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Please estimate my IRS and CA-540 tax liability for 2017.

Plan to file, "Married filing...
Please estimate my IRS and CA-540 tax liability for 2017. Plan to file, "Married filing separately"
Gross salary income: $185,000. I will take early withdraw from IRA and 401K funds towards purchasing a home.
Distribution Income from Rollover IRA: (not 59 1/2 yet): $144,700 (expect to pay income tax + 10% penalty)
Distribution Income from prev employer 401K: $66,000. (expect to pay income tax, but no penalty according to Fidelity plan)
Expected deduction from Mortgage interest and Property tax $16,640
Adjustment in income due to alimony payments: $37,200.
What will my 1040 tax be? CA-540 Tax? Should I pay the taxes as soon as I take the distribution?
Will Pease limitations reduce my ability to use itemized deductions?
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Customer reply replied 7 months ago
Alternate scenario: 401K distribution: (no penalty): $59K, Rollover IRA distribution: $81K (income tax + 10% penalty)My employer has withheld the following amounts, as of the end of March 2017:
$7.16K Federal withholding
$0.67K Federal MED/EE
$2.86K OASDI/EE
$3.38K CA Withholding
$0.41K CA OASDI/EEWhat should these numbers be, so that my end of year tax-liabilty is very close to my amount of tax withheld?
In other words, how much should I increase or decrease my with-holdings so that I will owe or will be owed little on my 2017 tax return?
Answered in 2 days by:
4/5/2017
ABC Accounting Group
ABC Accounting Group, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 714
Experience: Business Consultant/Accounting Manager
Verified

Hi. For your 1040. If you file married filing separately, your taxes will be around $80k after withholdings and $50k for scenerio 2. If you take a 401k loan out, you will not be taxed right now. The withholdings appear to be too low.- by around $2k/quarter.

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CA would be around 18k for sceneirio 1, around an additional 8k for #2, and withholdings look to be fine.

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Customer reply replied 7 months ago
My 401K does not allow a loan. $50K for scenario-2 means in addition to my payroll withholdings?
So $8K would the taxes owed due to the 401K and IRA distribution?.
Also, for my 2017 tax return, will I no longer (due to Pease limitations or expiration) have the benefit of itemized deductions (mortgage interest, property tax) to reduce my AGI? What about my alimony payments?

The majority of the taxes are from the withdrawal scenerio's.

With alimony - spousal support payments are deductable, but not child support or property distributions.

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Customer reply replied 7 months ago
I am still not clear. Let's just focus on scenario 2 only.1. Salary Income: 185K gross salary - 37.2K alimony = 147.8K Income before taxes.
2. 401K Distribution (no extra 10% penalty): $59K income before taxes.
3. IRA Distribution (with 10% tax penalty): $81K income before taxes.
Total Taxable income from 1, 2 AND 3 = $287.8KWhat is my total IRS tax liability for #1?
What is my total IRS tax liability for #2?
What is my total IRS tax liability for #3?What is my total CA tax liability for #1?
What is my total CA tax liability for #2?
What is my total CA tax liability for #3?Thank you,

Hi. The first email gave you an estimate for #1 and #2. I can give you a less rough calculation, but it will take a little bit and will need me to offer premium service. I will send an offer. Thank you.

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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,141
Experience: Taxes, Immigration, Labor Relations
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Different expert here...

First of all your approach to calculate tax liability separately for each income item is not correct...

Tax liability is calculated based on TOTAL income, filing status , deductions, etc.

So far

- Salary Income: 185K gross salary

- 37.2K alimony deduction

+ 401K Distribution (no extra 10% penalty): $59K income before taxes.

+ IRA Distribution (with 10% tax penalty): $81K income before taxes.

= AGI - adjusted gross income $287.8K

Assuming Married filing separately

no dependents

Assuming itemized deduction $20,000 - please verify

=

Taxable Income $271,765

Regular Tax:$80,452

early distribution penalty for IRA $8100

Total estimated federal tax liability - $88,552

minus withholding from wages and retirement distributions.

That is for federal estimate - please let me know if that is clear and we will move forward.

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Customer reply replied 7 months ago
https://taxfoundation.org/2017-tax-brackets/According to the above, for 2017, there is a "Pease" limit on itemized deductions. $156.9K for my filing status.
So does this mean I don't get to take my $16.6K (2017 Property tax and Mortgage interest, donations) as itemized deductions? If that is the case, can I take the $6,350 standard deduction?
Also, Pease Personal Exemption phase out begins at $156.9K and ends at $218.15K. I am not sure what this means. Can you explain?Yes, I understand my tax liability is based on TOTAL income, but I want my payroll with-holdings to be correct for my salaried income. I plan to pay my IRA and 401K taxes in Q4, when I make the withdraw, and not from my paychecks. Does that make sense?

You are correct - itemized deductions might be limited

Because of that the amount of deduction may be reduced.
You still may have itemized deduction larger than the standard amount.

To determine if you are affected by that limit - we need to prepare itemized deduction worksheet.

I am attaching this worksheet

But before going to details - we need to know the amount of your estimated deduction.

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Customer reply replied 7 months ago
OK, I did the worksheet. I got $12,920 for Total Itemized deductions.

So - the actual reduction in your situation is a very little.

You originally wrote - Expected deduction from Mortgage interest and Property tax $16,640

Now I see that you are using $12160...

Please verify if you are using correct amount.

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Customer reply replied 7 months ago
Yeah, I am predicting the future a bit, so my estimates of deductions and required withdraws have changed.
Customer reply replied 7 months ago
But here is a related question - As long as I pay in 2017 (withholdings + estimated taxes paid) an amount = or greater than my 2016 tax liability, then I will not be penalized. So if my income in 2017 is significantly higher than in 2016, I can actually wait till 2018, to pull more IRA money out, in order to pay taxes. I have till Jan 15th to pay estimated taxes for distributions I take in Q4-2017, right? Does this strategy make sense? To delay as much as possible, the withdraws, to "spread out" my income, as much as I can.

Yes - that is correct.
You may pay some of your tax liability with your tax return.

You are talking about underpayment penalty.

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

As long as you will have funds to pay all taxes before the due date - and you the amount you expect to pay - that is OK.

On the other hand - underpayment penalty is based on the annualized installment calculation method using the interest rate set by the IRS.

Current rate is 4%.

If you borrow the money and pay higher interest - may be underpayment penalty is better choice.

But otherwise you are correct - as long as you pay at least the tax shown on the return for the prior year - there will not be any underpayment penalty.

.

I appreciate if you take a moment to rate the answer.
Experts are ONLY credited when answers are rated positively.

Lev
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