Author Topic: TAX HELP?!  (Read 477 times)

GratefulDeadBanker

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TAX HELP?!
« on: February 01, 2019, 12:30:26 PM »
Hi All!

I have a question regarding submitting my taxes for the 2018 year:

I have to file two W2's as I switched employers in May18 (switched states). Overall, I made ~$82K and b/w Federal and State I am paying $20.5K in taxes. I filled out my return using Turbotax and I am going to owe ~$200 back to the government. I just find that hard to believe?
 
I use a Roth IRA/401K so I do not get a reduction of taxable income but with the $12K standard deduction wouldn't that put my tax bracket at 30%? Why am I paying so much?
Does it make a difference that I switched states? I went to two states in the southeast not known for heavy taxation.

Any thoughts on those two questions or any help on ways I may be filling out my return wrong but be greatly appreciated!

terran

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Re: TAX HELP?!
« Reply #1 on: February 01, 2019, 01:09:57 PM »
If box 1 of both of your W2s added together is $82k, and you file single, then you should have a total federal tax liability of $11,339.50.

$82,000 Form W2, box 1
-$12000 standard deduction
= $70,000 taxable income

$9,525 taxed at 10% = $952.5
+$9,526 to $38,700 taxed at 12% = $3501
+$38,701 to $82,500 ($70,000 in your case) taxed at 22% = $6886
= $11,339.50 total

How much was withheld (box 2 of your W2)?

State tax is another matter, and can vary depending on how each state handles part year residents and how long you were a resident of each.

The federal withholding tables did estimate low for much of the year, I think, so it's not too surprising that you owe. I'm actually a little surprised you owe as little as you do. That's pretty good.

You might consider switching those Roth contributions to traditional unless you expect your expenses in retirement to go up over $95k if you stay single or 190K if you get married.

GratefulDeadBanker

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Re: TAX HELP?!
« Reply #2 on: February 05, 2019, 01:35:16 PM »
Terran,

I appreciate the response.

Why should I switch to Traditional 401K/IRA instead of Roth? I do not expect my expenses to be nearly up to that $95K/$190K mark. Thanks!

MDM

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Re: TAX HELP?!
« Reply #3 on: February 05, 2019, 03:45:46 PM »
Why should I switch to Traditional 401K/IRA instead of Roth?
Well, you will save 22% on traditional contributions now.  If your marginal rate on withdrawals is significantly less than that (e.g., 12% or 15%), you come out ahead by using traditional. 

Note that if 100% of your career contributions go to Roth, you will probably have a 0% marginal rate in retirement.

Not sure where the $95K/$190K come from.  For 2019, it takes ~$52K AGI for a single filer to go from the 12% to the 22% bracket, and ~$103K for MFJ.

See cells Calculations!Q2:V20 in the case study spreadsheet.

terran

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Re: TAX HELP?!
« Reply #4 on: February 05, 2019, 05:05:45 PM »
Not sure where the $95K/$190K come from.  For 2019, it takes ~$52K AGI for a single filer to go from the 12% to the 22% bracket, and ~$103K for MFJ.

$95K/$190K is approximately the top of the 22% bracket for single/married for 2018. These would be more like $96k/$193k in 2019. If the retirement withdrawals from tax deferred accounts are anywhere between $52k/$103k and $96k/$193k adjusted for inflation the marginal rate would be 22% under current law meaning that deferring now or deferring later would be mathematically equivalent, so it doesn't much matter which whether you contribute to Roth or Traditional. Anything below $52k/$103k will mean traditional is better, anything over $96k/$193k will mean Roth is better. As usual, I think we're saying the same thing in different ways.

MDM

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Re: TAX HELP?!
« Reply #5 on: February 05, 2019, 05:37:29 PM »
If the retirement withdrawals from tax deferred accounts are anywhere between $52k/$103k and $96k/$193k adjusted for inflation the marginal rate would be 22% under current law meaning that deferring now or deferring later would be mathematically equivalent, so it doesn't much matter which whether you contribute to Roth or Traditional.
True, unless one wants to contribute an amount to Roth that requires more pre-tax money than allowed for a traditional contribution.  In that case, Roth can be favorable even with a slightly lower marginal rate in retirement.

See Maxing out your retirement accounts.

terran

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Re: TAX HELP?!
« Reply #6 on: February 05, 2019, 05:54:44 PM »
If the retirement withdrawals from tax deferred accounts are anywhere between $52k/$103k and $96k/$193k adjusted for inflation the marginal rate would be 22% under current law meaning that deferring now or deferring later would be mathematically equivalent, so it doesn't much matter which whether you contribute to Roth or Traditional.
True, unless one wants to contribute an amount to Roth that requires more pre-tax money than allowed for a traditional contribution.  In that case, Roth can be favorable even with a slightly lower marginal rate in retirement.

See Maxing out your retirement accounts.

Good point.