I have tax-related questions and I was wondering if you're familiar with filling out tax forms. My 401K savings plan is effective this week and so far, I've put down 6% of my base salary since I have company contribution (match). That's when I started to think more closely about my annual taxable earnings. For 2004 tax schedule, taxable income not over 29,700 will put individuals in the 15% tax bracket and under. For standard deductions, singles have up to 4,850. In order for individuals to be taxed at the 25% tax bracket, do they have up to 34,550 for their annual taxable income? Let's say for instance my net taxable income ranges between 31K-33K, after all deductibles and 401k contribution. Although this range is over the taxable income of 29,700, but under the taxable income including the standard deduction. Is this the right concept? Still learning here. Financeguy82
I have tax-related questions and I was wondering if you're familiar with filling out tax forms. There's a couple of regulars here that have filled out a form or two in their lifetime. <grin>Is this the right concept? You're in the right ballpark. To keep it simple, your W-2 shows your income. In more complex situations you add other kinds of income to it (like interest and dividends). Added together, all of this income becomes Adjusted Gross Income or AGI. You subtract the standard deduction off of AGI to get to taxable income.Now let's add another wrinkle. You also get a personal exemption of $3200 in 2005. (It was $3100 in 2004.) That gets subtracted off of your income just like the standard deduction.So let's take the $33k from your W-2 (which will be after deducting the 401k contributions). Subtract off the $4850 standard deduction and the $3100 standard deduction (using 2004 amounts) and you get $25,050 of taxable income. The top of the 15% bracket is at $29,700, so you are in the 15% tax bracket.To find out how much you need to make to get into the 25% bracket, start with $29,700 and add in the standard deduction and personal exemption. So you'd need at least $37,650 on your W-2 (or more correctly, of AGI) to get into the 25% bracket.--Peter
Still learning here. You came to the right place. I'll add one thing that Peter didn't mention. Your "bracket" is the rate at which your next dollar of income is taxed. Part of your income is untaxed (deductions and exemptions), then some is taxed at 10%, then a band taxed at 15%, etc.Phil
Right, so when you cross into the 25% range, only the dollars above that range are taxed at 25%. All your money isn't suddenly taxed that much.
Right, so when you cross into the 25% range, only the dollars above that range are taxed at 25%. All your money isn't suddenly taxed that much.Exactly.
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