advice for higher tax than usual

[LushLife]

I've been unable to find an affordable tax advisor in my area with availablility, so am hoping folks here might be able to advise a bit. I retired in September 2024 at age 65, and began collecting a small pension and my social security right away. (Very high COL city.) I neglected to have tax taken out either of those checks (but am for 2025). In addition, there are other tax burdens for 2024:

• I earned about 23K more than prior years

• We are not taking a business deduction this year (freelance tutoring business has been long unsuccessful and we're abandoning it

• We are facing capital gains tax of around 1500 from inherited stock (Confirmed by our Vanguard personal advisor plus personal research)

So there are 4 situations generating higher than usual taxes for 2024. We have no losses to claim against the gains, unfortunately. We are married filing jointly, and in the 22% tax bracket in WA state (no income tax at least). Other than contributing to our IRA, is there anything else I'm not seeing in terms of tax strategies? I think we're probably facing an IRS bill of $6-7k or so. We are pretty much living on the edge of our fixed income, due to cost of living here and having a nest egg that needs preserving for our remaining years. (All Vanguard index funds mixed by our advisor.)

[arcticpineapplecorp.]

1. move to a cheaper area. If you're getting by barely on the fixed income, but haven't had taxes taken out, what will happen when you do?

2. Don't know the size of your portfolio but if vanguard is managing $1 mil, then you're still paying $3000 a year based on their 0.3% annual fee. And I don't think advisory fees are tax deductible. If you can d-i-y, then you can save money that way. Half the money you owe in taxes (if you have $1 mil invested, but we don't know).

3. How are you in the 22% bracket with SS and small pension? Do you mean you were in 22% bracket last year?

4. i'm confused about the cap gains on the inherited stock. this doesn't make sense to me unless i'm missing something. inherited stock should get a step up in basis so there should be no gains until you sell, and even then it's only gains from the adjusted basis (date of death of original owner).

5. You can make an estimated payment by 1/15/25 for last year. That might not relieve the responsibility of paying in the earlier quarters, but you might not have a penalty anyway because there are other factors besides just if your liabilty is over $1000.

6. you should contact a VITA or TCE (maybe TCE based on age, VITA depending on income you might not qualify) to get help with your taxes:
https://www.irs.gov/individuals/free-ta ... -taxpayers

[LushLife]

Thanks arctic pineapples, appreciate you reading. Leaving #1 unaddressed for now, since we can't move yet...

2. Portfolio is 500k, so fee is approx $1500/year. Plan to DIY when things settle down around here. (long story.)

3. Our income with SS, pensions and VA benefits puts us at around $97k annual income.

4. It was too hard to explain in the post without writing a novel. Stocks already were sold and step-up basis factored in. Stocks gained value in between inheriting and moving to Vanguard. Thus the adjusted basis and gains.

5. thanks, will consider.

6. Thanks for the tax help ideas!

[GenawithanE]

Agree with the suggestion to check out the AARP Foundation Tax Aide program. Sites usually open in late January or early February.

Your total income does not determine your tax bracket. Your taxable income does, after deductions.

At most, 85 percent of your social security goes into your taxable income.
Your standard deduction as a married couple is going to be at least $29,200, more if you and/or your spouse are over 65.
Your VA benefits are probably not taxable. Someone at Tax Aide can help you with that.

Given all that, it is possible that your capital gains on the inherited stock will be taxed at a rate of zero.

[arcticpineapplecorp.]

Your total income does not determine your tax bracket. Your taxable income does, after deductions.

At most, 85 percent of your social security goes into your taxable income.
Your standard deduction as a married couple is going to be at least $29,200, more if you and/or your spouse are over 65.
Your VA benefits are probably not taxable. Someone at Tax Aide can help you with that.

Given all that, it is possible that your capital gains on the inherited stock will be taxed at a rate of zero.

this.

OP, how did you determine you'd be paying the taxes you think you will? Did you run an actual calcuation? If not, I'd plug the numbers. Most VA pensions are not taxable, just military pension based on age or length of service. If the VA pension isn't that, then exclude the VA pension and plug in the numbers below:

https://www.mortgagecalculator.org/calc ... ulator.php

you may see it's not as bad as you expect. Let us know what you come up with or you need any help with that 1040 calculator. Make sure to enter the cap gains as long term.

[LushLife]

OP, how did you determine you'd be paying the taxes you think you will? Did you run an actual calcuation?

I did not run a calculation, except in my nervous head. Unfortunately, I don't have adequate info yet to use that handy calculator. So much has changed from last year, I will have to wait till all the tax forms come in to use it and run a simulation. Since I turned 65 in 2024, that will help with deductions a little; I forgot that part. We can also contribute to an IRA to help reduce our taxable income. But we are losing an $8500 business deduction that we can't justify claiming anymore after a handful of years. Plus I made 23k more last year, and the other two situations. Even without all that stuff, in 2023, we owed about $500 for that year - so I just figured it was gonna be much higher for '24. Maybe you're right and we'll get lucky. Thanks for the link to the calculator.

[FiveK]

Thanks for the link to the calculator.

See Tax estimation tools if you want to consider other options (and note the discussion about dinkytown vs. mortgagecalculator).

If you really have no idea about 2024 income then you might as well use whatever software you plan to use for filing. For 2025, one or more of the tax estimation tools could be useful.

See the discussion of Safe harbors if you would like to avoid or minimize underpayment penalties.