I’ve had 49 W2’s over the years or the self employed equivalent. Over that time, once I entered medicine I started using tax accounting software DOS based on a floppy to start my journey. The software was TaxCut, which evolved to Kiplinger and finally was assumed by HR Block. I just stayed with the same package since filling in last years data was automatic and ongoing totals like 8606 post tax money in the IRA was preserved. This turned out to be a boon to me this year since I did my first IRA withdrawals for my Roth conversions. Because of the post tax basis in the IRA, I was able to reduce my taxes paid on the conversion, by 33% in my wife’s case and by 6% in my case. Her IRA’s are now completely converted. Mine are ongoing and my small IRA RMD withdrawal will last decades. The pro-rata rule will mean for every TIRA withdrawal I make I will get a 6% tax break till kingdom come. It’s not really a break as I already paid those taxes once, but it does reduce my AGI from what I will RMD when I’m 70, so my TIRA and my SS will have an ongoing tax adjustment for the better.
The software acting as a track keeper really helped. I kept the shoebox (actually bankers boxes) of old paper and sifted through to pull out the 8606’s from years gone by but some were missed and I completely missed my and my wife’s SEP IRA pro-rata contribution but the software didn’t miss any of it. When I finally got to those screens my pro-rata was filled in and significantly more than what I anticipated aka if found me some free money. The interview process made working through the Roth conversion and 1099-R info a breeze as well. I was kind of dreading that whole process.
The software now allows one to download account data directly from the brokerage server which saved hours and hours of sometimes confusing data entry. 1099-B was not implemented correctly so I had to enter that data by hand but I only had a dozen transactions last year so it only took about half an hour to enter and check. 1009-INT and 1099-DIV import worked fine. All three brokerages I use coughed up the goods but I had to enter the 1099 from my bank by hand. I was not able to get a 1099-INT directly into the program All of this data is also available in downloadable PDF format as well. I opened up the PDF for each account in it’s own browser tab and put that in the left monitor while I entered and massaged data in the right.
The new tax law knocks the hell out of deductions. You can wheedle the deductions all you want but unless your charitable is truly huge and you spent the year generating cancer treatment kinds of medical bills, it’s going to be hard as a retiree to beat the standard deduction. My plan worked perfectly. I underestimated my conversion a little because I wasn’t exactly sure of my revenue and cap gains distributions on my taxable accounts by my assumptions were almost exactly on point. I wrote off the cap gain with some Tax Loss Harvest from a 2018 harvest plus from some previous years. The TLH should hold through all of Roth conversion, keeping the tax bill low till my ordinary income returns to 12% bracket levels when I RMD and take SS. I did overpay my estimated but since I Roth converted late last year and I will be Roth converting in the next week or so for 2019 I decided to shmush the 2 years together applying the excess from 2018 to 2019 to try and avoid any penalties. I was able to dodge the 3.8% surtax by making a smaller conversion and through the pro-rata breaks.
I consider this a dry run since the whole 1099-R thing is new to me, but my tax life has simplified considerably with the incorporation of online data importing, well designed software with good longevity built in, and the whole code being streamlined. The bracket breaks don’t hurt either. I converted well into the 24% bracket but paid under 16% average. I’ll take it! My taxes were about 2 thousand below what I anticipated, nice surprise. some of that will go away next year as a child tax credit for my oldest will evaporate but by March I will have over half of my Roth conversion completed and safely tucked away growing tax free forever. The software double checked and triple checked and forced me to fill in a little missing data like Vanguard’s zip code on the my wife’s 1099-R. About 10 of those typo kind of mistakes to correct plus an analysis of low probability of audit and I was good to go.
I was all happy as I submitted online owing zero dollars and in a couple hours got the notification I was REJECTED! Not my problem but a goofed up form on HR Block’s end and a fix due out by the 22nd. It’s all right, I’ve moved on! Now I’m scheming on what to transfer for 2019. Usually taxes for me was a three day immersion experience, this year more like 3 hours . Now that I know what I’m doing with a pretty much guaranteed standard deduction next year should be more like an hour. The year after that my wife will claim SS and I will claim spousal benefits so I’ll get to learn about that and a few years after that I’ll pull the trigger on my SS and start RMD.