Investment

» allancoleman - Thoughts on Tax Planning

Taken from the Bogleheads discussion forum :

http://www.diehards.org/forum/viewtopic....

-- posted by allancoleman

» tjg911 - 15% tax bracket

i haven't done my taxes for many years so forgive these dumb questions.
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question #1: for the 2007 tax year, for federal taxes, for a single person, what is the top of the 15% bracket? i doubt i'll be in the 15% bracket for 2007 but i'm curious since i retired in august this year.
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question #2:for the 2006 tax year on 1040, i see line 43 is called TAXABLE INCOME and i assume this is what was used in the tax tables to determine my taxes owed in 2006 for federal income tax? i'm not impacted by the AMT thankfully.
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question #3:more importantly, i want to know about the 15% tax bracket limit in the 2008 tax year tho perhaps it's too early to know today. what is that dollar amount? the reason i really want to know about 2008 is if i can live just on my pension without taking any distributions from my 401k, maybe i can be in the 15% bracket. then i could sell my vanguard s&p 500 index mutual fund and pay no long term capital gains. this is in a taxable account that i've had for a few years. i assume i'd still pay taxes on the dividends - the exemption applies to just long term capital gains?
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thanks,
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tom

-- posted by tjg911

» allancoleman - 15% tax bracket

In response to 15% tax bracket posted by tjg911:

" For single Taxpayers " , my " AAII 2007 Tax Planning " guide shows " over $7,825 " , but not " over $31,850 " for the 15% tax bracket , Tom .

You're correct , " TAXABLE INCOME " is the anmount on which you owe taxes .

And for 2008 , I'm not sure what the IRS's tax brackets are yet . My intention , like yourself , is to take advantage of the zero capital gains rate available in that 15% bracket . Strongly suggest that if you haven't done your taxes in awhile that you go to the IRS web site and really visit there alot to get familar with the IRS tax code cause it'll really be important for you to make sure that you don't exceed that 15% income tax bracket for 2008 .

There are a lot of variations in individual taxes , Tom , starting with the standard deduction and personal exemption to my own over $6k HSA deposit that influences your taxable income .

Bob Brinker in a recent show mentioned that he has seen " married , filing jointly " tax payers to go up to over $72k and still stay within that 15% tax bracket . For this year ( 2007 ) , Tom , it ain't important . For next year ( 2008 ) , if you slop over into the next bracket by one dollar could really cost you a lot of money .

-- posted by allancoleman

» tjg911 - 15% tax bracket

In response to 15% tax bracket posted by allancoleman:
thanks allan. no offense, i'm not going to bother with the irs website, i'd just as soon jump into a pit of vipers! i learned a long time ago that taxes are too complex for me to do, gone are the simple days of the 1040a. that was almost the steve forbes "postcard" taxes! i owed $800+ in 1983ish and went to a tax guy. he found a bunch of stuff i did not do right or did not know about and at that point i swore i wouldn't do my taxes anymore.
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i would never attempt to do any tax planning without consulting a tax advisor. i planned selling the s&p 500 fund to supplement my pension to defer taking 401k distributions. 2008 was the year anyway i was thinking of doing it and the 0% lt cap gains is icing on the cake for me. i started putting extra money into this in jan 2004 as a 'savings account' knowing i'd get a better return than the bank. back then the cost was $104 a share and added to it until the end of 2005 still paying between $110 to $116. i have a lot of lt cap gains!
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taxable income of $31850 is very doable! question is can i live on that, so far i have but it's been just 5 months at the end of december. however, i have enough in the PMM taxable account emergency fund that i can tap if needed so it looks promising even if i worked to earn enough to contribute to my roth ira for 2008, i love to save money!
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i'm in pretty good shape and that's a pleasant surprise.
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tom

-- posted by tjg911

» tjg911 - curious about roth conversions

allan, since you do a lot of these i'm curious how this works, how it is done.
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say i take a 401k distribution that would bring me to the top of the 15% bracket with the intention of using the distribution to do a roth conversion. i know in a distribution i'd pay taxes on the distribution but are there additional taxes to do the roth? is it like a 401k rollover to an ira where i don't recv the $ but in this case i do pay the tax on the distribution? if that's the case it sounds straight forwards.
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i'm sure this is a complex issue but i'm curious at a high level no intense details how one does this.
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thanks,
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tom

-- posted by tjg911

» jsavage - 15% tax bracket

In response to 15% tax bracket posted by tjg911:

tig911
"taxable income of $31850 is very doable! question is can i live on that, so far i have but it's been just 5 months at the end of december"

Just be aware when you sell next year, the amount of capital gains you receive is counted as income which is added to any other income you may have. The total has to remain under that 15% ceiling.

-- posted by jsavage

» allancoleman - 15% tax bracket

In response to 15% tax bracket posted by tjg911:

It's almost impossible to do tax planning after January 1st of every year , Tom . And actually this time period every tax year is almost too late too . You've really got to be on top of your own tax situation all year . Since you've sworn off doing taxes , suggest you take your taxes to your own tax guy . He'll probably do a much better job that anything you'll learn on a discussion board like this .

-- posted by allancoleman

» allancoleman - curious about roth conversions

In response to curious about roth conversions posted by tjg911:

The Roth conversions allowable straight from a 401(k) to a Roth account and thereby skipping the 401(k) - IRA rollover - and then Roth conversion necessary now isn't available until next year , 2008 . I intend to also take advantage of this myself and will purposely use this Roth conversions as a way to fill up that 15% tax bracket next year . That's why I will wait until late next fall of 2008 to do that conversion after I'm certain of all my income for next tax year . Next tax year ain't the time to go even one dollar over that 15% tax bracket . It would ruin the whole purpose of getting that zero capital gains tax rate if I go just one dollar over .

There are no additional taxes on a Roth conversion . It's just added to your ordinary income tax and you will get a 1099 from your custodian for that income .

-- posted by allancoleman

» allancoleman - 15% tax bracket

In response to 15% tax bracket posted by jsavage:

jsavage is correct , Tom . Next year definitely ain't the year to get it wrong on your income . Suggest you visit your tax guy sooner and often next year .

-- posted by allancoleman

» jsavage - 2008 tax rates

Allen Coleman
Fairmark is showing 2008 tax rates here. Shows a single person as 32,550 and joint as 65,100 for the 15% tax bracket.
http://www.fairmark.com/refrence/index.h...

-- posted by jsavage