Author Topic: Landing in the 15% federal income tax bracket - what to do? (Read 1271 times)

bb11

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Landing in the 15% federal income tax bracket - what to do?
« on: November 07, 2017, 05:04:46 AM »
I'm a grad student landing in the 15% tax bracket for what I suspect will be the last time for a while in 2017. This year I'll only make ~$33,000. I've already signed an offer for once I graduate in May 2018 for ~$150k, and even given that 2018 will only have 7 months of income I should make over $100k. So I'm wondering the best way to maximize my benefits of being in a low bracket this year.

To date I'm maxed out my Roth IRA and put away what I can in a ROTH 457 (not too much). It's my understanding that the standard deduction and exemption should take my gross income down to $23k? And I believe my cap gains tax is 0% as long as I don't eclipse $37k in income (to get into the 25% bracket). Should I:

- Sell my invesments temporarily to step up their basis with no tax owed? (Does this count towards the $37k limit?)
- Convert Traditional IRA money into Roth money? (All the way up to the $37k limit?)
- Something else?
-
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Asalbeag

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #1 on: November 07, 2017, 05:24:41 AM »
Yes you can tax gain harvest, there are no wash sale rules for this, the only cost will be the transaction fees. Try to avoid taking capital losses this year as they won't help at all as they will just go against your capital gains which will be at 0% anyway.

EDIT: one other thing to look at would be the tax credits available at the lower income, check when they begin to phase out (Savers Credit, EITC etc). I suggest filling out a few alternate versions of your 1040 now while you have time to make changes if needed.
« Last Edit: November 07, 2017, 05:30:41 AM by Asalbeag »

terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #2 on: November 07, 2017, 07:27:46 AM »
If you have taxable money that you're going to sell to harvest the gains (as suggested above) you may as well jack up your 457 contributions (and 403b if you have one) as high as your income will allow and live off the money in taxable to get as much as you can into tax advantaged accounts.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #3 on: November 07, 2017, 08:12:27 AM »
If you have taxable money that you're going to sell to harvest the gains (as suggested above) you may as well jack up your 457 contributions (and 403b if you have one) as high as your income will allow and live off the money in taxable to get as much as you can into tax advantaged accounts.

Unfortunately I can't place any more money in the 457.

Is it better to tax gain harvest or convert Traditional money to Roth? And does tax gain harvesting add to my gross income number?
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terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #4 on: November 07, 2017, 09:32:24 AM »
Both tax gain harvesting and traditional to roth conversions would add to your Adjusted Gross Income and neither would add to your earned income. Does that answer your question.

If there's some chance that you will need to withdraw from either when you're in the 25% bracket then I suppose it would be better to tax gain harvest because that would cost you 0% now and 15% in the 25% bracket, a difference of 15%, while traditional to roth conversions will cost you 15% now and 25% in the 25% bracket, a difference of 10%. If you expect to be in an even higher bracket in retirement that might start to favor conversions, but that seems unlikely given what forum we're on.

If you expect to be in the 15% or lower bracket at withdrawal then I would probably still say gain harvesting makes sense since roth conversions will at best be exactly the same (15% bracket) and at worst a loser (10% bracket).

Do you have any chance of being under $31500 AGI this year? If so, take a look at the savers tax credit -- it can give you a non-refundable tax credit on 10%, 20%, or 50% of $2000 worth of retirement contributions (so a $200, $400, or $1000 credit) depending on your AGI.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #5 on: November 07, 2017, 02:07:51 PM »
Quote
Both tax gain harvesting and traditional to roth conversions would add to your Adjusted Gross Income and neither would add to your earned income. Does that answer your question.

I'm not sure what the distinction is.

Quote
If there's some chance that you will need to withdraw from either when you're in the 25% bracket then I suppose it would be better to tax gain harvest because that would cost you 0% now and 15% in the 25% bracket, a difference of 15%, while traditional to roth conversions will cost you 15% now and 25% in the 25% bracket, a difference of 10%. If you expect to be in an even higher bracket in retirement that might start to favor conversions, but that seems unlikely given what forum we're on.

I plan to keep working after reaching my FI number for the forseeable future (I'm only about 3 years from FI now), so I could end up in a pretty high tax bracket. I guess it's better to take the 0% cap gains rate since there are no taxes incurred? Hard to know about future tax brackets.

Quote
Do you have any chance of being under $31500 AGI this year? If so, take a look at the savers tax credit -- it can give you a non-refundable tax credit on 10%, 20%, or 50% of $2000 worth of retirement contributions (so a $200, $400, or $1000 credit) depending on your AGI.

After taking the standard deduction and personal exemption won't I be well under $30k?
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kingxiaodi

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #6 on: November 07, 2017, 02:17:32 PM »
After taking the standard deduction and personal exemption won't I be well under $30k?


Both the standard deduction and personal exemptions are "below the line," i.e. they lower your taxable income, but they don't change your AGI (looking at the 1040 for example, AGI is line 37, standard deduction is line 40, personal exemption is line 42).

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #7 on: November 07, 2017, 02:45:01 PM »
After taking the standard deduction and personal exemption won't I be well under $30k?


Both the standard deduction and personal exemptions are "below the line," i.e. they lower your taxable income, but they don't change your AGI (looking at the 1040 for example, AGI is line 37, standard deduction is line 40, personal exemption is line 42).

Okay. And the 0% cap gains/dividends bracket is based on AGI? In that case I would only have a few thousand I could harvest before crossing into the next bracket. Do all cap gains/dividends get taxed at the same rate, or how does that work?
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terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #8 on: November 07, 2017, 03:17:20 PM »
Quote
Both tax gain harvesting and traditional to roth conversions would add to your Adjusted Gross Income and neither would add to your earned income. Does that answer your question.

I'm not sure what the distinction is.

AGI is what most tax brackets, credits, etc are based on. You can only make retirement plan contributions to the extent that you have earned income. So a roth to traditional conversion or tax gain harvesting will increase your AGI, but that can't be used as justification for making new IRA contributions unless you have additional earned income.
After taking the standard deduction and personal exemption won't I be well under $30k?


Both the standard deduction and personal exemptions are "below the line," i.e. they lower your taxable income, but they don't change your AGI (looking at the 1040 for example, AGI is line 37, standard deduction is line 40, personal exemption is line 42).

Okay. And the 0% cap gains/dividends bracket is based on AGI? In that case I would only have a few thousand I could harvest before crossing into the next bracket. Do all cap gains/dividends get taxed at the same rate, or how does that work?

Short term gains and non-qualified dividends (those on assets held less than one year) are taxed at your regular marginal rate. Long term gains and qualified dividends (those on assets held more than one year) are taxed at capital gains rates.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #9 on: November 07, 2017, 07:56:28 PM »
Quote
Short term gains and non-qualified dividends (those on assets held less than one year) are taxed at your regular marginal rate. Long term gains and qualified dividends (those on assets held more than one year) are taxed at capital gains rates.

But if my AGI is $35k, and the cutoff to move from the 15% bracket to the 25% bracket (and therefore from 0% LT cap gains to 15%) is $37k, and then I tax harvest $4k of cap gains, do I get all $4k taxed at the 15% rate or only the last $2k (above and beyond the $37k cutoff)?

Do you see what I mean? If I have $35k of regular income and make an additional $4k, $2k will be taxed at 15% and $2k will be taxed at 25%. What I am unclear about is how the marginal effects work with long term capital gains and dividends. Because what if I say that the cap gains were my first $4k in income, and I actually want my last $2k of regular income taxed at the 25% regular income bracket (marginal 10% increase vs 15% increase).

Or is it that bumping into the 25% regular bracket at all means all LT cap gains are taxed at 15% AND the last $2k of regular income is taxed at 25%? That is what would really suck, and I am trying to make sure to avoid.
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terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #10 on: November 07, 2017, 08:16:17 PM »
Gotcha, just like the regular tax brackets, only the amount that falls in the bracket is taxed at that brackets rate. So any long term gains that fall in the 15% bracket will be taxed at 0%, and any that fall in the 25% bracket will be taxed at 15%.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #11 on: November 07, 2017, 10:35:28 PM »
Gotcha, just like the regular tax brackets, only the amount that falls in the bracket is taxed at that brackets rate. So any long term gains that fall in the 15% bracket will be taxed at 0%, and any that fall in the 25% bracket will be taxed at 15%.

And how do you determine if the marginal income that falls into the next bracket is regular income or capital gains? It could be either really.
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mxt0133

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #12 on: November 07, 2017, 11:13:21 PM »
Use this tool to help determine how much you can tax gain harvest without having to pay for capital gains. You don't need to know the exact amount just keep plugging number until you find the cutoff of when an additional dollar of long term capital gains increases your federal taxes.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #13 on: November 08, 2017, 08:50:22 AM »
Use this tool to help determine how much you can tax gain harvest without having to pay for capital gains. You don't need to know the exact amount just keep plugging number until you find the cutoff of when an additional dollar of long term capital gains increases your federal taxes.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

That tool is a little complicated for me. I've not been able to figure out the answers to my problem.

Let me try restating my question:

I have $33k in regular income and $4k in long term capital gains. What are the tax implications on each of those types of income?
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Derbtax

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #14 on: November 08, 2017, 09:26:15 AM »

And how do you determine if the marginal income that falls into the next bracket is regular income or capital gains? It could be either really.

Ordinary income is taxed first. Long-term capital gain goes at the top end.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #15 on: November 08, 2017, 12:31:49 PM »

And how do you determine if the marginal income that falls into the next bracket is regular income or capital gains? It could be either really.

Ordinary income is taxed first. Long-term capital gain goes at the top end.
That helps clarify some. And I want to say thank you for all the answers, and sorry for being difficult. I'm still finding no one is answering my question fully though. Let's try again:

I make $33k in regular income, and $4k in cap gains. The cut off for the next regular income bracket is $37k. How are each form of income taxed? Is the top $2k of capital gains taxed at 15%, and the first $2k taxed at 0%? Is any regular income taxed at 25%? I am still not clear based on the answers I've received, although now I finally think the regular income would all be taxed at 15% or lower.
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terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #16 on: November 08, 2017, 01:32:18 PM »

And how do you determine if the marginal income that falls into the next bracket is regular income or capital gains? It could be either really.

Ordinary income is taxed first. Long-term capital gain goes at the top end.
That helps clarify some. And I want to say thank you for all the answers, and sorry for being difficult. I'm still finding no one is answering my question fully though. Let's try again:

I make $33k in regular income, and $4k in cap gains. The cut off for the next regular income bracket is $37k. How are each form of income taxed? Is the top $2k of capital gains taxed at 15%, and the first $2k taxed at 0%? Is any regular income taxed at 25%? I am still not clear based on the answers I've received, although now I finally think the regular income would all be taxed at 15% or lower.

Given those assumptions you would pay 15% on the amount of "regular" earned income over the 10% bracket, and 0% on the capital gains assuming they are long term capital gains.

The top of the 15% bracket for single filers is actually $37,950, and that's after the $6350 standard deduction and $4050 personal exemption. To hit the "real" top of the 15% bracket you'd need to bring in $48,350 in some form of income. See https://taxfoundation.org/2017-tax-brackets/

I find the https://taxact.com/tools/tax-calculator calculator easier to use than the one posted up thread. You can skip straight to the income tab. Click the additional income button to see where you add qualified/non-qualified dividends, short/long term capital gains and taxable IRAs (which is how you would simulate roth conversions). Playing around with that (and looking at the tax brackets) should give you a good idea of how various forms of income interact with the tax brackets.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #17 on: November 08, 2017, 02:02:43 PM »
Quote
I find the https://taxact.com/tools/tax-calculator calculator easier to use than the one posted up thread. You can skip straight to the income tab. Click the additional income button to see where you add qualified/non-qualified dividends, short/long term capital gains and taxable IRAs (which is how you would simulate roth conversions). Playing around with that (and looking at the tax brackets) should give you a good idea of how various forms of income interact with the tax brackets.

That's tool is not easy either. I don't see anywhere to put in LT cap gains. Anyway, I'm really hoping to understand how this works rather than just see a total tax number spit out.

Quote
The top of the 15% bracket for single filers is actually $37,950, and that's after the $6350 standard deduction and $4050 personal exemption. To hit the "real" top of the 15% bracket you'd need to bring in $48,350 in some form of income. See https://taxfoundation.org/2017-tax-brackets

Got it, okay. I was confused by the AGI talk earlier in the thread. So let's use the $48,350 cutoff moving forward as the beginning of the 25% regular income tax rate and 15% long-term cap gains rate.

I can have plenty of regular income. I have ~$80k in my Trad IRA I could convert, so it won't be a problem to get near that $48,350 figure.

Quote
Given those assumptions you would pay 15% on the amount of "regular" earned income over the 10% bracket, and 0% on the capital gains assuming they are long term capital gains.

How's that work exactly? Here's the question again with our new numbers:

$46,350 regular income
$5,000 in long-term capital gains

1. What percentage of regular income is taxed at the 15% marginal rate (or less) versus the 25% marginal rate?
2. What percentage of long-term capital gains income is taxed at the 0% marginal rate versus the 15% rate? And why?
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MMbergmann

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #18 on: November 08, 2017, 02:57:10 PM »
Think about it like buckets, with the cutoffs for brackets being a new bucket. You fill ordinary income in the buckets first. Then you fill long term cap gains and qualified dividends. Figure it out. We have explained it multiple times.

terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #19 on: November 08, 2017, 06:07:43 PM »
Quote
I find the https://taxact.com/tools/tax-calculator calculator easier to use than the one posted up thread. You can skip straight to the income tab. Click the additional income button to see where you add qualified/non-qualified dividends, short/long term capital gains and taxable IRAs (which is how you would simulate roth conversions). Playing around with that (and looking at the tax brackets) should give you a good idea of how various forms of income interact with the tax brackets.

That's tool is not easy either. I don't see anywhere to put in LT cap gains. Anyway, I'm really hoping to understand how this works rather than just see a total tax number spit out.

I explained how to do that. See the bolded section of my quote above. Yes, don't use it to put it numbers and see what it spits out. Use it to change numbers and see what happens. Add $1000 to one of the income types and see what happens to your tax liability. Although, messing around with your example below, the calculator seems to be adding higher deductions than it should, and I'm not sure why, so maybe better not to rely on it. It might be broken.

Quote
The top of the 15% bracket for single filers is actually $37,950, and that's after the $6350 standard deduction and $4050 personal exemption. To hit the "real" top of the 15% bracket you'd need to bring in $48,350 in some form of income. See https://taxfoundation.org/2017-tax-brackets

Got it, okay. I was confused by the AGI talk earlier in the thread. So let's use the $48,350 cutoff moving forward as the beginning of the 25% regular income tax rate and 15% long-term cap gains rate.

I can have plenty of regular income. I have ~$80k in my Trad IRA I could convert, so it won't be a problem to get near that $48,350 figure.

I think the $37k is probably from when I mentioned the savers tax credit above. It's another limit you may wish to stay under if you would like to get that credit (worth $200, $400, or $1000 off your taxes depending on what income limit you stay under), but if you want to maximize roth conversions and capital gains harvesting, then you should just ignore this and worry only about the tax brackets.

Quote
Given those assumptions you would pay 15% on the amount of "regular" earned income over the 10% bracket, and 0% on the capital gains assuming they are long term capital gains.

How's that work exactly? Here's the question again with our new numbers:

$46,350 regular income
$5,000 in long-term capital gains

1. What percentage of regular income is taxed at the 15% marginal rate (or less) versus the 25% marginal rate?
2. What percentage of long-term capital gains income is taxed at the 0% marginal rate versus the 15% rate? And why?

1. I'm not going to figure out percentages, but $10,400 ($6350 standard deduction + 4050 personal exemption) will not be taxed. The next $9,325, so income between $10,400 and $19,725 will be taxed at 10% for a total of $932.50. Then the next $37,950, or income between $19,725 and $48,350, so the final $26,625 would be taxed at 15% for a total of $3,993.75. $2000 of your $5000 long term capital gains would then fall within the 15%, and $3000 within the 25% bracket, so $3000 would be taxed at 15% for a total of $450. 932.50 + 3,993.75 + 450 = total tax due of $5,376.25.

2. See question 1. $2000 is taxed at 0% because it falls within the 15% bracket, $3000 is taxed at 15% because it falls within the 25% bracket.

MDM

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #20 on: November 08, 2017, 06:51:31 PM »
I have $33k in regular income and $4k in long term capital gains. What are the tax implications on each of those types of income?

Below is the snapshot look at the situation described:
Paycheck frequency:AnnualAnnual
Paycheck ItemsEarner #1Earner #2Annual
Gross Salary/Wages
$33,000$0$33,000
W-2 Box 1
$33,000$0$33,000
Non-paycheck incomeAnnualAnnualAnnual
Qualified dividends + LTCG$4,000$4,000
1040 Total Income
$37,000$0$37,000
1040 AGI
$37,000
Payroll TaxesAnnualAnnualAnnual
Social Security$2,0460$2,046
Medicare$4790$479
Income Taxes$00$0
Federal tax$2,9242017, S, std., 1 ex.$2,924
Total income taxes$5,4480$5,448


Filing Status11=S, 2=MFJ, 3=HOH
# Exemptions1
Adult #1
Age25
Full-time student?10
AGI$37,000
Std. Deduct.$6,350
Act. Deduct.$6,350
Exemption$4,050
Taxable$26,600
1040 Tax$2,924
VersionV9.07

This is the tax rate on LTCG, assuming $33K in ordinary income:


This is the tax rate on ordinary income, assuming $4K in LTCG:


See the case study spreadsheet if you would like to use different numbers.

bb11

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #21 on: November 09, 2017, 09:47:41 AM »
Quote
I find the https://taxact.com/tools/tax-calculator calculator easier to use than the one posted up thread. You can skip straight to the income tab. Click the additional income button to see where you add qualified/non-qualified dividends, short/long term capital gains and taxable IRAs (which is how you would simulate roth conversions). Playing around with that (and looking at the tax brackets) should give you a good idea of how various forms of income interact with the tax brackets.

That's tool is not easy either. I don't see anywhere to put in LT cap gains. Anyway, I'm really hoping to understand how this works rather than just see a total tax number spit out.

I explained how to do that. See the bolded section of my quote above. Yes, don't use it to put it numbers and see what it spits out. Use it to change numbers and see what happens. Add $1000 to one of the income types and see what happens to your tax liability. Although, messing around with your example below, the calculator seems to be adding higher deductions than it should, and I'm not sure why, so maybe better not to rely on it. It might be broken.

Quote
The top of the 15% bracket for single filers is actually $37,950, and that's after the $6350 standard deduction and $4050 personal exemption. To hit the "real" top of the 15% bracket you'd need to bring in $48,350 in some form of income. See https://taxfoundation.org/2017-tax-brackets

Got it, okay. I was confused by the AGI talk earlier in the thread. So let's use the $48,350 cutoff moving forward as the beginning of the 25% regular income tax rate and 15% long-term cap gains rate.

I can have plenty of regular income. I have ~$80k in my Trad IRA I could convert, so it won't be a problem to get near that $48,350 figure.

I think the $37k is probably from when I mentioned the savers tax credit above. It's another limit you may wish to stay under if you would like to get that credit (worth $200, $400, or $1000 off your taxes depending on what income limit you stay under), but if you want to maximize roth conversions and capital gains harvesting, then you should just ignore this and worry only about the tax brackets.

Quote
Given those assumptions you would pay 15% on the amount of "regular" earned income over the 10% bracket, and 0% on the capital gains assuming they are long term capital gains.

How's that work exactly? Here's the question again with our new numbers:

$46,350 regular income
$5,000 in long-term capital gains

1. What percentage of regular income is taxed at the 15% marginal rate (or less) versus the 25% marginal rate?
2. What percentage of long-term capital gains income is taxed at the 0% marginal rate versus the 15% rate? And why?

1. I'm not going to figure out percentages, but $10,400 ($6350 standard deduction + 4050 personal exemption) will not be taxed. The next $9,325, so income between $10,400 and $19,725 will be taxed at 10% for a total of $932.50. Then the next $37,950, or income between $19,725 and $48,350, so the final $26,625 would be taxed at 15% for a total of $3,993.75. $2000 of your $5000 long term capital gains would then fall within the 15%, and $3000 within the 25% bracket, so $3000 would be taxed at 15% for a total of $450. 932.50 + 3,993.75 + 450 = total tax due of $5,376.25.

2. See question 1. $2000 is taxed at 0% because it falls within the 15% bracket, $3000 is taxed at 15% because it falls within the 25% bracket.

Super helpful. Thank you!!! So now just questions on strategy:

1. It seems my best option would be to get all the way up to the $48,350 limit correct? I mean, it's the lowest tax bracket I'm going to be in for quite some time. So while I would lose out on a few tax credits, and I can technically defer LT cap gains or Trad IRA conversions for decades, I'm still thinking it's best to utilize them up to the 25% regular income rate threshold?
2. If I've decided on doing that, I'm thinking it's best to tax gain harvest, given the ability to lock in 0% rates? I've got $12,400 in gains in my taxable account (current market value of $80,100) that I could harvest if I sold everything.
3. If I am tax harvesting for gains, what is the best way to do that? I'm invested in a total market index fund, a S&P 500 index fund, and a total international index fund in this taxable account.
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terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #22 on: November 09, 2017, 11:59:38 AM »
Super helpful. Thank you!!! So now just questions on strategy:

1. It seems my best option would be to get all the way up to the $48,350 limit correct? I mean, it's the lowest tax bracket I'm going to be in for quite some time. So while I would lose out on a few tax credits, and I can technically defer LT cap gains or Trad IRA conversions for decades, I'm still thinking it's best to utilize them up to the 25% regular income rate threshold?
2. If I've decided on doing that, I'm thinking it's best to tax gain harvest, given the ability to lock in 0% rates? I've got $12,400 in gains in my taxable account (current market value of $80,100) that I could harvest if I sold everything.
3. If I am tax harvesting for gains, what is the best way to do that? I'm invested in a total market index fund, a S&P 500 index fund, and a total international index fund in this taxable account.

1. Not necessarily. By my math 400/(48350-37000) = 3.5%, so that means you're essentially paying another 3.5% tax on top of whatever marginal tax rate you're paying. So you'd be paying 18.5% tax on conversions, or 3.5% on gains harvesting. It doesn't matter what happens between now and retirement, all that matters is your marginal tax rate now and your marginal tax rate when you want to withdraw the money. The other consideration is state taxes. If you pay high state taxes now and an expect to move to a no or low income tax state in retirement, that could be a factor in favor of not converting/harvesting. Remember that most states tax capital gains as regular income, so there likely won't be any favorable treatment of capital gains income at the state level.

On the other hand, it's certainly not a bad option. Who knows what tax rates could do in the future, and 3.5% is pretty darn little to pay. Basically, I would say there are no really bad decisions here, so go with whatever floats your boat. One decision might be mathematically optimal, but it's not a big difference, so I wouldn't stress over it too much.

2. Yeah, I think that makes sense since the advantage of harvesting in the 15% bracket vs the 25% is 15% while the advantage of converting in one over the other is only 10%.

3. You sell and rebuy whatever funds match your desired asset allocation. Unlike capital loss harvesting there are no prohibitions agains immediately rebuying the same fund that you just sold. I think some funds at some brokerages may have restrictions on round trip transactions in a short time like that so you'd have to look into that.

MDM

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #23 on: November 09, 2017, 03:46:33 PM »
I'm a grad student....
1. It seems my best option would be to get all the way up to the $48,350 limit correct? I mean, it's the lowest tax bracket I'm going to be in for quite some time. So while I would lose out on a few tax credits, and I can technically defer LT cap gains or Trad IRA conversions for decades, I'm still thinking it's best to utilize them up to the 25% regular income rate threshold?
1. Not necessarily. By my math 400/(48350-37000) = 3.5%....

Assuming the $400 in the numerator is a saver's credit amount, that can be ignored because the saver's credit is not available to full time students.

Accidental Miser

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #24 on: November 09, 2017, 03:57:51 PM »
Use this tool to help determine how much you can tax gain harvest without having to pay for capital gains. You don't need to know the exact amount just keep plugging number until you find the cutoff of when an additional dollar of long term capital gains increases your federal taxes.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

That tool is a little complicated for me. I've not been able to figure out the answers to my problem.

Might I suggest engaging a tax advisor? If you mess this up, it could cost you.

seattlecyclone

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #25 on: November 09, 2017, 04:09:02 PM »
I'm a grad student....
1. It seems my best option would be to get all the way up to the $48,350 limit correct? I mean, it's the lowest tax bracket I'm going to be in for quite some time. So while I would lose out on a few tax credits, and I can technically defer LT cap gains or Trad IRA conversions for decades, I'm still thinking it's best to utilize them up to the 25% regular income rate threshold?
1. Not necessarily. By my math 400/(48350-37000) = 3.5%....

Assuming the $400 in the numerator is a saver's credit amount, that can be ignored because the saver's credit is not available to full time students.

But! You may not technically be a full-time student. When I was in a master's program with a teaching assistantship I was taking two classes (six credits) per semester, and the university defined anything under eight credits to be part-time status. In the university's eyes I was a part-time student and part-time teaching assistant. I considered that to be good enough for the IRS. Check into your own university's official definition of what a full-time student is, and whether you are one.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

terran

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Re: Landing in the 15% federal income tax bracket - what to do?
« Reply #26 on: November 09, 2017, 06:58:48 PM »
I'm a grad student....
1. It seems my best option would be to get all the way up to the $48,350 limit correct? I mean, it's the lowest tax bracket I'm going to be in for quite some time. So while I would lose out on a few tax credits, and I can technically defer LT cap gains or Trad IRA conversions for decades, I'm still thinking it's best to utilize them up to the 25% regular income rate threshold?
1. Not necessarily. By my math 400/(48350-37000) = 3.5%....

Assuming the $400 in the numerator is a saver's credit amount, that can be ignored because the saver's credit is not available to full time students.

But! You may not technically be a full-time student. When I was in a master's program with a teaching assistantship I was taking two classes (six credits) per semester, and the university defined anything under eight credits to be part-time status. In the university's eyes I was a part-time student and part-time teaching assistant. I considered that to be good enough for the IRS. Check into your own university's official definition of what a full-time student is, and whether you are one.

Tricksy! Totally forgot about that requirement -- doesn't come up that often.