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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29953
Experience:  Taxes, Immigration, Labor Relations
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Please estimate my Federal income tax liability and tax rate

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Please estimate my Federal income tax liability and tax rate (tax bracket) for this year under the following assumptions: Married filing joint, $28,800 disability social security income, $84,000 Disability Income from private insurance policies, $20,000 withdrawal from Traditional IRA, $200,000 Roth Conversion of company stock sold via 401K plan, and $12,000 Rental Income. Thank you.
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--$28,800 disability social security income - 85% taxable $28800*85%=$24480
--$84,000 Disability Income from private insurance policies - taxable as annuity
--$20,000 withdrawal from Traditional IRA - taxable
--$200,000 Roth Conversion of company stock sold via 401K plan - taxable
-- and $12,000 Rental Income - assuming that is NET rental income (after deductions).
Total adjusted gross income - $340,480

Assuming Married Filing Jointly, Standard deductions, no dependents, no other deductions or credits,
Your estimated tax liability would be ~$83500
In additional - if you are below 59 1/2 - $20,000 IRA distribution is subject of 10% penalty - or $2000.
Let me know if you need any help.
Customer: replied 5 years ago.

I was under the impression that the $84,000 disability income was exempt from Federal Income Tax. I was told by a financial advisor/broker that the $150,000 gain on the $200,000 sale of the company stock in my 30-year old 401K is only subject to the 15% capital gains rate. Do you agree?

Customer: replied 5 years ago.
I should have mentioned that I paid for the disability insurance not my former employer, so in effect, the benefits that I received would not be taxable.
I was under the impression that the $84,000 disability income was exempt from Federal Income Tax. I should have mentioned that I paid for the disability insurance not my former employer, so in effect, the benefits that I received would not be taxable.
That is correct - if you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return.

I was told by a financial advisor/broker that the $150,000 gain on the $200,000 sale of the company stock in my 30-year old 401K is only subject to the 15% capital gains rate. Do you agree?
If stocks are sold within 401k plan - the full amount of distribution is taxable as a regular income - not as a capital gain. Such income will be reported on form 1099R box 2a as taxable.
What you may do - to distribute the company stock (your company) from your 401(k) without selling. In this case - your taxable distribution will be the basis of the company stock. Later - you may sell the stock and will only realize capital gains rather than ordinary income.
Your financial advisor/broker seems as correct - but you may not sell the stock inside 401k plan to have a capital gain treatment - so be careful.
.
Customer: replied 5 years ago.

I will add a bonus if you restate my federal tax liability. Based on the following assumptions:

 

Married Filing Jointly, Standard deductions, no dependents, no other deductions or credits. Also, aside from being disabled, I turned age 60 last month. Therefore, the $20,000 IRA distribution is not subject to 10% penalty.

 

--$20,000 withdrawal from Traditional IRA - taxable
--$50,000 represents the basis of the company stock from the 401K Plan - taxable
-- and $12,000 Rental Income - assuming that is NET rental income (after deductions).

Total adjusted gross income - $82,000, would my estimated tax liability be $20,500?

 

There is no problem - I will re-evaluate your situation if needed.
Following are included into your adjusted gross income:
--$28,800 disability social security income - 85% taxable $28800*85%=$24480
--$20,000 withdrawal from Traditional IRA - taxable
--$50,000 represents the basis of the company stock from the 401K Plan - taxable
--$12,000 Rental Income - assuming that is NET rental income (after deductions).
Total adjusted gross income - $106,480

Because you are disabled - there is no 10% penalty regardless of you age - sorry for confusion.

Assuming Married Filing Jointly, Standard deductions, no dependents, no other deductions or credits.
Assuming your spouse's income is also included above.
Your estimated tax liability would be ~$14,000.

Please feel free if you need any clarification or further adjustments.
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