A reader writes in, asking: “I am tentatively starting to think how taxes affect retirement especially for the ACA purposes, in case it somehow survives the latest current court fight. So, which kind of tax should we be concerned about? When I google this, I can find someone saying ‘marginal tax’ whereas somebody else saying ‘effective tax rate’. So, which is it? Could you direct me to some easy to understand tutorial about it? I certainly cannot plan anything (e.g. 401k to an IRA and then Roth IRA conversions) and staying under ‘the cliff’ unless I understand the basics on this subject.” Broadly speaking: Effective tax rate is useful for budgeting; Marginal tax rate is useful for tax planning. For example, … [Read More...]
2021 Tax Brackets, Standard Deduction, and Other Changes
The IRS recently published the annual inflation updates for 2021. If you have questions about a particular amount that I do not mention here, you can likely find it in the official IRS announcements: Rev. Proc. 2020-45 contains most inflation adjustment figures, and Notice 2020-79 contains figures relating to retirement accounts. Single 2021 Tax Brackets Taxable Income Tax Bracket: $0-$9,950 10% $9,950-$40,525 12% $40,525-$86,375 22% $86,375-$164,925 24% $164,925-$209,425 32% $209,425-$523,600 35% $523,600+ 37% Married Filing Jointly 2021 Tax Brackets Taxable Income Tax Bracket: $0-$19,900 10% $19,900-$81,050 12% $81,050-$172,750 22% $172,750-$329,850 24% $329,850-$418,850 32% $418,850-$628,300 35% $628,300+ 37% Head of Household 2021 Tax Brackets Taxable Income Tax Bracket: $0-$14,200 10% $14,200-$54,200 12% $54,200-$86,350 22% $86,350-$164,900 24% … [Read More...]
Estimated Tax Payments and Roth Conversions
A reader writes in, asking: “I was wondering if you’ve discussed taxes on Roth conversions before. Specifically, I’m really confused on whether or not I would need to make estimated tax payments to the IRS. Does it matter when I do the conversion, January vs. December, for instance? Would I make a single estimated payment, or would I have to make four during the year? I do NOT currently make estimated payments. My wife and I file jointly and have taxes withheld from our paychecks and typically may owe a few grand at most in taxes in April. Maybe a post about estimated taxes in general would be helpful.” Yes, a Roth conversion could cause you to need to make estimated tax payments. … [Read More...]
Health Care Flexible Spending Accounts: Don’t Lose Your FSA Money
Updated for 2020. Here’s my annual year-end reminder – to myself, really – to get back all the money sent into Healthcare Flexible Spending Accounts (HC FSA) before it disappears forever (see possible extensions below). The maximum salary deduction limit is $2,750 for 2020. You choose your deduction amount during Open Enrollment season, but it can also be adjusted during “qualifying life events” like the birth of a child, marriage, or divorce. Quick ideas. If you didn’t exhaust your funds with insurance copays or deductibles, here are eligible items that you can still buy over-the-counter without a prescription. Just order things online and then submit the receipt. Amazon even has a special FSA-eligible page that accept FSA/HSA debit cards, complete with… [Read More...]
4 Questions to Ask Yourself During the 2020 Tax Season
Here’s the FYI on why you need to call your CPA ASAP. [Read More...]
Health Savings Account (HSA) for Dividend Investors
I recently signed up for a Health Savings Account (HSA) with my employer. A Health Savings Account is a tax-advantaged medical account which is available to individuals in the US who have enrolled into a high-deductible health plan (HDHP). For 2021, individuals cannot contribute more than $3,600/year, while families cannot put more than $7,200. There is a catch-up contribution of $1,000 for those… To read the whole article, please click on the article title above. [Read More...]