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View Diary: According to USA Today's logic, you should ask your boss for a pay cut (122 comments)

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  •  Still not getting it. (0+ / 0-)

    Are you saying someone with $100,000 AGI less $20,000 allowable deductions leaving taxable income of $80,000 gets a raise to $101,000 and allowable deductions are reduced by $1,000 or more?

    •  Yes - (0+ / 0-)

      IRC Sec 68 is the big hammer -- if your AGI exceeds the "allowable amount" ($100K for joint filers, actually $50k for individuals... I thought this was higher so the example from USAToday is still too low to matter, but not quite as a bad as I thought), then deductions are reduced by the lesser of either:

      1) 3% of AGI over the applicable amount, or,

      2) 80% of the amount of allowable itemized deductions.

      There are also exemptions to this section -- medical expenses and I believe, certain theft, casualty, etc circumstances.

      Again, it's highly dependent on how and what you itemize - but if you have big ticket deductions, going over the "allowable amount" can have big ramifications.

      Full Disclosure: I am an unpaid shill for every paranoid delusion that lurks under your bed - but more than willing to cash any checks sent my way

      by zonk on Tue Sep 06, 2011 at 05:13:01 PM PDT

      [ Parent ]

      •  Would like to see a real example -- (0+ / 0-)

        -- the AGI limitation number I saw was approximately $168,000.  From my quick look at this, it seemed to be tackling tax subsidies for discretionary expense deductions that we're probably being abused.

        •  Abuse is the reason for the IRC Sec 68 (0+ / 0-)

          limits --

          in the example below around charitable giving, if you can afford to donate 50% of your AGI to charity at $49K -- then the chances are pretty darn good (but not absolute!  I know -- not directly, but just via reading about them -- some peace activists who truly do try to ensure that their income and taxes get to be such that they can honestly say they don't pay for defense spending... or anything else at the federal level, of course - but the conscientious objection to war leads them to ensure their tax bill comes out zero) that you're independently wealthy and your "paycheck" has little relation to your actual net worth.

          Again, though -- the "cracks" in the system generally occur right at those thresholds.

          If your income/AGI goes from $49,900 to $50,400 -- which is basically a 1% raise -- the equation for your deductions might very well change quite radically.

          In the year you were under 50K -- your deductions are limited only by the statutory limits of those deductions.... Once you cross over, your deductions are now limited by a formula that can be quite unforgiving.

          Full Disclosure: I am an unpaid shill for every paranoid delusion that lurks under your bed - but more than willing to cash any checks sent my way

          by zonk on Tue Sep 06, 2011 at 05:44:26 PM PDT

          [ Parent ]

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