Let’s Look at Some Tax Planning

Let’s Look at Some Tax Planning

by Kristin P. Sinclair, A Accu Tax on January 13, 2020

Term Life Insurance

Let’s Look at Some tax planning.

For Mustang Sallie, 2018 is the year Mustang Sallie needs to purchase a new car. She researches 2019 models in Sept and finds a perfect new model that pleases her, and that provides the reliable transportation she needs in a vehicle at a premium that is realistic for her to purchase. With a warranty She feels will be great for peace of mind.

2018 is also a year that the tax rates changed as well. Let’s take a look at Mustang Sallie’s options taken and options considered. She expects her tax rate to change federally and believes that she is withholding ample amounts. Still anticipates receiving a refund both federally and from her state return.

Mustang Sallie has been saving for a new car ever since She paid off her current vehicle. As of late she has had to make many more trips to the repair shop and is going to make a change soon.

Mustang has $15.000 saved to put down on her new vehicle to lower the amount She is borrowing at a very low interest rate. Mustang no longer has a house mortgage payment, and She is aware that having a current credit record is to her advantage. She plans to pay the loan off in a couple of years. Ms. Sallie is going to be thoughtful in her approach.

Mustang enjoys Her part time job. Enjoys people She meets at work, and has found some wonderful walking friends. Her part time job has made it so much more enjoyable to feel free to invest in herself. With walking shoes, athletic socks, insoles and exercise apparel. Her part time job has been wonderful.

Mustang has two bank accounts. One account is the one she has her pay check, her Pension check as well as her Social Security Check direct deposited.

Mustang has a bank account that She has her captial gains funds are deposited into as well as her federal and state refunds.   She uses this bank account to pay medical bills, RX, property and vehicle taxes as well as her car payment.

Mustang takes $20,000 annually from her pension plan, and has in the past had 15%withheld for federal taxes. She also has 5% withheld for her state taxes. She expects a refund.   Social Security income she will receive $18,000 in benefits. Mustang has also chosen to have 7% federal taxes withheld from her Social Security income equal to $1260.00 with held over the 12-month annual period, plus she pays her Medicare Part B and Medicare Part D premiums from her Social Security income. These insurance deductions total $2016.00 during 2018. The monthly amount that Mustang sees deposited into her account from Social Security is $1,227.

For Mustang’s Medicare Supplement she has a High Deductible Plan F HDF plan which has low premiums. Some out of pocket exposure; she can seek medical care from any provider who accepts Medicare beneficiaries anywhere, in the United States. She remains active in life, enjoys laughter and life. Exercises regularly. She feels very confident about her plan choice.

While Mustang has paid her mortgage in full, each year she still needs to pay the property taxes on her home. She is fortunate to live in a state where she enjoys a Homestead exemption, which lowers her property taxes due. Since, she is purchasing a new car and her car taxes are going to go up as a result.   This tax increase may be substantial so Mustang knows she needs to plan ahead.

In the event Mustang were in need of moving funds from one checking account to the other she does so accordingly. Keeping those funds in separate account works well for Mustang, and her planning for her annual obligations.

So when Mustang Sallie’s tax documents arrive She feels confident that She has with held enough in taxes and wants to not only get her tax return completed with her tax preparer, Kristin with A Accu Tax, but also wants to look at how taking funds out of a Traditional IRA might impact her next year.

SC is Mustang’s home state. SC does not tax her on her Social Security income even when the federal government taxes her based upon her provisional income. Her state gives her an additional tax break since she is over 65 years of age. And her state also allows an additional tax break on 44% of her long-term capital gains from her investments of capital gain income.

Mustang has some friends advising her to pay her car off in full and get the payment done and over. But before making a decision to take more money out of retirement funds from a traditional IRA Mustang wants to do some research.

She asked Kristin, her tax advisor to look at some numbers for her. If She takes out an additional $15,000 in taxable income in the year how could that impact her. Had the need arisen to take out an additional $15,000 in taxable income from her Traditional IRA, then her taxable income would have increased by over $22,000.00. Putting some of her income into the 22% tax bracket instead of a 12% tax bracket.   The answer is more taxes on Mustang’s capital gains would applicable as well. More of Her Social Security income would have become federally taxable, and that additional IRA distribution in turn would have increased Mustangís state taxable income by enough to move Mustang into a higher tax bracket for the state as well.

So for Mustang, continuing to work at a jobs she enjoys, spending time with people she likes to be around, and getting a lot of joy and laughter into her days, this has been a good decision. She enjoys walking with her new friends when not at work. The occasional new pair of shoes and new socks and insoles is a great investment in herself.

Taking out only what she really needs to, from her pension, and saving her IRA for when she absolutely has to start taking distributions has been very workable for her lifestyle. Drawing from capital gains income when needed, has also been a wise choice to pay for things needed or wanted. Including in Her case a new car.

Even if the tax rates change again in 7 years. She has a goal of being ready and prepared when it comes time to make a major purchase decision like her transportation, to visit important people in her life. Working part time, traveling occasionally, exercising daily. This is a nice balance for a full life.


Kristin P Sinclair

A Accu Tax

January 13, 2020

Updated in Charleston, SC

Updates in Rock Hill