Author Topic: Taxes in ER  (Read 3351 times)

God or Mammon?

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Taxes in ER
« on: April 17, 2014, 05:58:19 AM »
Does anyone know of a good resource or website that talks specifically about taxes in ER?

In particular strategies to minimize them as well as estimating them for budgets and calculations?

Obviously with Social Security, Medicare, etc effective tax rates for those still working are higher than if not receiving a W-2, but just trying to determine if there are other considerations as well.

brewer12345

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Re: Taxes in ER
« Reply #1 on: April 17, 2014, 10:25:11 AM »
Dig around on RootofGood's blog.  He had a pretty nice rite-up on it.

I expect our tax bill to be zero this year, my first of ER.  However, my situation might be very different from yours.  The best way to get a realistic estimate would be to do a mock tax return and see what pops out.

arebelspy

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Re: Taxes in ER
« Reply #2 on: April 17, 2014, 10:59:04 AM »
Dig around on RootofGood's blog.  He had a pretty nice rite-up on it.

Did you mean Go Curry Cracker?  Or does Root have a good one as well?  Hopefully he'll chime in here.  :)

Here's GCC's:
http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/

From the second article:
Quote
With an adjusted gross income of $91,752, we paid no tax
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

DoubleDown

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Re: Taxes in ER
« Reply #3 on: April 17, 2014, 12:31:11 PM »
yours.  The best way to get a realistic estimate would be to do a mock tax return and see what pops out.

+1

There are many free tax preparation resources available for this. For example, I've used TurboTax to prepare a simulated ER return, putting in estimated passive retirement income, deductions, etc. You can get as detailed as you want. I think with TurboTax you can get all of the features for free, and only pay once you're actually ready to file or print. As I said in another thread, I was able to estimate that even with a retirement income of around $55,000 annually, we ended up paying zero in federal taxes.

Jeremy

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Re: Taxes in ER
« Reply #4 on: April 18, 2014, 07:55:18 AM »
This is the Root of Good post:
http://rootofgood.com/make-six-figure-income-pay-no-tax/

the TurboTax TaxCaster is also a good tool for modeling different options without going through the whole process of filling out the 1040
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

RootofGood

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Re: Taxes in ER
« Reply #5 on: April 18, 2014, 08:11:45 AM »
Thanks Jeremy.  That's probably the closest to an article on taxes and ER I have at root of good. 

The links at gocurrycracker talk more about living on dividends and having a nice high income yet paying no taxes in ER. 

The truth is, you can pull a lot of dividends tax-free, and convert from a traditional IRA to Roth (which can be withdrawn tax free after 5 years), and sell appreciated equities and only have a part of the proceeds count in your taxable income (ie only the gains, not the return of your basis). Those are the 3 prongs of my zero income tax stool in retirement.

And I have a small 4th prong - a little earned income to give me a shot at a refundable child tax credit (=15% of amounts earned over $3000).  This won't amount to much but it's worth mentioning.  Although it will be mostly or completely offset by self employment tax. 


Cheddar Stacker

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Re: Taxes in ER
« Reply #6 on: April 18, 2014, 02:20:55 PM »
If you plan on drawing social security read Jeremy's (and jlcollins') post on that as well. Once you have other taxable income (ordinary rate income, not Qdiv or LTCapGain) of around $20K the social security income becomes taxable, so plan accordingly and convert IRA's to Roth's before taking your social security if possible.

Also, madfientist hasn't been mentioned yet. He has some great posts on tax savings before/during early retirement:
http://www.madfientist.com/retire-even-earlier/
http://www.madfientist.com/tax-loss-harvesting/
http://www.madfientist.com/tax-gain-harvesting/

In fact, these are just 3 of 13 posts he has tagged as part of his "tax avoidance" category. That might be a good category on his website to make your way through.