The Motley Fool Discussion Boards

Previous Page

Politics & Current Events / Retire Early CampFIRE

URL:  https://boards.fool.com/they-are-talking-about-adjusted-gross-income-30390017.aspx

Subject:  Re: How does the 250k bracket work? Date:  11/19/2012  1:33 PM
Author:  fleg9bo Number:  655986 of 882486

They are talking about Adjusted Gross Income under $250K. Itemized deductions are utilized to come up with AGI. Itemized deductions come after you get your AGI determined. The AGI determines your maginal tax rate, not your effective tax rate.

This is a bit confusing. The two bolded statements are contradictory. The second one is correct. AGI is your total income less a few adjustments (if you have them) and you'll find it at the bottom of page one of the 1040. Then on page two, itemized deductions are subtracted from AGI (if you don't itemize, the standard deduction is used instead). The personal exemptions are also subtracted, leaving you with taxable income.

The question is, will the $250k cutoff apply to AGI or to taxable income? Up to now, it's taxable income that determines which tax bracket you fall into. I don't see how AGI could be the determining factor -- you can't calculate your tax before subtracting the deductions unless the tax code is massively altered to treat deductions like after-tax credits. And households with identical AGIs can have wildly varying amounts of taxable income due to various itemized deductions and the number of personal deductions.

--fleg
Copyright 1996-2019 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us