Author Topic: We pay negative taxes-question  (Read 3344 times)

meandmyfamily

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We pay negative taxes-question
« on: May 13, 2015, 02:06:43 PM »
So due to the number of children we have (4) and the fact that we adopted the last two we have had a negative tax rate for the last few years and should for the next few years.  We pay so little federal taxes that we are having trouble getting all of the adoption tax credit back.  Question is there a way to pay more taxes so we can get the credit?  Not sure that even makes sense.  We only have two more years before it phases out.  I assume that we should fund our Roth IRA first before our IRA since we pay so little taxes right?  I am thinking that rolling over some of our money in a traditional IRA to a Roth IRA would capture some of the adoption tax credit.  Any other ideas?

forummm

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Re: We pay negative taxes-question
« Reply #1 on: May 13, 2015, 02:13:37 PM »
Rollover to roth sounds like a good idea. You could also realize any taxable capital gains you have. You can wait until a few months before the credit expires before you pull the trigger to make sure you only cause enough extra tax for the amount of credit you have left.

meandmyfamily

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Re: We pay negative taxes-question
« Reply #2 on: May 13, 2015, 02:33:43 PM »
Thanks!  I am a beginner when it comes to investing so I am trying to learn!

beltim

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Re: We pay negative taxes-question
« Reply #3 on: May 13, 2015, 02:34:20 PM »
If you have any investments in taxable accounts with gains you can sell your investments and immediately buy them back.  Your excess adoption credit can cover the capital gains tax and you will have a higher cost basis so you won't owe taxes in the future.

Although it occurs to me that you might not even owe capital gains taxes depending on what tax bracket you're in.  It still might be a good idea if you think you'll be in the 25% tax bracket in the future.

GGNoob

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Re: We pay negative taxes-question
« Reply #4 on: May 13, 2015, 02:40:19 PM »
If you have any investments in taxable accounts with gains you can sell your investments and immediately buy them back.  Your excess adoption credit can cover the capital gains tax and you will have a higher cost basis so you won't owe taxes in the future.

Although it occurs to me that you might not even owe capital gains taxes depending on what tax bracket you're in.  It still might be a good idea if you think you'll be in the 25% tax bracket in the future.

If they are basically paying negative taxes, they probably pay 0% long term capital gains. So this would only make sense for short term gains.

I like the Traditional to IRA conversion idea. Since you aren't paying any taxes, definitely max out Roth IRA's over traditional.

Jack

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Re: We pay negative taxes-question
« Reply #5 on: May 13, 2015, 02:47:13 PM »
Yep, invest in as much Roth (IRA or 401K, if available) as you need to capture all the non-refundable credits.

beltim

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Re: We pay negative taxes-question
« Reply #6 on: May 13, 2015, 02:48:44 PM »
If you have any investments in taxable accounts with gains you can sell your investments and immediately buy them back.  Your excess adoption credit can cover the capital gains tax and you will have a higher cost basis so you won't owe taxes in the future.

Although it occurs to me that you might not even owe capital gains taxes depending on what tax bracket you're in.  It still might be a good idea if you think you'll be in the 25% tax bracket in the future.

If they are basically paying negative taxes, they probably pay 0% long term capital gains. So this would only make sense for short term gains.

I like the Traditional to IRA conversion idea. Since you aren't paying any taxes, definitely max out Roth IRA's over traditional.

The adoption tax credit can be in excess of $13k.  That means they could have an income of $140k, be solidly in the 25% tax bracket, and still have a negative tax bill.

meandmyfamily

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Re: We pay negative taxes-question
« Reply #7 on: May 13, 2015, 02:52:35 PM »
We are in the 15% tax bracket and we have no investments in taxable accounts.  Thank you for the ideas!  I wanted to make sure I was thinking of all options.

TreeTired

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Re: We pay negative taxes-question
« Reply #8 on: May 14, 2015, 03:27:17 PM »
In order to create a tax liability you generally have to create some taxable INCOME.  :)

Traditional to Roth conversion is the only one that comes to mind for me.    I did that a few years ago when I had very little income and we had to replace our HVAC units.  We got an energy tax credit which we were not going to be able to use, so I converted some traditional to Roth, used the tax credit and paid no taxes, so essentially got a free Roth conversion. 

forummm

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Re: We pay negative taxes-question
« Reply #9 on: May 14, 2015, 04:30:50 PM »
You could also go out and get another job and make some tax free income.