simple viewpoint for taxes with a mix of unpredictable income

[Brook2]

Normally I would say it makes sense to cash out the amount of capital gains under $44,000 to live off of for 0% federal taxes. But every year I get tripped up by three unexpected income streams with different tax rates that feel like elusive numbers: A) dribbles of royalty income by multiple sources that vary between $5,000-$10,000 (schedule C business income.) B) unexpected dividends c) Unexpected capital gains that are not automatically reinvested (I want to skim off the cash and not reinvest).

I’m a “back of the napkin” type of person who likes to have a general strategy without analyzing every number continually. It's the way I always ran a successful business. But planning for taxes is different and not always easy.

I’m trying to think of an overall simple strategy. Should I just see what ABC are in December and then only cash out capital gains for the remaining amount (to keep it under $44,000)? or just not obsess about any of this, since all of these are progressive taxes (correct) and if I go over it’s not a biggy?

 

[pb4uski]

That's what I would suggest. Sketch out your tax situation in mid to late December and then fill in the LTCG.

No SS? Any tax-deferred retirement savings?

 

[RunningBum]

Right, I think a lot of us make end of year financial moves (or not) to stay under a certain threshold. Some don't have to wait so long since their income is more predictable, but yours is not. It's not a killer if you are a bit over since only the overage is taxed at that rate, but it doesn't hurt to try to keep it under, unless you have a need for that money. I wouldn't try to stay under a cap just to pay no taxes if it meant I couldn't live the life style that's available to me with the funds I have.

btw, don't forget that your deduction counts toward that amount. LTCGs/QDivs aren't taxed under $47,025 of combined regular and LTCG/QDiv income. With a standard deduction of $14,600 that means you have at least $61,625 you can take under that cap. More if you itemize with a larger deduction.

 

[Out-to-Lunch]

Do you have any earned income? If so, you could, even AFTER the close of the calendar (tax) year, make a contribution to a tIRA to lower your taxable income (once you know what it will be).

 

[Brook2]

Do you have any earned income? If so, you could, even AFTER the close of the calendar (tax) year, make a contribution to a tIRA to lower your taxable income (once you know what it will be).

I don't have any earned income.

 

[TheWizard]

Year-end financial planning is good, depending on what adjustments you can make.
But, if you hold only index funds in your taxable account, you won't generally have any Capital Gains Distributions to deal with, unexpected or not.
So I would advise moving in that direction...

 

[brett]

Normally I would say it makes sense to cash out the amount of capital gains under $44,000 to live off of for 0% federal taxes. But every year I get tripped up by three unexpected income streams with different tax rates that feel like elusive numbers: A) dribbles of royalty income by multiple sources that vary between $5,000-$10,000 (schedule C business income.) B) unexpected dividends c) Unexpected capital gains that are not automatically reinvested (I want to skim off the cash and not reinvest).

I’m a “back of the napkin” type of person who likes to have a general strategy without analyzing every number continually. It's the way I always ran a successful business. But planning for taxes is different and not always easy.

I’m trying to think of an overall simple strategy. Should I just see what ABC are in December and then only cash out capital gains for the remaining amount (to keep it under $44,000)? or just not obsess about any of this, since all of these are progressive taxes (correct) and if I go over it’s not a biggy?

I am exactly the same. I stopped with the spreadsheet business years ago in favor of back of envelope. I had enough of ss when working. Besides, numbers are my friend.

Every mid/late November I take a good look out our respective investment accounts with an eye to any changes either of us should make with regard to the investment or to managing our tax position.

At the same time I use last years tax program to do a pro forma tax tax return for each of us. This gives me an estimate of our cash requirements for tax and for our next years quarterly tax payments. Sometimes based on this we subsequently make period decisions for tax reasons.

Been doing this for 14 years. Works for us. All of our retirement calculations are based on after tax spend.

The last thing I want to do in retirement is keeping track of what we spend on groceries, how many cans of peas we buy, or how much we spend on gasoline. It is what it is. We simply take a monthly tape of our current account. This captures our total after tax spend.

This process takes me very little time.

 

[pb4uski]

Normally I would say it makes sense to cash out the amount of capital gains under $44,000 to live off of for 0% federal taxes. But every year I get tripped up by three unexpected income streams with different tax rates that feel like elusive numbers: A) dribbles of royalty income by multiple sources that vary between $5,000-$10,000 (schedule C business income.) B) unexpected dividends c) Unexpected capital gains that are not automatically reinvested (I want to skim off the cash and not reinvest).

I’m a “back of the napkin” type of person who likes to have a general strategy without analyzing every number continually. It's the way I always ran a successful business. But planning for taxes is different and not always easy.

I’m trying to think of an overall simple strategy. Should I just see what ABC are in December and then only cash out capital gains for the remaining amount (to keep it under $44,000)? or just not obsess about any of this, since all of these are progressive taxes (correct) and if I go over it’s not a biggy?

Not $44,000... more like $58,475 for a single person under 65 for 2023. That is the top of the 0% capital gains tax bracket of $44,625 plus the standard deduction of $13,850. IOW if all you had was $58,475 of preferenced income (qualified dividends and LTCG) your federal tax would be zero.

Or you could make it a mix of $13,850 or ordinary income and $44,625 of qualified dividends or LTCG and the tax bill would still be $0. Or anything in between. Fun, eh?