15% Tax Bracket

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Subject Author Date 15% Tax Bracket Phil 08-05-2009  Re: 15% Tax Bracket Alan 08-05-2009  Re: 15% Tax Bracket DF2 08-05-2009  Re: 15% Tax Bracket Phil 08-06-2009
Posted by Phil on August 5, 2009, 5:30 pm Please log in for more thread options For 2009 the max income for the 15% tax bracket is $67,900 (married filing jointly) we are converting some of my wifes IRA to a Roth and want to stay in the 15% bracket. (We/she meet the requirements to do the conversion) Our income is pension & interest 27,200 Qualified Dividends 5,000 Return of Cap (MLPS)5,200 My thinking is that we can ignore Return of Cap of 5,200 and thus convert about 35,700 from my wifes IRA to a Roth. Am I correct in my thinking? Also by staying in the 15% bracket when figuring my withholding, I base it on pension & interest of 27,200 plus the conversion amount of 35,700 for total of 62,900 (again ignoring Return of Cap of 5,200) and not counting the Qualified Dividends of 5,000 because they are tax free in the 15% bracket. Again am I correct in my thinking? Thank You Phil -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Alan on August 5, 2009, 6:40 pm Please log in for more thread options Phil wrote: > For 2009 the max income for the 15% tax bracket is $67,900 (married > filing jointly) we are converting some of my wifes IRA to a Roth and > want to stay in the 15% bracket. (We/she meet the requirements to do the > conversion) > Our income is pension & interest 27,200 > Qualified Dividends 5,000 > Return of Cap (MLPS)5,200 > My thinking is that we can ignore Return of Cap of 5,200 and thus > convert about 35,700 from my wifes IRA to a Roth. > Am I correct in my thinking? > Also by staying in the 15% bracket when figuring my withholding, I base > it on pension & interest of 27,200 plus the conversion amount of 35,700 > for total of 62,900 (again ignoring Return of Cap of 5,200) and not > counting the Qualified Dividends of 5,000 because they are tax free in > the 15% bracket. > Again am I correct in my thinking? > Thank You > Phil > No, your thinking is wrong. The $67,900 number represents taxable income. I.e., Adjusted Gross income less your personal exemptions less your standard or itemized deduction. Your return of capital is not taxable as long as after adjusting your cost basis down for the return you don't go below zero cost basis. Your $5000 of qualified dividends will be tax-free as long as your ordinary taxable income does not exceed $62900. Therefore, add up your taxable gross income, subtract any adjustments, subtract personal exemptions and subtract either the standard deduction or itemized deductions. What is left is your taxable income before the Roth conversion. Subtract that amount from $67,900. The difference is how much you can convert and only pay 15% tax on the conversion and still pay no tax on the qualified dividends. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by DF2 on August 5, 2009, 7:31 pm Please log in for more thread options In misc.taxes.moderated, Phil wrote: >For 2009 the max income for the 15% tax bracket is $67,900 (married >filing jointly) we are converting some of my wifes IRA to a Roth and >want to stay in the 15% bracket. (We/she meet the requirements to do the >conversion) >Our income is pension & interest 27,200 > Qualified Dividends 5,000 > Return of Cap (MLPS)5,200 >My thinking is that we can ignore Return of Cap of 5,200 and thus >convert about 35,700 from my wifes IRA to a Roth. >Am I correct in my thinking? >Also by staying in the 15% bracket when figuring my withholding, I base >it on pension & interest of 27,200 plus the conversion amount of 35,700 >for total of 62,900 (again ignoring Return of Cap of 5,200) and not >counting the Qualified Dividends of 5,000 because they are tax free in >the 15% bracket. >Again am I correct in my thinking? Mostly. Two things: a part of what shows as Return of Cap (MLPS)might actually be income when you get the K-1. So it may be low, but not zero. You can convert more than you think you will want to convert, and recharacterize part back to fine tune after you know the real numbers. Gains or losses on the recharacterized amount are apportioned pro rata to the part that gets unconverted (recharacterized) and the part that stays converted. So for example, you convert 50,000, the converted account rises to 60,000 at the time of recharacterization, you unconvert half back, you will move $30,000 back to the conventional IRA, and pay taxes on $25,000 as the converted amount. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Phil on August 6, 2009, 9:02 pm Please log in for more thread options DF2 wrote: > In misc.taxes.moderated, Phil wrote: > >> For 2009 the max income for the 15% tax bracket is $67,900 (married >> filing jointly) we are converting some of my wifes IRA to a Roth and >> want to stay in the 15% bracket. (We/she meet the requirements to do the >> conversion) >> Our income is pension & interest 27,200 >> Qualified Dividends 5,000 >> Return of Cap (MLPS)5,200 >> My thinking is that we can ignore Return of Cap of 5,200 and thus >> convert about 35,700 from my wifes IRA to a Roth. >> Am I correct in my thinking? >> Also by staying in the 15% bracket when figuring my withholding, I base >> it on pension & interest of 27,200 plus the conversion amount of 35,700 >> for total of 62,900 (again ignoring Return of Cap of 5,200) and not >> counting the Qualified Dividends of 5,000 because they are tax free in >> the 15% bracket. >> Again am I correct in my thinking? > > Mostly. Two things: a part of what shows as Return of Cap > (MLPS)might actually be income when you get the K-1. So it may be > low, but not zero. > > You can convert more than you think you will want to convert, and > recharacterize part back to fine tune after you know the real > numbers. Gains or losses on the recharacterized amount are > apportioned pro rata to the part that gets unconverted > (recharacterized) and the part that stays converted. > > So for example, you convert 50,000, the converted account rises to > 60,000 at the time of recharacterization, you unconvert half back, > you will move $30,000 back to the conventional IRA, and pay taxes > on $25,000 as the converted amount. > Thanks for the reply. I forgot one thing, I also have $5000 loss on a couple of stock sales, with no profitable sales to off set. I assume I can increase my conversion by $3000 and carry $2000 forward. Phil -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted how do I determine my tax bracket if I'm an ex-pat? July 6, 2008, 12:34 pm