2025 tax liability and tax credit question. (Complicated)

[ecufour]

Greetings, 

I have a tax planning dilemma that the community may help with. My wife and I file a married joint tax return. I will be 73 and she will be 68 as of 12/31/25. We try to keep our taxable income as low as possible. 2025 is the first year I had to pay a RMD, which I planned to give to our church as a Qualified Charitable Distribution. Hence, our only taxable income is social security benefits ($59,295 combined) and interest/dividend income ($9,000 =/-).  Based on our age and income, we have no tax liability with the standard deduction. 

We have solar panels on our home installed in 2022. We are adding a battery back-up system which will cost $21,500. By having this installed by 11/1/2025, we can receive a tax credit of $6,450.

This is the dilemma--as I understand it, if our income exceeds $44,000 in 2025, we will pay federal taxes on 85% of our social security. How, we are only taxed at 50%. (I believe)

How can I calculate how much additional income from my 401k I need to take to reach at least at $6,450 tax liability? And, how much more of our social security is taxed in the process? Do I wind the battle and lose the war?

Thank you very much.

Jesse

[Bsch4477]

You can do different tax scenarios with this calculator. 
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[ecufour]

thank you. I will try it. 

[Opus 17]

The problem, as you know but didn't explicitly state, is that taking an extra retirement withdrawal will also (eventually) increase the taxable portion of social security.   I would try the TaxCaster -- don't add the solar credit  -- and fiddle around until you get to  $6450.   There should be a details page where you can see the details of the calculation and not just the final number, but Turbotax had kind of hidden it, because they want to use the TaxCaster as a tool get get you to use the program.  

The IRS also has a tax calculator that can do the same thing.

https://www.irs.gov/individuals/tax-withholding-estimator

One note of caution: The Turbotax TaxCaster uses 2024 tax rate tables and deductions, so the math will be off slightly.  It should slightly underestimate the amount you can withdraw before paying tax.  So I would double-check sometime in December, using Turbotax for 2025 (either online or installed on your own computer) to see if you can take a little more.  

[Hal_Al]

A Qualified Charitable Distribution (QCD) can only be made from an Individual Retirement Account (IRA). A distribution from your 401(k)  account  (RMD or additional) is not eligible for a QCD.

[Hal_Al]

If you used the download  (desktop)version of TurboTax (TT), that is, you currently have TT 2024 on your computer, make a copy of your 2024 return (click file / save as). Name it something like "2025 Preliminary" and then replace your 2024 entries with your 2025 estimates. It won't be exact because the program uses 2024 tables and numbers. But, it should be close enough for most purposes. I use the override feature to change the standard deduction and MAGI numbers, on the forms, where appropriate.

This doesn’t work with TT online (TTO), because you will override your 2024 return.

[VolvoGirl]

Also if you do a QCD from a IRA......

To qualify as a QCD, the distribution must have taken place DIRECTLY from the account trustee to the charity. It's ok for them to send you a check made out to the Charity that you then mail to the Charity. Withdrawing funds and then making your own contribution to a charity DOES NOT qualify as a QCD.   If you withdraw funds from your IRA and donate those funds to a charity, the withdrawal is fully taxable and you can only deduct it as an itemized deduction if you itemize on Schedule A and don't take the Standard Deduction.

[AmeliesUncle]

I'll add one more thing to consider:  The large bill that is going through Congress right now is suggesting a larger Standard Deduction for people age 65 and over, which will decrease your tax.

You might want to wait and see exactly what passes before you make any final calculations.

[Opus 17]

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@Hal_Al wrote:

A Qualified Charitable Distribution (QCD) can only be made from an Individual Retirement Account (IRA). A distribution from your 401(k)  account  (RMD or additional) is not eligible for a QCD.

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However, you can do a rollover from the 401k to an IRA that you open for this purpose, wait a few days for the transaction to settle, then do the QCD from the IRA.  

[ecufour]

Yes, thank you. I am factoring that into the calculation. The final version is impossible to know at this point.

What I was concerned about was that balance in taking out enough from my 401k to get close to a $6,000!tax liability without triggering more than 50% of our social security being taxed. I think I found that balance 

[ecufour]

The QCD is from an IRA account. I stated it incorrectly