In reading that “Married Filing Jointly” tax rate is 12% if combined income is $89,450.00 or less but then jumps to 22% if your taxable income is over $89,450 - Is a couples “Taxable Income” considered to be their identified gross taxable income by their companies LESS the standard deduction of $27,700?

In other words (using easy numbers) if we make $127,700 in gross income, and we chose to use the standard deductible of $27,700.00 on our taxes, does this make our taxable income $100,000.00, meaning that my tax rate is 12% ?
Thank - Mark

This message has been edited. Last edited by: sigarmsp226,

Yes

Thank you SmiSig. Starting our 2024 income planning NOW….

And I will apologize and add that it is a GRADUATED tax rate. You make $1 over that first amount and only that $1 is taxed at the next rate. I apologize because most people understand this but I am always surprised when someone's tax "planning" involves trying to stay under some magical number to avoid triggering the higher rate. That makes no sense, only the higher amount is taxed on that rate so make as much money as you possibly can. Unless you trigger AMT then you are fucked. lol

I believe the income over $89,450 is subject to the higher tax rate.

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Yes

UH NO to the actual question posed.
We have graduated rates. (you didn't say what year but this is current)
You pay 0 on the first $22,000
You pay 12% on the amount from 22,001 to $89,450
You pay 22% on the amount above $89,451 to $190,750.
So income of $127,700 would be $12,615 in taxes at an effective rate of $12.6%. Assuming that you don't get an other allowances like one or both of you being over 65.

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Originally posted by pedropcola:
I apologize because most people understand this but I am always surprised when someone's tax "planning" involves ...

I am frequently amazed at how badly people misunderstand the basics of the tax system. And that includes very educated higher than average IQ professionals.

Guys - THANK YOU - No apology necessary. I guess I can paint myself gullible/ignorant on this one because I did not understand this detail based on what I was told by someone I thought understood taxes. This person said after you went above that “magic number” all past income earned below that number would be taxed at the higher rate.

The way each of you (hrcjon’s post provided the exact detail I needed to understand) provided me with the answer I thought I knew but questioned myself when a friend told me otherwise.

Again no apology necessary from anyone here - each of you were trying to help me understand this without being rude or calling me ignorant .

Now to let me friend know he does not know what he is talking about - in a nice way.

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Originally posted by Fly-Sig:

quote:

Originally posted by pedropcola:
I apologize because most people understand this but I am always surprised when someone's tax "planning" involves ...

I am frequently amazed at how badly people misunderstand the basics of the tax system. And that includes very educated higher than average IQ professionals.

And there is the problem.
It should not be this difficult.

quote:

Originally posted by pedropcola:
And I will apologize and add that it is a GRADUATED tax rate. You make $1 over that first amount and only that $1 is taxed at the next rate. I apologize because most people understand this but I am always surprised when someone's tax "planning" involves trying to stay under some magical number to avoid triggering the higher rate. That makes no sense, only the higher amount is taxed on that rate so make as much money as you possibly can. Unless you trigger AMT then you are fucked. lol

I do this every year to take advantage of the 0% tax rate on capital gains. Why would this be surprising? I guess I could sell everything in one year, pay 0%, 15%, and 20% plus 3.8% NIIT, but that would be stupid if I don't have to, no?

Works with regular income as well if you can shift when it becomes income to you. Take a bonus for example. Maybe it gets paid in December, maybe it gets paid in January. Let's say you had an unusual transaction in one year like you sold a rental property and the gain from the sale plus recapture of depreciation pushes you income abnormally high. If you have choice, why wouldn't you push the bonus into the next year?

Or you sell multiple rentals, why not hold the closing off until January 1 on a few if that would lower your overall taxes?

Or, double up on charitable contributions of appreciated stock in one year because you sold that rental condo and don't want to pay taxes at the higher rates.

Black92LX - Amen.

Your stretching the OP's question in a lot of not relevant ways. That 15 or 20% Capital gain rates looks pretty darn good if you can pay that rather than normal income rates above $89K (up to 37%). Tax optimization is a complex question and ultimately involves guessing at future tax law changes. That's really not the context of this question.

Maybe. I honestly didn't catch the OP believed that going $1 into the next bracket caused all the income in the previous bracket to be taxed at the higher rate.

I was pointing out that consideration of tax brackets is integral to tax planning and shouldn't be a surprise to anyone. I try to stay under the magic numbers all the time.

OK but the reality is (and actually to point about the OP post) is that there are no magic numbers in a graduated system (ok our system is so complex yes there are, but not very often). Yup everyone should do everything to minimize their tax obligation and that's the best one can do.

Yikes. He wanted a simple answer and you guys come up with capital gains taxes, bonuses, rental income, etc. His question sounded like a simple request on normal income not some complex tax question.

The guy above stated it correctly. Income up to one point at one rate, above that the next rate , and so on. Add them all up you get an “effective” tax rate.

If this cat is trying to hide money in the Caymans that didn’t seem to be his question. If that dig above was directed at me I think it missed. My explanation is absolutely correct. What others are describing are tax strategies to avoid taxes which aren’t usually available for the normal guy earning a paycheck on the 1st and 15th. Most non self employed people can’t defer a paycheck.

It was a simple question he asked not Warren Buffet level tax evasion. Sheesh. Tax code isn’t simple. How graduated taxes work is simple. And misunderstood by a surprising amount of people.

To the OP, I’m glad you got your answer. Let us know how you tell your buddy. Lol

Sprinter - Thanks Sir for this calculator link. This will help Ms. Sig and I a ton.

Thanks again to all of your responses and the follow-up posts. Some (actually a lot) is over my head but it is really neat to read and know there are a lot of great tax experts available here to help me, and all of you did. This thread provided me with the needed answer to my original question and a lot more. Now I get to let my buddy know what he told me was not correct, which will be fun

quote:

Originally posted by pedropcola:
And I will apologize and add that it is a GRADUATED tax rate. You make $1 over that first amount and only that $1 is taxed at the next rate. I apologize because most people understand this but I am always surprised when someone's tax "planning" involves trying to stay under some magical number to avoid triggering the higher rate. That makes no sense, only the higher amount is taxed on that rate so make as much money as you possibly can. Unless you trigger AMT then you are fucked. lol

That we're talking about Marginal Tax Rates as been always my assumption but I can see that some people may not understand that and make some decisions that don't make sense at all.

I'm assuming the numbers posted in the OP are in the ballpark but for people in Medicare, there is an IRMAA thresholds where $1 over the line 2 years ago triggers a higher Medicare premiums surcharge.

My comment was correctly aimed at his very simple question which he admitted to misunderstanding a few posts above. That is very common.

This wasn’t a question with broad tax implications. It was extremely simple and direct. Some people think they are avoiding paying a higher tax bracket by making under a certain number. They think it is a “cliff”. Go over that amount that’s your new tax rate for all your income. It is a common misconception.

This thread has taken a different turn discussing tax strategies for things the OP was not asking about. He got the correct answer many posts ago. And now he gets to go correct his buddy as well. Lol