Tax Bracket Clarification

[chargirlgenius]

Seems a lot of people don’t understand how tax brackets work. I completely understand. I didn’t understand until I researched it about 6 months ago. I’m reposting something that I just posted elsewhere, thought it was worth pointing out:

Here’s how tax brackets work.

2008 tax brackets:

$0 - $15,650: 10% of the amount over $0
$15,651 - $63,700: $1,565 plus 15% of the amount over $15,650
$63,701 - $128,500: $8,772.50 plus 25% of the amount over $63,700
$128,501 - $195,850: $24,972.50 plus 28% of the amount over $128,500
$195,851 - $349,700: $43,830.50 plus 33% of the amount over $195,850
$349,701 - No limit: $94,601 plus 35% of the amount over $349,700

What does this mean? This means that if I make more than the next guy, I’m not being taxed more on the same amount of money. I’m only being taxed more on the amount that I make above and beyond him. If Joe the bus driver and his wife make $63,700, and my hubby and I make $100k, we’re paying the exact same tax rate on that $63,700. I’m only paying a higher percentage on the last $36,300 of my income. That’s not even taking into account the fact that I can likely hire a better accountant with that additional income.

I’ll admit, I haven’t delved into the details of the small business changes, but I’m not a small business owner. But if it works out the same as regular tax brackets, the person making $251k will still be taxed exactly the same percentage on the first $250k of that. Only the 1k over and above 250k will be taxed an additional 3%.

Google how tax brackets work for more info.

Comments

[glasseye.livejournal.com]

Can a person making $64k even afford to hire an accountant?

I often wonder if it works like this: the richer you are, the lower effective tax rate you pay, since you can afford to hire a really savvy accountant, versus doing your taxes yourself.

The number of loopholes and exceptions in the tax code is simply staggering, and I know there are people who are paid very very well to exploit those holes for the rich.

[chargirlgenius.livejournal.com]

Depends on the person. My ex and I hired an accountant to do our taxes when we were making less than that. He was a cheap accountant, but he saved us more than we paid him. A small business owner, at *any* level, can't afford to NOT have an accountant, unless they're well versed in tax law.

[spikywheel.livejournal.com]

Agreed. The first year we had the morgage I paid "Liberty Tax" to do my taxes for $60.

Well they screwed up royal.

Had my currant accountant fix them (approx $200) and he saved me $600 in taxes owed.

I (heart) my accountant...

[glasseye.livejournal.com]

Right, I'm curious how that trend continues to those with very large incomes.

My dad ran his own small business for many years, and he did his own taxes. :-)