Bogleheads.org

jm1495 wrote: ↑Tue Mar 21, 2023 11:13 am How would you approach this ESPP?

Contribute the maximum allowed, then sell ASAP after the shares are available to you and invest the proceeds according to your desired asset allocation.

See also Your 1099-B form for an ESPP sale will probably be wrong, although because you already understand that there are non-qualified vs. qualified ESPPs you may know about the 1099-B issue already.

daacrusher2001 wrote: ↑Mon Mar 20, 2023 7:54 pm Hi - hoping for some ideas on this topic. Or maybe even some software tools that can help me decide.
...
I have a very detailed income/expense roadmap that I built in excel. It includes taxes, RMDs, and goes out to age 92 (I’m optimistic).
...
Is there anything I should be sure to model when analyzing this? Any tools I can use other than my own excel sheet ?

With that expertise, comparing your spreadsheet with either or both of those described in the Using a spreadsheet section of the Roth IRA conversion wiki could be worthwhile.

Any all-in-one resource you might recommend for retirement finance planning? There are so many moving parts and unknowns that "a reasonable guess" is usually the best one can do. Using Open Social Security: Free, Open-Source Social Security Calculator as a starting point for answering the "when to begin taking SS benefits?" question is one good resource. Even with that, one might want to adjust the defaults for life expectancy if one has good reason to do so, significant planned Roth conversions can make delaying SS benefits (but never beyond age 70) correct, etc. See this well-annotated chart as an example of something you might do for your own situation. That could help with the reasonable guessing - good luck!

Maybe.

Your 1099-B form for an ESPP sale will probably be wrong has some good content.

Aguilar wrote: ↑Mon Mar 20, 2023 8:38 am I'm not sure. I'm still hunting for confirmation but I think you're supposed to assess tax liability for Q1 and if you expect to owe, you pay estimated taxes for that amount (if you have reason to be concerned about an underpayment penalty).

Not necessary if you can meet your tax liability via withholding, regardless of when during the year the withholding occurs. See the safe harbors section linked earlier.

Any Social Security income?

See the charts in the Taxation of Social Security benefits wiki. Could be that you are in one of those high marginal rate zones, although 39.56% isn't one of the "usual" SS-influenced marginal rates so it could be something else.

neurosphere wrote: ↑Sun Mar 19, 2023 5:51 pm The wiki for "example 1b" points to a thread to which I just posted. The summary is that I'm of the opinion one can retain a basis in an IRA even if the IRA balance is zero.

FWIW, I agree that there should be no difference in basis retention among accounts having $1, $0.01, or $0 balances.

Aguilar wrote: ↑Sun Mar 19, 2023 6:04 pm

peteyboy wrote: ↑Sun Mar 19, 2023 5:48 pm

Aguilar wrote: ↑Sun Mar 19, 2023 3:59 pm I assume my $7k in capital losses would offset all these cap gains, up to $7k? Correct.

Previous poster said my carryover losses don’t offset capital gains taxes, just capital gains. So the info I stated above is all incorrect. You wrote Correct which has me second guessing here.

Probably the "correct" was meant for the "I assume..." sentence quoted above.

What do you mean by ‘not basis’? If my gross proceeds from the land sale are $75k and the cost basis is $40k, do I include $35k in my AGI calc?

Yes. Full tax returns include both the proceeds and the basis (e.g., see Form 8949), but only the difference goes into AGI. Most (all?) tax estimation tools simply ask for the difference.

Aguilar wrote: ↑Sun Mar 19, 2023 6:01 pm Thanks, that makes sense about the carryover reducing cap gains, not cap gains taxes owed. Temporary lapse on my part.

I contacted FreeTaxUsa to ask if they provide a 2023 view for tax planning purposes. Otherwise, I could use their 2022 edition, knowing it’s a bit off from 2023 rates. I checked out a couple of the free estimation tools in that link but couldn’t find one where I could enter SSDI and my land sale.

SSDI is treated exactly the same as SS. E.g., for the personal finance toolbox spreadsheet it would go in cell Calculations!B38; for capital gains/losses and capital loss carryovers, cells Calculations!D26, D27, M55, and M57.

kerplunk wrote: ↑Sun Mar 19, 2023 4:22 pm Thanks so much for the quick response. I never filed a 2021 IRS Form 8606. You are saying I can, today, file a 2021 IRS Form 8606? How do I do that?

See [Recommendation to file 1040x with prior year Form 8606] IRS thank-you note - Bogleheads.org

And that would be completely separate from my 2022 tax return that I am working on in TurboTax now?

Yes. Your 2022 Form 8606 would be filed with your 2022 return.

I have about $7k in capital losses to carryover to 2023. I expect $5k in capital gains taxes owed for this land sale. I will also have about $2k in dividend cap gains taxes. I assume my $7k in capital losses would offset all these cap gains, up to $7k? Capital loss carryovers reduce current year capital gains, not current year capital gain taxes. E.g., if one has $5K in capital gain tax, assuming the 15% capital gain tax bracket, that implies a capital gain of $5K/15% = $33,333. The $7K capital loss carryover would be subtracted from the $33,333, not the $5K. Does that make sense? I'm also trying to figure out if I'll owe the net investment income tax. Am I supposed to include my gross proceeds of this land sale in my AGI calculation, even...

Aguilar wrote: ↑Sun Mar 19, 2023 2:51 pm I'm in NYC. I've never paid state estimated payments before and always got a state refund. If after I estimate 2023 I calculate I owe to state, I'll pay estimated tax. I think when calculating my NY State tax liability, I'm supposed to aggregate both my NYS and NYC taxes withheld from my paychecks. Do you know if that's correct?

Don't know, but https://www.tax.ny.gov/pdf/current_form ... 105_9i.pdf might be helpful to you.

Yes, at the very least if you can use a non-zero value based on the letter of the Form 8606 Line 2 instructions.

See Example 1b in the backdoor Roth wiki for more.

Charles Joseph wrote: ↑Sun Mar 19, 2023 12:40 pm...wait until I'm retired in 2-3 years and do it when I'm in the 12% tax bracket

That is probably the best strategy. See the Roth IRA conversion wiki article for more. That might make it clear enough, or just raise more questions....

Aguilar wrote: ↑Sun Mar 19, 2023 8:30 am I was going to do it manually so I could apply 2023 tax rates and the 2023 standard deduction. Not worth it? I use freetaxusa software and can try that as well.

Most of the "Tax estimation tools" covered in that wiki have a 2023 option.

Well... Hold on... You have to attest that what you put on your W4 is true... so I doubt you can "stop".... See the flowchart at the top of Form 2210 : Complete lines 8 and 9 below. Is line 6 equal to or more than line 9? Yes ▶ You don’t owe a penalty. Don’t file Form 2210 unless box E in Part II applies, then file page 1 of Form 2210. See this quote on the W4 where you have to fill out something untrue to get to zero withholding.... "Under penalties of perjury, I declare that this certificate, to the best of my knowledge and belief, is true, correct, and complete." Assuming "using the entries on this W-4 will not, to the best of my knowledge and belief, subject me to any underpayment penalty when filing" as t...

dmwones85 wrote: ↑Sat Mar 18, 2023 4:07 pm Any advice based on the above information would greatly appreciated. Thank you in advance.

You could start with the
Getting started,
Prioritizing investments, and
Three-fund portfolio
wiki articles.

If that is sufficient, great!

If you think more personalized advice is needed, see the link retired@50 provided, and indicate (to the extent you are comfortable sharing) what might make the standard advice not applicable to your situation. Good luck!

rob wrote: ↑Sat Mar 18, 2023 3:03 pm Well... Hold on... You have to attest that what you put on your W4 is true... so I doubt you can "stop"....

See the flowchart at the top of Form 2210:

Complete lines 8 and 9 below. Is line 6 equal to or more than
line 9?

Yes ▶

You don’t owe a penalty. Don’t file Form 2210 unless
box E in Part II applies, then file page 1 of Form 2210.

The Tax estimation tools wiki offers several alternatives, including Stinky's suggestion to use what you might have already.

If you don't have commercial software available, two of the estimation tools include state tax estimates. I prefer the spreadsheet one, but that's a matter of taste.

If you can make withholding work, then you don't need to worry about quarterly amounts. See the Safe harbors discussion regarding federal tax. NY probably has something similar.

Yes, if you already meet that particular Safe harbor then you don't need to withhold more.

"Better" is often in the eye of the beholder. Schwab is indeed often mentioned along with Fidelity and Vanguard. Other than Vanguard, Boglehead-style mentions others.

frugalor wrote: ↑Fri Mar 17, 2023 10:12 pm Oh. You guys might be right. I am over 250K filing married jointly. So it's whatever my marginal tax bracket + 3.8%?

If you want a picture of your marginal tax rates, and can use Excel, the personal finance toolbox spreadsheet can show that.

If you add, say, $100 of interest, by how much does your federal (and, if applicable, state) tax change? Is that the same rate if you add some larger amount, say $10,000?

frugalor wrote: ↑Fri Mar 17, 2023 9:47 pm

FiveK wrote: ↑Fri Mar 17, 2023 9:46 pm The 1099-INT box 1 amount is added to, not deducted from, federal and state income. Is there a typo in your question (or more details needed)?

I mean my tax refund decreases as I enter my interest income

OK, understood.

You may be in the not uncommon situation that your marginal tax rate is higher than your nominal bracket rate.

The 1099-INT box 1 amount is added to, not deducted from, federal and state income. Is there a typo in your question (or more details needed)?

rushrocker wrote: ↑Thu Mar 16, 2023 4:39 pm Thanks for the replies.

Ultimately I was hoping to find a quick way to calculate the true cost of dividends as measured by an "expense ratio" when you hold a fund in a taxable account.

What other math would I need to consider to make this calculation?

The "Growth in a taxable account" section (A129:C148) on the 'Misc. calcs' tab of the personal finance toolbox spreadsheet might be helpful. Don't know about an "expense ratio" per se, but you could compare how much growth occurs when dividends are taxed vs. when they are not.

If you have seen an article anywhere that contradicts the quoted statement, it would be interesting to know that. It would be an incorrect article, but perhaps interesting nonetheless. Here is a quote from one of those incorrect articles. Yup, its a bank web page that provides investing advice. The 5-year rule on Roth conversions requires you to wait five years before withdrawing any converted balances — contributions or earnings — regardless of your age. If you take money out before the five years is up, you'll have to pay a 10% penalty when you file your tax return. https://www.unionbank.com/personal/financial-insights/investing/retirement/what-is-the-roth-ira-5-year-rule-important-guidelines-for-withdrawals Going to an IRS publication a...

EnjoyIt wrote: ↑Tue Mar 14, 2023 7:04 pm I may be mistaken but I thought safe harbour is paying 10% above previous year’s taxes. Am I wrong? I just do what TurboTax recommends.

It's 100% of the previous year, unless your adjusted gross income (AGI) for the previous year was more than $150,000 ($75,000 if your 2021 filing status was married filing separately), in which case substitute 110% for 100%. Withholding >90% of the current year's tax is another Safe harbor.

EnjoyIt wrote: ↑Tue Mar 14, 2023 4:32 pm Much easier to just do the 1040es payments based on 10[0]% of previous years taxes and stay within safe harbor.

If they could withhold enough from the RMDs (up to and including the whole RMD) to stay within a safe harbor, that could be easier still. But 4 equal estimated payments isn't too onerous.

EnjoyIt wrote: ↑Tue Mar 14, 2023 1:50 pm

jebmke wrote: ↑Tue Mar 14, 2023 1:44 pm When you say they owed no taxes ($0), which line on the 1040 are you referring to?

line 24

In that case they won't have any underpayment penalty when they file TY2023, regardless of how much they owe. Of course, they will have to pay what they owe at that time.

Going forward, it might be easiest to withhold from the RMDs - depends on the RMD amount vs. their Safe harbor amount, or their expected tax liability if they prefer to file with close to $0 refund or tax owed.

somewhatentertained wrote: ↑Tue Mar 14, 2023 12:42 pm ...indirectly came from the IRA

If it did not come out of the IRA, then it seems what you describe should be a partial rebate of a vendor fee and thus not taxable, nor even reportable. An IRA withdrawal would be reportable and included in one's tax return.

watchnerd wrote: ↑Tue Mar 14, 2023 1:13 am I already max-out my regular 401k contribution (50% match, plus over 50 catch up).
...
Would it make much sense to just switch the amount we're putting into taxable each month to Roth, at least until we hit the contribution limit?

The contribution limit is on the combination of traditional plus Roth. If you have already contributed the max to traditional, you can't contribute any to Roth.

If you are asking about After-tax non-Roth 401(k) contributions, then if your plan allows the Mega-backdoor Roth process, yes that should be better than taxable.

Whether or not to convert money from traditional to Roth can be dependent on a variety of details. Based on what you've shared, it may or may not be a good idea. It's possible that some partial Roth conversions between retirement (when income drops) and before Social Security or RMDs begin could be advantageous. Maybe reading the Roth IRA conversion wiki page will help. Pay special attention to the "Whether to Convert" section. Also, as far as Medicare goes, see the Income Related Monthly Adjustment Amount wiki page. +1 to all that. Mld3, if you can use Excel then it might be useful for you to generate something like this annotated chart for your situation. The Using a spreadsheet section of the Roth IRA conversion wiki, and the ...

See How do I create a table in my forum post? for suggestions.

I had a $23 basis (line 2) at end of 2021. ... The $23 was gains from previous year(s).... Only one of those is correct. For Form 8606, Basis is the amount that has already been taxed. Gains are amounts that have not yet been taxed. If it isn't clear to you whether the $23 is basis (and thus not taxable when you converted) or gain (and thus taxable when you converted), you might want to "roll your own" spreadsheet such as the one celia posted earlier, or download and use Form8606 tab in the personal finance toolbox spreadsheet. Compare the spreadsheet columns to the various Forms 8606 you have filed. If they all match through 2021 (do they?), then you should be able to check your 2022 Form 8606 against the 2022 spreadsheet column.

healthiswealth wrote: ↑Sun Mar 12, 2023 7:10 pm As I file Form 8606 for 2022, since I converted the entire $6023, am I paying taxes on the $23 then?

If you started with a $0 basis on line 2 (that depends on your historical transactions through 2021), contributed $6000, had $23 in gains before you converted $6023, then yes. If one or more of those conditions is not correct, then you'll need to explain what is correct.

In which case in the software, for my basis at end of 2022, I enter $0?

You don't enter your 2022 ending basis. That is calculated on line 14.

mageedge wrote: ↑Sat Mar 11, 2023 6:28 pm Why don't you use the 1099-Div box 7 Foreign Tax Paid figure?

"Foreign Tax Paid" is not the same as "foreign source income".

Aguilar wrote: ↑Sat Mar 11, 2023 4:13 pm Here is the 2022 version of Vanguard's foreign tax credit doc: https://www.vanguard.com/pdf/FTC_2023.pdf

Which number(s) do I use from this sheet and what's the formula to calculate foreign source income?

On that document it says:

To calculate the Foreign Source
Income, multiply the percentage
below by the amount of Box 1a.

Does that work for you?

shilps, welcome to (posting on) the forum.

Answer A. The recharacterization makes it as if you had contributed to the traditional account when you made the contribution.

Yes, only Part I is needed for your 2022 return.

See the Backdoor Roth - Bogleheads wiki for how to report Form 8606 in various tax software. Note also the Form 8606 instructions about Reporting recharacterizations.

See also Tax estimation tools - Bogleheads for some common options.

Which of those is "best" depends on the taxpayer's specific situation and, assuming more than one can handle that situation, is a matter of taste.

Newb From WI wrote: ↑Wed Mar 08, 2023 3:31 pm Is there a fairly comprehensive tool that I can use to estimate tax liability under varying incomes?

Any of the ones mentioned in Tax estimation tools - Bogleheads, if they cover your situation, should give a decent point estimate.

If you want to see quickly how your marginal tax rate changes over a wide range of income, AFAIK the personal finance toolbox spreadsheet is the only one of those that will do so.

See the Using a spreadsheet section of the Roth IRA conversion wiki for some screenshots on using that one.

A spreadsheet and a web tool that work well for calculating an individual's Primary Insurance Amount (PIA) and benefits for different starting ages:
- The 'SocialSecurity' tab of the personal finance toolbox spreadsheet.
- Social Security Calculator

Given the PIA (or PIAs for a couple), https://opensocialsecurity.com/ then is indeed a useful tool.

Possible downsides:
- Interference with the backdoor Roth process, if that is something you wish to do.
- Not allowed at all if it is a non-governmental 457b. See Comparison of Tax-Exempt 457(b) Plans and Governmental 457(b) Plans | Internal Revenue Service.

HeelaMonster wrote: ↑Tue Mar 07, 2023 1:11 pm Do I just delete the form (for me, not for spouse) and hope that starting over puts data on correct lines?

Certainly worth a try.

Prioritizing investments - Bogleheads is a good general guide to this question. How does it look to you?

Note that a traditional IRA contribution does not allow for a greater allowable IRA subtraction. See MAGI for traditional IRA purposes.

Kumsajack wrote: ↑Mon Mar 06, 2023 10:14 am We are in the 22% tax bracket, which tops out at $190k/yr. This year we have no RMDs, no earned income, and we are postponing SS until I'm at the maximum age -- it's a good time to do a Roth conversion.

The $190K is "taxable income". A conversion of $200K, if that is your only income and your are both age 65+, translates to $169,300 in taxable income after the standard deduction is subtracted. You might hit the first IRMAA tier before running out of the 22% bracket.

feh wrote: ↑Sun Mar 05, 2023 6:19 pmBack of the envelope say's I'm paying about 25% on converted TIRA dollars. At best, I think that's a wash (without taking every detail into account).

Yup,

FiveK wrote: ↑Sun Mar 05, 2023 2:16 pm It would not be surprising if the ACA issue dampens the case for Roth IRA conversions now....

Here's my scenario: I'm newly retired, no debt, and living off of savings until I'm 70 (in 2024) to maximize SS. Once I'm "fully" retired, and have RMDs and SS income, I'll be in the 22% tax bracket. As I have no earned income this year, (2023), I'm doing a Roth conversion from my IRA funds. The amount will be in 12% tax bracket, so it's an easy call to make. Not as easy a call, but still worth considering, would be converting $200,000 or so, especially if you can pay the tax from cash in savings account. In addition to the "what if one spouse passes away?" possibility, “Traditional plus taxable” vs. Roth considerations can mean "tie goes to the Roth" in this situation. The current size of your traditional acc...

You will not owe any tax if you Qualify for the Exclusion on the gain. See that for details.

One thing you could do is to do Roth conversions up to the limit of your existing tax bracket. It makes no sense to me to put yourself into the next tax bracket up with a Roth conversion. You could model this with tax software, run scenarios and see how your taxes are affected. ACA subsidies is the complicating factor. We're in the 12% bracket. Let's say our expected income is $50K (family of 3)...converting $60K of Roth funds (taking income up to $110K, which is close to the top of the bracket after standard deduction), results in $8000 less in subsidies for the year. What matters are the current and future marginal tax rates , and those may or may not be the same as the individual's tax bracket. ACA premium tax credits and Taxation of So...

Spouse and I entered full time retirement last year, at age 56. My primary question as we move into decumulation is whether to do Roth conversions or not. Competing forces are ACA subsidies vs future IRMAA and RMD issues. I was referring to RPM. I'll give PFT a look. In that case, the Roth Conversion and Capital Gains On ACA Health Insurance article and the Using a spreadsheet section of the Roth IRA conversion wiki may be useful for your present situation. You have another 6 years before IRMAA, and another 18 before RMD issues, and nobody knows what will happen with tax law, market returns, and your personal situation, so excruciating details for future estimates aren't worthwhile. But some back-of-the-envelope estimates are probably wort...