The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Penalty for reaching next tax bracket?||Date: 3/22/2007 4:24 PM|
|Author: JAFO31||Number: 93205 of 121104|
Polywilliams: "Hello. I am still trying to get a grasp on how much money I want to earn this year--or rather how many hours, if any, I want to work once I hit a highly taxed bracket."
"In weighing the incentive not to work once the higher bracket kicks in, I was looking to see where that line is by checking the brackets."
"It appears that if I earn enough to push my income over $61,300, I would be immediately penalized to the tune of around $7000 on that very next dollar with the tax jumping from $1510 plus 15% to $8440 plus 25%. This according to the Married/joint table."
You are not reading the table correctly.
A little math is order.
inc. 61,299, tax=$1510 + 15%(61,299 - 15,100)= 1510 + 6929.85= $8439.85
inc. 61,300, tax=$1510 + 15%(61,300 - 15,100)= 1510 + 6930= $8440
inc. 61.301, tax=$8440 + 25%(61,301 - 61,300)= 8440 + 0.25 = $8440.25
No $7000 penalty!!! The first number in formula is simply the tax due on all amount in the lower bracket(s).
"This makes it seem as if earning $61,299 is considerably more profitable (and easier time-wise) than earning $61,300."
"Since I am 'in the neighborhood' of the $61,300 figure after adjustments (taxable income), would it be wise to plan to come in just under that bar?"
Not because of some perceived tax penalty!
"I ask because there are experts here and this makes little sense to me.
"Can I really make a better salary by NOT working if I am near that line in the sand?"
NO! You are losing sight of the formula and change in the amount substracted from the total income figure.
"really doesn't want to have to earn several thousand dollars to net one extra dollar once I get into that bracket. Someone correct my understanding of this and earn a lot of recs! ;) "
And one does not have to earn several thousand dollars to net one extra dollar.
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