## Effective Tax rate poll

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

## What Is Your Federal Effective Tax Rate

< or equal to 5% but not greater than %5
12
10%
< or equal to 7% but greater than 5%
6
5%
< or equal to 7% but greater than 5%
6
5%
< or equal to 9% but greater than 7%
7
6%
< or equal to 9% but greater than 7%
7
6%
< or equal to 13% but greater than 11%
10
8%
< or equal to 15% but greater than 13%
8
7%
> 15%
65
54%

Topic Author
rustymutt
Posts: 3957
Joined: Sat Mar 07, 2009 12:03 pm

### Effective Tax rate poll

I thought it would be fun to post a poll question on effective tax rate. I'm sure it's been done before, but it's been lost in time and files, so I'll start it again. Our personal effective rate of return is according to TT is 9.53%. Our joint return AGI was \$92,309. for 2010. Enjoy.
Even educators need education. And some can be hard headed to the point of needing time out.
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am
how do you calculate this? Assume numerator is Total federal income tax/AMT owed?
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm
I'm not even sure how TurboTax calculates it. I can never duplicate their number. I think TT ignores pre-tax contributions to things like 401(k), FSA, health insurance when it comes up with these figures.
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sscritic
Posts: 21858
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letsgobobby wrote:how do you calculate this? Assume numerator is Total federal income tax/AMT owed?
The definition of the denominator is much more troubling. To livesoft's list above, I would add tax-exempt interest, untaxed social security (you can see I must be older than livesoft), and the \$3000 deduction you take for carryover capital losses. Just because you didn't pay tax on it or you got a deduction to offset it, doesn't mean it wasn't income.
grberry
Posts: 234
Joined: Fri Jul 20, 2007 1:16 pm
Location: Boston, MA
Federal income tax or all federal tax?
Topic Author
rustymutt
Posts: 3957
Joined: Sat Mar 07, 2009 12:03 pm
I don't know how TT figures it. I would think that it's a combination of your wealth taxes and the deductions. But I don't really know. I'll ask TT how it's figured.
Even educators need education. And some can be hard headed to the point of needing time out.
Topic Author
rustymutt
Posts: 3957
Joined: Sat Mar 07, 2009 12:03 pm
The effective tax rate shown by Turbo Tax is Total Tax divided by Adjusted Gross Income. It's not your marginal tax rate.

Effective tax rate is your total tax owed divided by your total income. Check the math and see if you get what Turbo Tax generates. Mine works that way.
Even educators need education. And some can be hard headed to the point of needing time out.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm
So TT ignores tax credits? Foreign tax credit? Child tax credit? Make work pay credit?
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tetractys
Posts: 4831
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea
I get the Effective Tax Rate by dividing Total Tax Paid by by Adjusted Gross Income. In my limited experience over the last twelve years, that coincides with what TurboTax comes up with. -- Tet
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sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am
So is the poll about my effective tax rate or TT's effective tax rate? Since I don't have TT, I have no idea what their effective tax rate is. I could tell you mine, but it would be based on my definition of my income, including tax exempt interest and social security and other items not in AGI.
JW-Retired
Posts: 7184
Joined: Sun Dec 16, 2007 12:25 pm
rustymutt wrote: The effective tax rate shown by Turbo Tax is Total Tax divided by Adjusted Gross Income. It's not your marginal tax rate.

Effective tax rate is your total tax owed divided by your total income. Check the math and see if you get what Turbo Tax generates. Mine works that way.
You might get more responses if you would be specific. AGI and your "total income" are two different lines on form 1040. Line 37 & line 22. Which do you want to use? Or something else? I don't have turbotax.
JW
Sheepdog
Posts: 5628
Joined: Tue Feb 27, 2007 3:05 pm
Location: Midwest, retired 1998 at age 65
Income from IRA and Roth distributions plus interest and Social Security minus deductions = effective tax rate of <1%. (Effective tax rate is based on total income)
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
market timer
Posts: 6350
Joined: Tue Aug 21, 2007 1:42 am
What's the confusion? Just use AGI, line 37 of your 1040.
scrabbler1
Posts: 2522
Joined: Fri Nov 20, 2009 2:39 pm
Using my total income (including muni bond fund interest), it is just a hair over 11%. Had it not been for an unexpectedly large short term cap gains distribution in one of my bond funds, it would have been down around 7%.
ruralavalon
Posts: 19417
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois
http://financial-dictionary.thefreedict ... e+tax+rate .
Effective tax rate
The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.

--------------------------------------------------------------------------------

Effective Tax Rate
The tax rate one pays assuming that one pays a flat rate rather than under a progressive system. Under progressive tax systems, one pays different rates for different amounts in income. For example, one may pay 10% for the first \$10,000 of income and 25% for all additional income. In practice this means that one would pay somewhere between 10% and 25%. One calculates the effective tax rate simply by taking the total tax liability, dividing by one's taxable income and multiplying by 100.Suppose one makes \$20,000 in a year and is taxed under the above system. This person pays \$1000 (10%) of the first \$10,000 and 2500 (25%) of the second \$10,000. The total tax liability is \$3500, which when divided by the \$20,000 of income and multiplied 100, is found to have an effective tax rate of 17.5%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Early 30's solid middle-class "professionals", one RN in a public hospital and one Business Analyst for Fortune 100 financial services company, no kids (which I think makes the below number all the more impressive considering our parent-friendly tax code).

I go with what TurboTax tells us because it's easy and I like the looks of it.
For 2010 it said 7.21%. In straight-up gross income we're hanging around the middle of the 25% marginal tax bracket, but subtract the standard exemption, two maxed-out retirement plans, itemized deductions (mortgage interest/property taxes, student loan interest), the \$1500 energy efficiency credit, and here we are.
Random Poster
Posts: 2237
Joined: Wed Feb 03, 2010 10:17 am
Mine is certainly above 15%. It is more in the mid to high 20% range. Not having any kids or itemized deductions will do that to you, especially when your income is considered to be in the "rich" category by some of those who draft the tax laws. Federal income tax alone is higher than my yearly living expenses, which just seems wrong to me. Add in social security, Medicare, sales, and all the various user fees, and the bill is just head-shakingly high to me.
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am
well if total tax divided by AGI, I'm at 18.1%.
BigFoot48
Posts: 2823
Joined: Tue Feb 20, 2007 10:47 am
Location: Arizona
0%, but an ankle broken in three places, a tooth implant, and a new heat pump isn't the most fun way to achieve this milestone. I see the last and only other time it was 0% was 1965 on an AGI of \$382.

This year is looking to be 0% again, without the extra incentives, thanks to a careful mix of SS and IRA withdrawals.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 14-time loser
stan1
Posts: 8889
Joined: Mon Oct 08, 2007 4:35 pm
I'm not sure a low number is better.

If you have a good income and a paid off house, your number will be a lot higher than if you have \$30K/yr in mortgage interest deductions.

Its better to pay tax on income than to not have income.
Sam I Am
Posts: 2062
Joined: Tue Feb 20, 2007 7:58 pm
Message deleted.
Last edited by Sam I Am on Fri Oct 25, 2013 2:17 pm, edited 1 time in total.
fishnskiguy
Posts: 2604
Joined: Tue Feb 27, 2007 1:27 pm
Location: Sedona, AZ
No mortgage, standard decdution, MFJ, 10.5%.

Seems fair enough.

Chris
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Dougroseville
Posts: 134
Joined: Tue Aug 21, 2007 11:26 am
Effective Tax Rate 0.30% (per TurboTax).. and I even got to make very productive use of the zero capital gains rate!
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon
Total Tax (Line 60 of Form 1040)=1313

Taxable Income (Line 43 of Form 1040)=12861

Effective Tax Rate=10.21%
Last edited by gkaplan on Sun Mar 06, 2011 1:27 am, edited 1 time in total.
Gordon
White Coat Investor
Posts: 14828
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth
I was feeling good that mine was only 15.7% this year. Now I realize I'm in the top category of the poll. And that's not even counting payroll taxes or state taxes...or sales taxes....or property taxes
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Tortoise
Posts: 367
Joined: Sat Aug 08, 2009 3:24 am
Location: San Jose
17.5% and like EmergDoc said, that does not include many other taxes.
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sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am
Looking at the responses, it is clear that there should have been more categories above 15%. Right now, over 50% are in the over 15% category (38/75).

So now the question becomes, who has the highest effective tax rate?

Mine is 19.0%, but I sure that some of our friends are over 20% or even 25%. Where are all those AMT people when we need them?

But since people are using three different denominators, line 22 (total income), line 37 (AGI), and line 43 (taxable income), the results are not very meaningful. Using the smallest denominator (line 43 for most folks) gives you the highest effective tax rate.

For those with a taxable income of zero, what is zero divided by zero?
tomd37
Posts: 3388
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

### SmartMoney Magazine Term of the Month

SmartMoney magazine includes a "Term of the Month" in each issue. The April 2009 issue was effective tax rate. It is too lengthy to type out, but it boils down to dividing the amount you paid in taxes by your taxable income (i.e., Form 1040 line 46 divided by line 43). Mine is 16% for 2010 as a retiree.
Tom D.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm
EmergDoc wrote:I was feeling good that mine was only 15.7% this year. Now I realize I'm in the top category of the poll. And that's not even counting payroll taxes or state taxes...or sales taxes....or property taxes
You should feel very very good because you are in the top category of the poll.
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livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm
sscritic wrote:But since people are using three different denominators, line 22 (total income), line 37 (AGI), and line 43 (taxable income), the results are not very meaningful. Using the smallest denominator (line 43 for most folks) gives you the highest effective tax rate.
A few more income categories:

Pre-tax income (not shown on 1040) including employer match to 401(k)
Off the books income (pizza anyone?)
Free or subsidized meals and housing
Tax-exempt income

Maybe total income should come from Form 1116 Line 3e?
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market timer
Posts: 6350
Joined: Tue Aug 21, 2007 1:42 am
sscritic wrote:For those with a taxable income of zero, what is zero divided by zero?
Just use l'Hôpital's rule in that case.
etarini
Posts: 615
Joined: Sun Jan 24, 2010 6:46 pm
I used TurboTax this year and the only way I can make the numbers match their reported effective tax rate is to divide my tax on line 44 (not including the additional AMT on line 45, and not my "total tax" on line 46) by my AGI on line 37 (not by my taxable income on line 43).

The usual way I calculate it myself is to add up ALL of the money we get (adding back the \$22K contribution to my wife's 401K, the money we put in a pretax flexible spending account, and the pretax savings on our health insurance) and use that as the denominator, instead of AGI or taxable income. The numerator is simply the federal income tax we pay.

Eric
Default User BR
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market timer wrote:
sscritic wrote:For those with a taxable income of zero, what is zero divided by zero?
Just use l'Hôpital's rule in that case.
There's a limit to that.

Brian
mptfan
Posts: 6202
Joined: Mon Mar 05, 2007 9:58 am
livesoft wrote:
EmergDoc wrote:I was feeling good that mine was only 15.7% this year. Now I realize I'm in the top category of the poll. And that's not even counting payroll taxes or state taxes...or sales taxes....or property taxes
You should feel very very good because you are in the top category of the poll.
I agree. I wish my effective tax rate was higher.
MoneyOCD
Posts: 281
Joined: Sun Nov 08, 2009 8:56 pm
EmergDoc wrote:I was feeling good that mine was only 15.7% this year. Now I realize I'm in the top category of the poll. And that's not even counting payroll taxes or state taxes...or sales taxes....or property taxes
same here, 15.7% and exactly same feelings...
was kind of happy before read this poll
rai
Posts: 1290
Joined: Tue Apr 06, 2010 7:11 am
27% fed
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House Blend
Posts: 4761
Joined: Fri May 04, 2007 1:02 pm
Regarding effective tax rates, consider a single yuppie with a simple financial profile:

wage and interest income;
no dependents;
standard deduction;
all retirement investing is tax-deferred or in a Roth;
no qualified dividends or foreign tax credits or capital gains/losses.

With \$66K in taxable wages plus interest for 2010, she'll have an exemption of \$3650 and a standard deduction of \$5700, leaving her with a taxable income of \$56650. Solidly in the middle of the 25% bracket.

She'll owe \$10343.75 in income tax, but qualifies for a \$400 Making Work Pay tax credit, for a net tax of \$9943.75 and an effective tax rate of 15.1%.

Enough to put her in the top category in this poll.