What If

We are all used to telling our employer how many exemptions we have so they can make the proper tax deductions during the year. For most of us the first time we look at our potential taxes is in January of the following year when we get our W-2s in the mail.

We can do basically the same thing during retirement, but now that we have seen what our Personal Tax Hump looks like and realize that we can save thousands of dollars each year if we avoid those extreme marginal tax rates, we should all consider doing the opposite! Start doing your tax calculation this January, not next January, and keep asking yourself What If every time you decide to create extra taxable income!

Use the following links to examine the details of each of these
What If situation that you could be facing during your retirement.

• You prepared properly for year end unexpected income.
  • 22.2% You received a taxable bonus or short term gains.
  • 10.2% You received some long term capital gains.
• You did not prepare for year end gains and some of your income was LTCGs
  • 49.95% You received a taxable bonus or short term gains.
  • 37.95% You received some long term capital gains.
• You did not prepare for year end gains and none of your income was LTCGs
  • 40.7% You received a taxable bonus or short term gains.
  • 33.7% You received some long term capital gains.
• Break Even Detailed examples after Federal, State, and Local taxes.
• QCD Detailed example of a Qualified Charitable Distribution.

What If you need more cash beyond your Sweet Spot limit?
I’m not a tax accountant, so use everything on this page at your own risk!

The extra income in the 49.95% example was a taxable IRA withdraw, this time our extra $1,000 of income is coming from Long Term Gains.

The Triple Taxation in these examples is extremely complex, so let's examine what is happening to the penny, not rounded to the nearest dollar. Your Taxable SSB increases by $850 in both examples because LTCGs are treated as normal income for the basis of that taxation BUT the extra LTCGs in the 37.95% example are not taxable income SO your normal taxes due are $120 less BUT they are pushed over the $39,375 LTCG Taxability limit SO the extra taxes due on the LTCGs are $277.50 in both What If situations.

The most disturbing fact in all of this is that the Highest Marginal Tax Rate paid by any American is 49.95% and it is being paid by hard working retired American at the top end of the 12% Federal Tax Bracket!