#Cruncher wrote: Sun May 18, 2025 4:35 pm
Aguilar wrote: Sun May 18, 2025 6:11 amI think I filled out your sheet [in the Marginal Tax Rates Excel workbook] incorrectly. I anticipate $30,000 ordinary dividends and $25,000 qualified. … I’m pretty sure this is what I should input: (Put following part of quote inside a “code” block to make it easier to read.)
Code: Select all
Tax exempt interest 10,500 <- Blank to graph or enter amount of municipal bond interest
Non-SS Ordinary Income <blank> <- Blank to graph or enter amount of ordinary income besides Social Security
LTCG & QDI 25,000 <- Blank to graph or enter amount of long-term capital gains plus qualified dividend income
Social Security Benefit 45,180 <- Blank to graph or enter amount of Social Security benefitThen the chart shows my marginal rate for any additional non-SS ordinary income.
Yes, that is correct. By the way, a 1040 form and a 1099-DIV use the term “Ordinary Dividends” to include “Qualified Dividends”. However, I use the term “ordinary” in “non-SS ordinary income” to refer to income that is taxed according the 10%, 12%, 22%, etc. federal tax brackets. Therefore, it should exclude qualified dividends since they, along with long term capital gains, are taxed separately according to 15% & 20% tax brackets.
Aguilar, continuing in same post, wrote:Is there a way to use your sheet to get the marginal rate for any additional LTCG & QDI when that field is not blank? That’s my situation. I’ll definitely have QDI and I’m trying to gauge the marginal rate of LTCG from muni sales.No, the workbook graphs whichever of the four categories is blank. It requires that constant values be entered for the other three categories. So, here is what you should enter to see the marginal tax rates encountered as LTCG + QDI increases. Then just concentrate on the part of the graph to the right of $25,000. [*]
Code: Select all
Tax exempt interest 10,500 <- Blank to graph or enter amount of municipal bond interest
Non-SS Ordinary Income 5,000 <- Blank to graph or enter amount of ordinary income besides Social Security
LTCG & QDI <blank> <- Blank to graph or enter amount of long-term capital gains plus qualified dividend income
Social Security Benefit 45,180 <- Blank to graph or enter amount of Social Security benefit* To better show the effect of increases in LTCG + QDI beyond $25K, I changed Start at from “0” to “25000” and Increment from “500” to “100” on the “Calc” sheet (of my Marginal Tax Rates Excel workbook). Here is what the graph then looks like:
From $2,229 to $10,796 of LTCG ($27,229 to $35,796 including $25K of QDI) you’d be subject to a 37.95% marginal rate. This is where LTCG + QDI becomes taxable and also where each $1 makes $0.85 more of SS become taxable. That in turn pushes another $0.85 of LTCG + QDI into the 15% bracket.
37.95% = 12% X 0.85 + 15% X 1.85
I think I’ve been entering an incorrect value for Non-SS Ordinary Income. I have projected $30k ordinary div, $25k qualified div, and $5k taxable interest. Should I enter $5k in the Non-SS Ordinary Income cell or $10k ($30k-$25k + $5k taxable interest)?
If I should enter $10k, then the next $6000 LTCG incurs a 37.95% marginal rate and any additional LTCG incurs a standard 15% marginal rate. Very different scenario. Is this the right one for my situation?
If so, I think it would make more sense to sell all my muni shares for the $16k LTCG, and pay the high marginal rate on the first $6k. My medicare AGI would still be under $106k ($89,700 total income plus $10,500 tax exempt interest = $100,200) so I wouldn’t have an IRMAA for my medicare premium. The other approach I had considered when I was using the previous graph–selling off only a portion of my muni shares each year for several years–would actually result in greater tax liability cause I’d have to pay the 37.95% on more of the LTCG.
