Sample Tax Strategy Report
Amanda & Pre-Retiree Sample
A CPA's read of your return, and what we would do differently next year. We found $45,341 of unused 22% bracket, a Medicare surcharge you can avoid with one payroll change, and more than $15,000 a year riding on which state you call home once Roth conversions begin.
Hypothetical household built from the Renew sample tax return, updated to 2024 law. Hover or tap any chart for detail; drag any slider to test a strategy.
Form 1040 and schedules
This is how the household's income reaches the IRS. Wages from Pre-Retiree, a consulting business for Amanda, a taxable brokerage account that throws off dividends and gains, and a $25,000 Roth conversion of which $9,250 was after-tax basis.
Alexandria, VA 22314
Where the income came from
$229,670 across four sources
How each dollar was taxed
Not all income is equal. Qualified income pays 15%; business income pays income tax plus 15.3% self-employment tax.
Stacking order matters: ordinary income fills the brackets first, then qualified dividends and long-term gains sit on top at their own rates.
Schedules
| Schedule | Detail | Amount |
|---|---|---|
| B · Interest | Bank of America $250 · Ally $500 · Schwab $500 | $1,250 |
| B · Dividends | Vanguard $5,000 · Schwab $10,000 (of which $11,500 qualified) | $15,000 |
| C · Business | Paula's Palate, net profit, no vehicle expense claimed | $41,950 |
| D · Short-term | Gains held under one year, taxed as ordinary income | $9,000 |
| D · Long-term | $7,500 gains plus $15,000 fund capital gain distributions | $22,500 |
| 8606 · Conversion | $25,000 converted, $9,250 after-tax basis recovered | $15,750 |
Brackets and the room you have left
Taxable income reads $189,709, which looks like the edge of the 22% bracket. But $34,000 of it is qualified income stacked on top. The ordinary income underneath is only $155,709, so there is $45,341 of 22% room before any dollar is taxed at 24%. Drag the slider to spend it.
Roth conversion simulator
Add ordinary income on top of the 2024 return and watch the cost
Nothing added yet. The 22% bracket has $45,341 of room.
Tax owed in each bracket
2024 return as filed, married filing jointly
Marginal rate by income level
What the next dollar costs as ordinary income rises, federal plus Virginia, including the credit phaseout and NIIT cliff
The dot marks where the household sits today. The step at $250K is the 3.8% net investment income tax on $47,750 of investment income; the bump near $400K is the child tax credit phaseout.
The thresholds that matter at $226,706
Dozens of credits, deductions and surcharges switch on or off at specific income levels. The marker shows where the household sits relative to each one. Green means the benefit is available, amber means it is phasing out, and grey means it is already gone.
Benefits and surcharges by threshold
2024 married filing jointly limits
Distance to the next cliff
Income room before each threshold is crossed
Net investment income tax. AGI is within 10% of the $250,000 line. Every dollar of capital gain realized above it costs 3.8% more. Harvest gains below the line, or in a year with lower business income.
Roth IRA contributions. Phaseout begins at $230,000. Amanda's business income is compensation, so both spouses can still contribute $7,000 each for 2024 if AGI stays under the line.
Medicare surcharge. This year's MAGI sets 2026 premiums. Getting under $206,000 saves the household $1,987 a year in Part B and D surcharges. Details below.
Medicare premiums are a tax on this year's return
Part B and Part D premiums are set by MAGI from two years earlier. A return filed for 2024 sets 2026 premiums. At $226,706 the household lands in Tier 1, the first surcharge tier, which adds $82.80 a month per person. Drag the income to see where the cliffs are.
Annual surcharge by tier
Part B plus Part D, for a couple, 2024 schedule
Neither spouse is on Medicare yet, so this is a preview of the mechanics. The tiers are a reason to finish Roth conversions before age 63, when the two-year lookback starts to bite, and to manage income every year after.
Virginia Form 760
Virginia starts from federal AGI, allows its own standard deduction and exemptions, and taxes everything above $17,000 at 5.75%. There is no preferential rate for capital gains and no deduction for the SALT cap workaround unless the business elects pass-through entity tax.
Virginia tax walk
From federal AGI to the state bill
| Federal adjusted gross income | $226,706 |
| Virginia subtractions (none this year) | $0 |
| Virginia standard deduction, joint | ($16,000) |
| Personal exemptions, 3 × $930 | ($2,790) |
| Virginia taxable income | $207,916 |
| 2% on first $3,000 | $60 |
| 3% on $3,000 to $5,000 | $60 |
| 5% on $5,000 to $17,000 | $600 |
| 5.75% on $190,916 above $17,000 | $10,978 |
| Virginia income tax | $11,698 |
What Virginia taxes that the IRS treats gently
Virginia tax on each income type at 5.75%
The $22,500 of long-term gains cost 15% federally but a full 5.75% in Richmond. Social Security, when it starts, will be exempt.
Virginia planning notes
529 contributions
Social Security
Deduction type must match
Long-term care premiums
Pass-through entity tax election
Moving to a no-income-tax state
Texas, Tennessee and Florida have no tax on wages, business income, capital gains or Roth conversions. That is not the whole story: Texas makes it up in property tax and Tennessee in sales tax. Pick a state, then set how aggressively you plan to convert to Roth, because that is where the gap becomes serious money.
Virginia vs. Tennessee
Annual household tax burden on the 2024 numbers, with the planned conversion added
Twenty years of the difference, invested
Cumulative state tax saved, 2.5% inflation, growing at 6% in the portfolio
A $1 million IRA converted over ten years from Virginia costs $57,500 in state tax alone. From Tennessee it costs nothing.
What it takes to change domicile
Virginia audits departures. Intent has to be proven, not declared.
Beyond the tax bill
The honest comparison a spreadsheet misses
| Virginia | Texas | Tennessee | Florida | |
|---|---|---|---|---|
| Income tax | 2% to 5.75% | None | None | None |
| Capital gains | 5.75% | None | None | None |
| Social Security | Exempt | Exempt | Exempt | Exempt |
| Property tax, typical | ~1.1% | ~1.9% | ~0.6% | ~0.9% |
| Combined sales tax | ~6.0% | ~8.2% | ~9.5% | ~7.0% |
| Estate or inheritance tax | None | None | None | None |
| Federal retiree and military ties | Strongest | Strong | Moderate | Strong |
| Homestead protection | Limited | Unlimited | Limited | Unlimited |
Property and sales tax rates are statewide approximations for a comparable home and household spending. Local rates vary widely; we model the specific county before any decision.
Five years of filling the 22% bracket
Rather than one large conversion, the plan converts just enough each year to use the 22% room, pairs it with a Solo 401(k) for the business, and keeps AGI under the Medicare and NIIT lines. Compare that path to doing nothing.
Taxable income by year, managed vs. unmanaged
Managed: Solo 401(k) deferrals reduce income, conversions refill the 22% bracket
The five-year scorecard
2025 through 2029, in today's dollars
| Year | Solo 401(k) | Conversion | Taxable income | Federal tax |
|---|
Every converted dollar is taxed at 22% federal now instead of 24% or more in retirement when required distributions stack on Social Security. On $250,000 converted, that is a floor of $5,000 saved before growth, and the growth itself is never taxed.
Your action plan
Open a Solo 401(k) for Paula's Palate
Amanda can defer $23,000 as the employee plus about $7,800 as the employer on $41,950 of profit. That alone pulls AGI under the Medicare and Roth IRA thresholds.
Convert $45,000 more to Roth before year end
The 22% bracket has $45,341 of unused room once the qualified income is stacked correctly. Pay the roughly $13,300 of tax from the brokerage account.
Stop paying 22% on short-term gains
$9,000 of short-term gains cost $1,980 federally plus $518 in Virginia. Hold positions past one year or harvest offsetting losses in December.
Fix the estimates to the safe harbor
The return showed a $2,089 balance due. Set 2025 withholding and estimates to $35,738, which is 110% of this year's tax, so penalties cannot apply no matter how large the conversions get.
Claim the vehicle and run 529 gifts through Virginia
Schedule C shows no vehicle expense; a food business almost always has one. Split Kelly's $8,000 of 529 funding across two Virginia529 accounts to deduct all of it.
Keep Form 8606 current
The $9,250 of basis recovered this year came from tracked after-tax contributions. Lose the form and the IRS taxes that basis twice. We maintain it as part of the engagement.
Send us last year's 1040. We will send back this report with your numbers.
Tax-centric wealth management from a CPA and CFP® who files the return and builds the plan. Fee-only, fiduciary, built for federal employees, veterans, executives and business owners.
James M. Simon, CPA, CFP® ·