2022 was our first full yr again in america, which suggests we have been totally within the crosshairs of the three US tax methods: Federal, State, and ACA.
One would possibly suppose this may end in a big tax burden. However no.
Though the incentives have actually modified.
The Go Curry Cracker 2022 Taxes
Govt Abstract
We had a number of streams of revenue totaling $60,534. State taxes and ACA premiums incentivize low revenue.
I’m not utterly certain learn how to calculate our efficient tax charges on this system – we obtained over $16,000 in credit, receiving excess of we paid in… If I ignore medical insurance and better future SS revenue, we paid ~$1,200 out-of-pocket for numerous taxes for an efficient tax charge of two.0%.
Total we paid $0 in federal revenue tax (web $3,000 paid to us in refundable tax credit), $0 in California revenue tax, and $4,233 in self-employment taxes (which improve future SS revenue.)
Kind 1040
- Revenue – $60,534
- W2: $2,789 (who woulda thunk)
- Curiosity: $1,036 ($925 from financial institution bonuses.)
- Journey hacking: $0 (however simply booked $7,000+ price of journey for $0 out of pocket.)
- Dividends: $29,411
- Weblog revenue: $30,298
- Roth conversion: $0
- Capital Loss: -$3,000
- Capital Achieve harvest: $0
- Federal Revenue Tax: -$3,000
- Revenue tax: $730 (Line 18)
- Revenue tax: $458 (Line 16)
- ACA extra tax credit score reimbursement: $272 (Line 17)
- Tax credit: $730 (Line 20)
- International Tax Credit score: $130
- Baby and Dependent Care tax credit score: $67
- Retirement financial savings contribution credit score: $400
- Residential vitality credit: $133
- Extra Baby Tax Credit score: $3,000 (Line 28)
- Revenue tax: $730 (Line 18)
- Self-employment tax: $4,233 (Line 23)
- Retirement Contributions: $32,500
- Solo Roth 401k: $20,500
- Roth IRA: $6,000
- Roth IRA – partner: $6,000
- ACA – MAGI = 215% FPL
- Whole premium tax credit score: $12,344
- Premiums (paid by me): $1,212
- Upfront: $1,212
- Kind 1040:
$272(paid by tax credit score on Kind 1040)
- California: $0
- Tax: $636
- Exemption Credit: $1,146 (nonrefundable – alternative to extend tax burden subsequent yr)
- Web: $0
That is the way it all appears on the 1040 -> (copied from Turbotax)
Roth Conversions and Capital Achieve Harvests (or lack thereof)
Over the previous decade we’ve got achieved annual Roth conversions / Capital acquire harvests to attenuate future taxes. The long run is now.
As in years prior, I used our tax optimization calculator to get a primary look on the choices. The calc tells you what is feasible tax free on the federal stage, however doesn’t embody tax credit…
Had been we outdoors the US, I’d have positively harvested some capital features. We additionally left $1,000 in baby tax credit score on the desk so a $10,000+ Roth conversion is on the desk.
However now that we’re within the crosshairs of the three US tax methods (Federal / State / ACA) I truly did nothing, due to the ACA.
I beforehand wrote about optimization of medical insurance premiums.
(see: Obamacare Optimization in Early Retirement and The Obamacare Tick-Tock.)
Any further revenue would have elevated medical insurance premiums at a marginal charge of ~14%, even with out rising federal or state tax burden.
(see: ACA Premium Calculator.) It could have additionally compelled us right into a decrease tier of plans for 2023 (from Silver 87 to Silver 73), rising our deductible and out-of-pocket max for the yr (e.g. elevating out of pocket max from $1,000 to $6,000.)
I may argue that we should always have achieved a large Roth conversion this yr (particularly with the markets down.) And equally tax-loss harvesting was perhaps not well worth the effort on this explicit yr. 14% isn’t an unreasonable marginal charge.
ACA Premiums and Credit
A really attention-grabbing factor occurred with ACA premiums this yr. First, a snap shot of Kind 8962 displaying superior premium tax credit:
On Kind 1040 the IRS decided that we truly under-paid our premiums all year long by $272 so this quantity was added to our whole tax (ACA extra tax credit score reimbursement.)
In consequence, the entire tax credit we have been capable of accumulate INCREASED by an equal quantity.
Conclusion – for ACA functions all the time take a pessimistic strategy when estimating annual revenue
(Associated: Obamacare Superior Premium Tax Credit score Reimbursement Limitation.)
Estimated Taxes and Journey Hacking
An attention-grabbing factor, nowhere on our 2022 tax return does it present the $7000+ of journey I simply booked utilizing bank card rewards factors.
Should you earn award factors by means of bank card utilization or signup bonuses, the IRS simply treats these factors as a refund in your purchases. There isn’t a revenue and due to this fact no taxes. (See our Award Journey Collection on Transferrable Currencies.)
Paradoxically, we truly acquired lots of these factors by paying taxes – we pay self-employment taxes quarterly, and I usually use that “alternative” to satisfy the minimal spend on a brand new bank card. I paid estimated taxes of $2,900 to the IRS and $550 to the California FTB this yr on new playing cards,
If you will should pay some taxes anyway, you would possibly as effectively get a pleasant trip out of it. Even if you’re not going to pay some taxes anyway, get a pleasant trip out of it 🙂
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Abstract
Within the US underneath the triple taxation system (Federal, State, ACA) the incentives are to maintain revenue low. I didn’t do a Roth conversion or harvest features consequently (and actually harvested a loss.)
Total although, it was an excellent yr – we paid subsequent to nothing in taxes, acquired practically free high-quality medical insurance, and contributed $32,500 to Roth accounts. Social Safety revenue will probably be increased because of the cost of self-employment taxes. Low taxes now. And low taxes later.
