The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Oprah and tax trouble?||Date: 4/24/2005 2:43 PM|
|Author: irasmilo||Number: 78932 of 124800|
There is a complicated formula that would determine how much extra funds Oprah would have to give them so that the bonus + tax given to the recipient would result in zero tax to the recipient. It goes something like this:
Bonus $5,000 X 20% tax = 1,000
Tax on $1,000 X 20% = 200.00
Tax on $200 X 20% = 40.00
Tax on $40 X 20% = 8
Tax on $8 X 20% = 1.60
And on and on until you get to zero.
You may think it's complicated, but I would argue it's very simple. Using your 20% rate, the grossed-up amount is simply 5000/(1-.20) = $6250.
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