know I had a new insight, determined a hybrid solution to adjust for FIRECALC exclusion of tax assumptions and my inept ability to estimate taxes with accuracy -- one can use Fidelity's RIP to estimate taxes in retirement, and then lift that tax estimate for your personal situation and add it to your spending levels in FIRECALC