Month: September 2019

One of the great things about being FIREd is having the ability to take time to try new things. Last week I had the opportunity to try my hand at being a background actor (aka “extra”) on a new TV show.

Going into it, I had no idea what to expect. I found out about the opportunity from a friend of mine who saw the casting call posted to Craigslist. Neither of us had any previous experience with this sort of thing. We both responded saying we were interested and available. She was called in to film on one day for a scene in a bar, and I was called in to film on three days: one day filming in a gymnasium scene and two days filming outdoors in a park.

The first day was pretty disorganized. They called a bunch of us in bright and early, got us set up with our costumes for the scene, and then we sat outside for about eight hours before we actually had to do anything. There was an assistant director who was our point of contact, and he kept telling us we would be needed in an hour or so. They must have had a bunch of things run behind schedule, as they didn’t end up needing us until the very end of the day.

When we were called in it was a pretty surreal experience. I had never been on a professional set like that before. There were lots of people involved, each with their own jobs. They would all do their thing to get set up for the next shot, perform the scene, reset everything back to the beginning for the next take, and repeat from there. I was pretty impressed by how well everyone seemed to work together.

The second day I went in was a bit more involved. At the beginning they had us consult with a wardrobe professional, handing out the costumes we were supposed to wear and having us try them on. They also had us spend a few minutes with hair and makeup artists to get us looking our best for the camera.

Once all that was done we headed to the set location in the middle of a public park. We were on camera much more that day. Not nearly so much sitting around waiting to be called in like the first day.

The filming was a bit challenging for everyone because the park we were in was underneath a flight path into the airport, so there was airplane noise interrupting things every couple of minutes. We got into a nice rhythm of setting things up during the airplane noise so that we were ready to go right away when it was over.

Another challenge was related to sunlight. It was cloudy when we started out shooting the scene, but later in the day the sun came out. This difference in light levels isn’t great for the continuity of the scene. Makes perfect sense when you think about it, but it’s something that I hadn’t considered before as just a viewer of TV shows. The crew brought out this big 20′ square shading device and set it up over our heads to make some shade and get the light levels down to about what they were when it was cloudy. Once again, I was impressed with how much everyone in the crew performed their different roles to keep things moving along.

That day was pretty tiring. We were there for about 12 hours, right until sundown. Then we had to show up again before sunrise the next day for the final day of filming. That morning they only needed us for a few shots, and we were done with our scene by lunchtime.

All in all, this was a very positive experience for me. Besides the opportunity to see how a TV show is made behind the scenes, I also met a bunch of interesting people. Most of my fellow extras were not new at it, and had even retained talent agents to try and find them as many roles as possible.

I don’t think there’s enough film work available in the Seattle area for anyone to make much of a real career out of acting here; it’s more something that people interested in it can do from time to time for a bit of extra cash if they have flexible jobs. I met a woman trained as a chef who works in sales, has been on a couple of reality shows, and aspires to have her own cooking show someday. I met a man who did web development for a few years before leaving that to become a juggler and pub trivia quizmaster, and who had made two appearances on game shows. There was a real estate agent who was also making his first appearance as an extra, and plenty of others each with their own story.

We all came together for three days working at minimum wage to fill out the background of a few scenes on a TV show. I think we did pretty well at it! It was fun to try once, and I can’t completely rule out doing it again in the future, but I’m also not going to scour the web for the next available opportunity. It started to feel a bit too much like work by the end, especially that last day with the pre-dawn start time.

Next year will be our family’s first experience buying health insurance on the individual market through our state’s ACA exchange. In 2019 there are four companies offering insurance in King County (home to Seattle, many of its suburbs, and nearly a third of Washington’s population): Ambetter, Kaiser Permanente, Molina, and Premera. Premera offers EPO plans, while the other three insurers are HMOs.

That’s this year. What about next year?

While the insurers aren’t actively selling their plans yet, they have all submitted proposals to the state insurance commissioner for the plans they would like to offer and rates they would like to charge. The commissioner has to review and approve these rates before the plans go on sale during open enrollment later this year.

I spent a little time looking through these proposals to see what’s in store for next year. All four of the companies currently offering individual insurance in King County plan to continue doing so next year. We’ll also see the addition of two more companies to the local exchange: BridgeSpan and LifeWise.

Keep reading for a company-by-company summary of the proposals for next year.

Continue reading 2020 Seattle-area ACA plans: an early look

As someone who recently joined the ranks of the FIREd, I have plenty of options for how to spend my time. It’s pretty nice! While I’m confident that our savings should be enough to see us through the rest of our lives, I fully expect to come across some opportunities to do interesting things and also earn some money on the side.

My first thought when considering the impact a small side gig might have on our finances is that the self-employment taxes will be huge, and that the amount left over might not be worth the effort. As I found out, this is not necessarily the case for a FIREd family.

Example 1: Roth conversion ladder

Consider a retired couple with two kids living at home, spending $50,000 per year. They have essentially all of their savings in retirement accounts, and use the Roth conversion ladder to access this wealth prior to age 59½.

Their federal income tax situation, in a nutshell, looks like this:*

• Adjusted Gross Income: $50,000 from Roth conversions
• Standard deduction: $24,000
• Taxable income: $26,000
• Tax before credits: $2,742
• Child tax credit: $2,742
• Total tax (before ACA credits): $0

No income tax for this family. Not bad! This family buys their health insurance through their state’s ACA exchange. With an AGI of $50,000, the second-cheapest silver plan will have annual premiums of $3,225. They pay for these premiums out of their $50,000 budget.

Now consider what might happen if one of the adults in this family starts a small part-time business, bringing in a pretty modest $15,000 per year. They use this money to help pay their living expenses, reducing their need for Roth conversions by an equal amount. This business would expose the family to self-employment tax of 15.3% on the business income, but it also opens up a few interesting tax breaks for self-employed folks.

First, self-employed people can deduct the cost of their health insurance premiums. This deduction is calculated prior to AGI, similar to the treatment that people who get health insurance through their employer get to claim.

Self-employed people also get to deduct half the cost of their self-employment tax from their AGI, similar to how employees have their employer pay half their FICA taxes and this half never enters into their own personal income tax calculations.

The tax cuts that went into effect in 2018 introduced a new deduction for business owners: the 20% qualified business income deduction. This applies to business income that is not otherwise deducted from income, so the deductible half of self-employment tax and the health insurance deduction don’t count toward the income that is used for this deduction.

Finally, the fact that this family now has some work-related income makes them potentially eligible for refundable child tax credits and the earned income credit.

Let’s see how their taxes shape up now!

• Roth conversion income: $35,000
• Business income from Schedule C: $15,000
• Gross income: $50,000
• Deduction for half of self-employment tax: $1,060
• Deduction for health insurance premiums: $2,679
• Adjusted gross income: $46,261
• Qualified business income deduction: $2,252
• Standard deduction: $24,000
• Taxable income: $20,009
• Tax before credits: $2,022
• Child tax credit: $2,022
• Regular income tax: $0
• Self-employment taxes: $2,120
• Additional child tax credit: $1,716
• Earned income credit: $1,099
• Total tax (before ACA credits): $-695

That’s right, negative $695 of tax! Far from being an expensive proposition tax-wise, this self-employment activity unlocked tax credits that more than paid for the self-employment tax. The pre-AGI deductions from self-employment also increase their ACA premium tax credit by $546. That’s a total benefit of $1,241, even before taking into account the effect that this extra $15,000 of work income will have on their eventual social security benefits.

Example 2: Spending down a taxable account

The previous example looked at a family who was going with the Roth conversion ladder for 100% of their spending. Now let’s look at a family in a situation more similar to my own, starting out in FIRE with a taxable brokerage account that they want to spend down before moving on to tax sheltered funds.

Same family size and $50,000 spending as before. This time they take the full $50,000 from a taxable account: $10,000 of dividends and $40,000 from selling shares with an average basis of half the current market value, leading to $20,000 of long-term capital gains income.

They also do $20,000 of Roth conversions to prepare for future years when they’ll be relying on seasoned Roth basis for their Roth conversion pipeline.

Tax situation before starting a small business:

• Roth conversion income: $20,000
• Qualified dividend income: $10,000
• Long-term capital gains: $20,000
• Adjusted Gross Income: $50,000
• Standard deduction: $24,000
• Taxable income: $26,000
• Tax before credits: $0
• Child tax credit: $0
• Total tax (before ACA credits): $0

Similar to the family living off Roth conversions above, the family in this example has no federal tax liability before starting their small business. Let’s see what happens afterwards with $15,000 of self-employment income.

As they’re still trying to spend down their taxable account, they keep withdrawing from their taxable savings as before, and save their full self-employment earnings in Roth retirement accounts. They reduce their Roth conversions by $15k to keep their taxable income pretty steady.

New tax situation:

• Roth conversion income: $5,000
• Business income from Schedule C: $15,000
• Qualified dividend income: $10,000
• Long-term capital gains: $20,000
• Gross income: $50,000
• Deduction for half of self-employment tax: $1,060
• Deduction for health insurance premiums: $2,679
• Adjusted gross income: $46,261
• Qualified business income deduction: $2,252
• Standard deduction: $24,000
• Taxable income: $20,009
• Tax before credits: $0
• Child tax credit: $0
• Regular income tax: $0
• Self-employment taxes: $2,120
• Additional child tax credit: $1,716
• Earned income credit: $0
• Total tax (before ACA credits): $404

In this scenario the family is ineligible for the earned income credit due to their taxable investment income. Anyone with more than $3,500 of such income is ineligible for the earned income credit. The additional child tax credit and the additional ACA credits still combine to more than annihilate the self-employment taxes.

This is a result I didn’t really expect when looking into the impact a side business would have on an early retiree’s taxes. I thought that surely the taxes would go up. In many cases, especially where kids aren’t involved, that probably would happen. But when you bring kids into the mix, tax credits meant to help low-income working families can help you too!

* All calculations in this post use tax formulas from 2018. Amounts in 2019 will differ slightly due to annual inflation adjustments in the tax code.