Re: determining tax rates

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Re: determining tax rates Elle 02-15-2008  Re: determining tax rates jIM 02-15-2008  Re: determining tax rates Elle 02-15-2008  Re: determining tax rates jIM 02-15-2008
Posted by Elle on February 15, 2008, 4:42 am > I think the focus for Jim's case should be more on the > following facts: Add two others: 3. For 2007, I estimate jIM could have up to nine kids and still not owe AMT. It's true the exemptions (himself, wife, kids * $3400 each) lower his regular income tax. But the 2007 AMT exemption of $66,250 is so large that even with as many as 11 exemptions he is still not in AMT territory. Similarly for 2008, I expect his six exemptions (four kids, wife, himself) will also not come close to incurring the AMT. 4. jIM and wife are contributing 11% and 6% respectively of their wages to to 401(k)s. This will help keep him out of AMT territory, though even if he did not contribute to the 401(k) nor to a Traditional IRA, he would still be well out of AMT territory. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by jIM on February 15, 2008, 9:23 am > > 4. > jIM and wife are contributing 11% and 6% respectively of > their wages to > to 401(k)s. This will help keep him out of AMT territory, > though even if he did not contribute to the 401(k) nor to a > Traditional IRA, he would still be well out of AMT Elle- can you elaborate on this with a combined gross income of around 120k. Thx. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Elle on February 15, 2008, 12:28 pm On gross income etc. triggering AMT: > can you elaborate on this with a combined gross > income of around 120k. Is that after 401(k) contributions have been subtracted? If so, then I am computing as follows, using the 2007 online calculators at the IRS site and Turbotax and my own AMT spreadsheet (based on Form 6251). All yield the same result regarding AMT. Input for Form 1040: Line 38 = 120,000 = AGI Line 40 = 28,000 = Itemized Deductions Line 41 = 92,000 = AGI - Item'd Deductions Line 42 = 20,400 = 6 Exemptions * 3400 (using next year's kids) Line 43 = 71,600 = Taxable income Line 44 = 10,748 = Regular Income Tax Input for Schedule A: Line 9 = 8,000 = "taxes you paid" (property and/or sales taxes) Line 15 = 20,000 = home mortgage interest in this case Output: No AMT owed. Repeating this with higher Line 7 incomes shows your income can rise to at least $156,400 before things start to get messy. Albeit it's only a tad messy. For 2008, and as long as there are no major changes to the basic data you provided, and assuming Congress again passes a one-year AMT patch with an AMT exemption of around $66k, then you are far from having to owe the AMT. One reason you are so far from being in AMT territory with these assumptions is that the AMT tax rate is large but with a large exemption amount ($66,250), whereas your regular income tax rate is small but with a much smaller exemption ($20,400 for six people in the family). The taxes computed using either are very close at higher incomes. As a check on the discussion here, I would consider repeating some of your questions at misc.tax.moderated. Tad's right that you do have to roll the dice on what Congress does next year. But if history is any guide, and based on all else you say, I would expect it to be unlikely you will land in AMT territory. We are rolling the dice on a lot of other aspects of tax law, besides. Two cents. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by jIM on February 15, 2008, 1:01 pm wrote: > On gross income etc. triggering AMT: > > > can you elaborate on this with a combined gross > > income of around 120k. > > Is that after 401(k) contributions have been subtracted? If > so, then I am computing as follows, using the 2007 online > calculators at the IRS site and Turbotax and my own AMT > spreadsheet (based on Form 6251). All yield the same result > regarding AMT. > > Input for Form 1040: > Line 38 = 120,000 = AGI > Line 40 =   28,000 = Itemized Deductions > Line 41 =   92,000 = AGI - Item'd Deductions > Line 42 =   20,400 = 6 Exemptions * 3400 (using next year's > kids) > Line 43 =   71,600 = Taxable income > Line 44 =    10,748 = Regular Income Tax > > Input for Schedule A: > Line 9 =     8,000 = "taxes you paid" (property and/or sales > taxes) > Line 15 = 20,000 = home mortgage interest in this case > > Output: > No AMT owed. > > Repeating this with higher Line 7 incomes shows your income > can rise to at least $156,400 before things start to get > messy. Albeit it's only a tad messy. > > For 2008, and as long as there are no major changes to the > basic data you provided, and assuming Congress again passes > a one-year AMT patch with an AMT exemption of around $66k, > then you are far from having to owe the AMT. > > One reason you are so far from being in AMT territory with > these assumptions is that the AMT tax rate is large but with > a large exemption amount ($66,250), whereas your regular > income tax rate is small but with a much smaller exemption > ($20,400 for six people in the family). The taxes computed > using either are very close at higher incomes. > > As a check on the discussion here, I would consider > repeating some of your questions at misc.tax.moderated. > > Tad's right that you do have to roll the dice on what > Congress does next year. But if history is any guide, and > based on all else you say, I would expect it to be unlikely > you will land in AMT territory. We are rolling the dice on a > lot of other aspects of tax law, besides. > > Two cents. family is going from two people (wife and I) to 4 people (wife,myself, twin boys). 4 exemptions, not 6. But still appears to be far from AMT in using the math you present. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted determining tax rates February 12, 2008, 11:44 am T-bill rates September 13, 2007, 9:31 am Has the Fed Already Lowered Interest Rates? August 16, 2007, 8:06 am How hedge interest rates? April 6, 2008, 9:15 am lock in rates for electricity? 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