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• ##### You make a good point(3+ / 0-)
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but Brainwrap has glossed over a couple of things here (in order to simplify) that need to get factored back in for that calculation.

1) We have 4-5 different filing statuses.  Brainwrap is giving examples for a single person.

2) He is talking about "taxable income" which is always less than gross income.  On the forms, gross income is generally referred to as "adjusted gross income" or AGI.

3) Also he has rounded one of the brackets a little stingier than it really is.  For 2011 income they were:

10% on the first  \$8,500
15% on the next \$26,000
25% on the next \$49,100

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

So for a single person with a gross salary of \$50,000, she or he would get to subtract at least \$9,500 of exemptions and deductions to get a taxable income of \$40,500.  The tax bill would come in at:

10% on the first  \$8,500 = \$850
15% on the next \$26,000 = \$3,900
25% on the last \$6,000 = \$1,500

total taxes = \$6,250    . . . . . effective tax rate = 12.5% (6,250 / 50,000)

So for every reduction by 1% of that 25% bracket, the tax payer saves \$60.  That would still be nice to have, so you have a point.  It's just not so significant at the \$50,000 AGI level.

And keep in mind this is a worst case for a single individual.  Depending on the person's situation there are numerous ways for a person to get more deductions or get more tax credits.  An IRA contribution and health spending account would drop the exposure to that 25% bracket quite a bit

For a family of three (filing jointly), different rules apply and their gross income would have to be at least over \$91,000 before they would touch the 25% bracket.

Sorry if I gave anyone a headache.  This is why Brainwrap simplified quite a few things to prove just one very important point.

I'm not liberal. I'm actually just anti-evil, OK? - Elon James White

[ Parent ]

• ##### Questions(0+ / 0-)

How did you arrive at the \$9500 figure as the minimum amount of exemptions - is that the minimum claim amount?  And the \$91K for the family of 3 would be a "household income" tabulation, correct?

I guess what I would say to the adjustments to your example is, the savings you earn by a marginal rate reduction is dependent on how much income you have accrued within that range.  That's true that a typical person with \$50K in taxable income will likely have a gross income a fair bit higher than that - for somebody who's making a salary in the 70-80K (comfortable but still distinctly middle-class), the advantage per percentage-point reduction would be considerably higher.

There's a lot of great info in that post - much appreciated.

• ##### Sorry to get back to you late(0+ / 0-)

I'm still "recovering" from excessive T-day frivolity and exuberance...

This:

she or he would get to subtract at least \$9,500 of exemptions and deductions
Comes from a personal exemption of \$3700 and standard deduction of \$5,800.  There may be very unique situations that may not get to use those but for nearly all single status filers at that income level that is what they get to use.  If you download the 1040 form from the IRS you will see those on lines 40 and 42.

The \$91k is for married filing jointly so it definitely includes all income of both spouses.  But it is more complicated and I was assuming a family with one child who is not working.  For any dependent children with income I am uncertain about the law.  There are rules and limits about declaring a child as a dependent on one's form.  And then if the child has significant income she or he may have to file a separate form.  Even so, I believe the child could still be considered a dependent based on age...  I don't know this part of the tax code though since I haven't needed it.

I'm glad if my little writeup helped.

Happy holidays.

I'm not liberal. I'm actually just anti-evil, OK? - Elon James White

[ Parent ]

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