Taxes

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Taxes
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Income taxes

• Tax basics
• Effective and marginal tax rates
• What is taxable?
• Pensions and annuities
• Other income
• Home sale gains
• Paying taxes in retirement
• Withholding
• Estimated taxes
• State taxes

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Basic concepts

• Effective tax rate Tax Taxable income
• Marginal tax rate Rate applied to your last
  taxable dollar

Useful for figuring after-tax return
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What is taxable?

• Your City pension
• Deferred Compensation Plan distributions
• Social Security
• Home sale gains

See IRS Publication 575 - Pension and Annuity
Income
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Your City pension

• Partially tax-free as return of your after-tax
  contributions
• After recovery of after-tax contributions,
  pension is fully taxable

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Deferred Compensation Plan

• All distributions fully taxable in year received
• No early-withdrawal penalties
• Can be rolled over into an IRA
• Three-year catch-up provision available within
  three years of retirement eligibility
• Age-based catch-up available to employees 50
  years of age

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Rules on IRAs

• 10 federal penalty on withdrawals before age
  59-1/2
• 2.5 California penalty
• Must start withdrawing from an IRA by April 1 of
  year following age 70-1/2 according to formula
• 50 penalty on underwithdrawals in year following
  age 70-1/2 or later

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Social Security

• Up to 85 may be taxable if income exceeds
  certain level

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Home sale gains

• Exclusion available for capital gain
• Conditions
• Owned home two of last five years
• Lived in home two of last five years
• Have not used the exclusion in two-year period
  ending on sale date
• Amount
• Single 250,000
• Married 500,000 (if both meet the lived-in-it
  and have-not-used requirements otherwise
  250,000)

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Paying your tax

• Timely payment required
• Penalty for late payment
• Withholding

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Paying your tax

• Estimated tax payments
• No penalty if
• Less than 1,000 owed at filing time
• 100 of previous year's tax amount paid
• 90 of current year's tax paid

Other percentages may apply to certain
high-income taxpayers
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State taxes

• State income tax treatment of retirement income
  varies
• Consult a local state tax expert
• California income taxes

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• LAFP4 FINPLN2006 2006 0818.ppt