Figuring your tax bracket

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fortfun
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Figuring your tax bracket

Post by fortfun » Sat Jan 20, 2018 12:56 pm

This is a silly/easy question but I want to be sure I'm doing this correctly. To determine your bracket you:

Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Mortgage interest (I'm not sure if you include these deductions or not).

Then, you use this total to determine your tax bracket? Or, what line on your tax return is used to determine your tax bracket?

Sorry this is such a basic question. I'm just trying to determine if I should move forward with more pretax investments or not.
Thanks for the help.

The Wizard
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Re: Figuring your tax bracket

Post by The Wizard » Sat Jan 20, 2018 1:25 pm

Wrong.
Most people try to figure just their Federal income tax bracket, or maybe Federal+State.
What you're doing is figuring take-home pay as a percentage of gross pay...
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The Wizard
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Re: Figuring your tax bracket

Post by The Wizard » Sat Jan 20, 2018 1:29 pm

And even though my Federal tax bracket is 28% for 2017 and 24% for 2018, my marginal tax rate could be different, depending on a number of things...
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The Wizard
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Re: Figuring your tax bracket

Post by The Wizard » Sat Jan 20, 2018 1:32 pm

fortfun wrote:
Sat Jan 20, 2018 12:56 pm
...Or, what line on your tax return is used to determine your tax bracket?
The Taxable Income line on form 1040, in conjunction with that year's tax bracket table...
https://taxfoundation.org/2017-tax-brackets/
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annielouise
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Re: Figuring your tax bracket

Post by annielouise » Sat Jan 20, 2018 1:36 pm

1040: line 43 taxable income

DIFAR31
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Re: Figuring your tax bracket

Post by DIFAR31 » Sat Jan 20, 2018 1:44 pm

Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Income tax withholdings and FICA taxes are not subtracted when determining taxable income.

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sat Jan 20, 2018 3:10 pm

DIFAR31 wrote:
Sat Jan 20, 2018 1:44 pm
Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Income tax withholdings and FICA taxes are not subtracted when determining taxable income.
Thanks!

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sat Jan 20, 2018 3:11 pm

The Wizard wrote:
Sat Jan 20, 2018 1:32 pm
fortfun wrote:
Sat Jan 20, 2018 12:56 pm
...Or, what line on your tax return is used to determine your tax bracket?
The Taxable Income line on form 1040, in conjunction with that year's tax bracket table...
https://taxfoundation.org/2017-tax-brackets/
Thanks!

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sat Jan 20, 2018 3:11 pm

annielouise wrote:
Sat Jan 20, 2018 1:36 pm
1040: line 43 taxable income
Thanks!

bberris
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Re: Figuring your tax bracket

Post by bberris » Sat Jan 20, 2018 5:24 pm

Really your tax bracket is only part of the picture. I assume you want to know what happens to your taxes when you do something. The important number for decisions about IRAs, roth conversion etc, is your marginal tax rate. There are a lot more moving parts to marginal tax rate that tax bracket. The way I figure it is to add or subtract $1000 or so to the pertinent decision (roth conversion, ira contribution or withdrawal ...) using a tax calculator or software like this:

https://sites.google.com/site/excel1040/home/download

and then compare your refund or tax due to what it was without that change.

The Wizard
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Re: Figuring your tax bracket

Post by The Wizard » Sat Jan 20, 2018 6:27 pm

bberris wrote:
Sat Jan 20, 2018 5:24 pm
Really your tax bracket is only part of the picture. I assume you want to know what happens to your taxes when you do something. The important number for decisions about IRAs, roth conversion etc, is your marginal tax rate. There are a lot more moving parts to marginal tax rate that tax bracket. The way I figure it is to add or subtract $1000 or so to the pertinent decision (roth conversion, ira contribution or withdrawal ...) using a tax calculator or software...
Plus or minus $100 would be sufficient since tax tables go in $50 increments...
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lstone19
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Re: Figuring your tax bracket

Post by lstone19 » Sat Jan 20, 2018 9:18 pm

The Wizard wrote:
Sat Jan 20, 2018 6:27 pm
bberris wrote:
Sat Jan 20, 2018 5:24 pm
Really your tax bracket is only part of the picture. I assume you want to know what happens to your taxes when you do something. The important number for decisions about IRAs, roth conversion etc, is your marginal tax rate. There are a lot more moving parts to marginal tax rate that tax bracket. The way I figure it is to add or subtract $1000 or so to the pertinent decision (roth conversion, ira contribution or withdrawal ...) using a tax calculator or software...
Plus or minus $100 would be sufficient since tax tables go in $50 increments...
Not everyone’s tax calculations comes from the tables. And only doing a $100 increment results in a marginal rate to the nearest 1 percent. For some, there are effective marginal rates that are in fractional percents such as the investment surtax or as I found, AMT where the nominal 26% rate became an effective 32.5% due to the 5 for 4 exemption phase-out. Also, IIRC, for personal exemptions (still existing in 2017), they phase out in chunks every $2,500 in increased taxable income so there’s a big hit every time you cross a boundary.

delamer
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Re: Figuring your tax bracket

Post by delamer » Sat Jan 20, 2018 11:14 pm

fortfun wrote:
Sat Jan 20, 2018 3:10 pm
DIFAR31 wrote:
Sat Jan 20, 2018 1:44 pm
Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Income tax withholdings and FICA taxes are not subtracted when determining taxable income.
Thanks!
My pension contributions were not tax deductible; I don’t know if that is universally true.

Also, in 2018 under the new tax law, you can take either the standard deduction or itemize deductions (like mortgage interest), but no more personal exemptions. Your taxable income is after deductions too.

And don’t forget the impact of state taxes on investment decisions.

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sun Jan 21, 2018 11:33 am

delamer wrote:
Sat Jan 20, 2018 11:14 pm
fortfun wrote:
Sat Jan 20, 2018 3:10 pm
DIFAR31 wrote:
Sat Jan 20, 2018 1:44 pm
Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Income tax withholdings and FICA taxes are not subtracted when determining taxable income.
Thanks!
My pension contributions were not tax deductible; I don’t know if that is universally true.

Also, in 2018 under the new tax law, you can take either the standard deduction or itemize deductions (like mortgage interest), but no more personal exemptions. Your taxable income is after deductions too.

And don’t forget the impact of state taxes on investment decisions.
Thanks Delamar. So is it really possible to determine an accurate tax bracket at this point? Or am I just going to have to wait for the new tax software to come out? I'm filing jointly with 2 kids. I suspect we will take the standard deduction.

retiredjg
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Re: Figuring your tax bracket

Post by retiredjg » Sun Jan 21, 2018 11:53 am

How different is your income this year from 2017?

delamer
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Re: Figuring your tax bracket

Post by delamer » Sun Jan 21, 2018 11:55 am

fortfun wrote:
Sun Jan 21, 2018 11:33 am
delamer wrote:
Sat Jan 20, 2018 11:14 pm
fortfun wrote:
Sat Jan 20, 2018 3:10 pm
DIFAR31 wrote:
Sat Jan 20, 2018 1:44 pm
Take your total salary and subtract:
Contributions to pretax 401, 403, 457, etc.
Pretax medical insurance premiums
Whatever you contribute to your pension
State/Fed Taxes taken from your payroll
Soc Security dues (if any)
Medicare/Medicaid dues
Income tax withholdings and FICA taxes are not subtracted when determining taxable income.
Thanks!
My pension contributions were not tax deductible; I don’t know if that is universally true.

Also, in 2018 under the new tax law, you can take either the standard deduction or itemize deductions (like mortgage interest), but no more personal exemptions. Your taxable income is after deductions too.

And don’t forget the impact of state taxes on investment decisions.
Thanks Delamar. So is it really possible to determine an accurate tax bracket at this point? Or am I just going to have to wait for the new tax software to come out? I'm filing jointly with 2 kids. I suspect we will take the standard deduction.
Yes, it certainly is possible. The tax code information is all available, so it depends on how accurately you can estimate your income and on getting the pretax deductions right.

Here is a guide on the pretax:

Subtract pretax benefits from gross wages to arrive at taxable wages for federal income tax purposes. Pretax deductions include qualified 401(k) contributions; medical, vision, disability, vision, and life insurance; adoption assistance; health savings account; dependent care assistance; and transportation benefits such as parking and transit fees. For example, you pay $100 biweekly toward your pretax family health insurance plan. Subtract $100 from biweekly gross salary of $1,730.77 to arrive at $1,630.77, which is your taxable salary.

Once you subtract the pretax amounts from your gross wages, then subtract the standard deduction to get taxable income.

This assumes that you have no income other than your wages, and that the standard deduction results in your lowest taxable income.

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sun Jan 21, 2018 12:59 pm

delamer wrote:
Sun Jan 21, 2018 11:55 am
fortfun wrote:
Sun Jan 21, 2018 11:33 am
delamer wrote:
Sat Jan 20, 2018 11:14 pm
fortfun wrote:
Sat Jan 20, 2018 3:10 pm
DIFAR31 wrote:
Sat Jan 20, 2018 1:44 pm


Income tax withholdings and FICA taxes are not subtracted when determining taxable income.
Thanks!
My pension contributions were not tax deductible; I don’t know if that is universally true.

Also, in 2018 under the new tax law, you can take either the standard deduction or itemize deductions (like mortgage interest), but no more personal exemptions. Your taxable income is after deductions too.

And don’t forget the impact of state taxes on investment decisions.
Thanks Delamar. So is it really possible to determine an accurate tax bracket at this point? Or am I just going to have to wait for the new tax software to come out? I'm filing jointly with 2 kids. I suspect we will take the standard deduction.
Yes, it certainly is possible. The tax code information is all available, so it depends on how accurately you can estimate your income and on getting the pretax deductions right.

Here is a guide on the pretax:

Subtract pretax benefits from gross wages to arrive at taxable wages for federal income tax purposes. Pretax deductions include qualified 401(k) contributions; medical, vision, disability, vision, and life insurance; adoption assistance; health savings account; dependent care assistance; and transportation benefits such as parking and transit fees. For example, you pay $100 biweekly toward your pretax family health insurance plan. Subtract $100 from biweekly gross salary of $1,730.77 to arrive at $1,630.77, which is your taxable salary.

Once you subtract the pretax amounts from your gross wages, then subtract the standard deduction to get taxable income.

This assumes that you have no income other than your wages, and that the standard deduction results in your lowest taxable income.
Thanks Delamer! So I would do the standard deduction (-24,000) and 2 kids (-4,000) on top of the other items that you mention above? Many thanks!

The Wizard
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Re: Figuring your tax bracket

Post by The Wizard » Sun Jan 21, 2018 1:27 pm

OP might want to clarify why he wants to know his marginal tax bracket. There are various reasons why this info could be helpful.

In my case, for instance, I had some part-time work two years ago on top of my normal retirement income.
So I needed to know how much to withhold for Federal taxes to come out even at year's end.
My answer was 28%, which I tracked paycheck to paycheck by adjusting Additional Amounts as needed, since normal W-4 withholding allowances were useless in this case.
I came very close to my goal with this approach...
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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sun Jan 21, 2018 1:40 pm

The Wizard wrote:
Sun Jan 21, 2018 1:27 pm
OP might want to clarify why he wants to know his marginal tax bracket. There are various reasons why this info could be helpful.

In my case, for instance, I had some part-time work two years ago on top of my normal retirement income.
So I needed to know how much to withhold for Federal taxes to come out even at year's end.
My answer was 28%, which I tracked paycheck to paycheck by adjusting Additional Amounts as needed, since normal W-4 withholding allowances were useless in this case.
I came very close to my goal with this approach...
Thanks The Wizard. I'm trying to decide if I should contribute to my 457 that has a fairly high ER (.69+) or just pay down the mortgage, or invest post tax. It looks like with all of our pre-tax investing, etc., we will drop into the 12% tax bracket next year. Since we will be in such a low tax bracket, I've been leaning towards paying down the mortgage (3% 120k-11yrs remaining) or just doing some post tax investing.

We've already maxed out 401k, 403b, wife's 457, Roth IRAs. Kids 529s are in good shape. Emergency fund great shape. Excess savings of 50k+. Only dept is 130k mortgage (3%).

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FiveK
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Re: Figuring your tax bracket

Post by FiveK » Sun Jan 21, 2018 1:47 pm

fortfun wrote:
Sun Jan 21, 2018 1:40 pm
Thanks The Wizard. I'm trying to decide if I should contribute to my 457 that has a fairly high ER (.69+) or just pay down the mortgage, or invest post tax. It looks like with all of our pre-tax investing, etc., we will drop into the 12% tax bracket next year. Since we will be in such a low tax bracket, I've been leaning towards paying down the mortgage (3% 120k-11yrs remaining) or just doing some post tax investing.

We've already maxed out 401k, 403b, wife's 457, Roth IRAs. Kids 529s are in good shape. Emergency fund great shape. Excess savings of 50k+. Only dept is 130k mortgage (3%).
For a graphical view of your marginal tax rate, you can use the personal finance toolbox spreadsheet if you have some Excel knowledge.

retiredjg
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Re: Figuring your tax bracket

Post by retiredjg » Sun Jan 21, 2018 1:48 pm

fortfun wrote:
Sun Jan 21, 2018 12:59 pm
So I would do the standard deduction (-24,000) and 2 kids (-4,000) on top of the other items that you mention above? Many thanks!
I don't have kids, but I don't think that is how this works.

The standard deduction comes off income. I think the child tax credit comes off the tax. See page 2 of form 1040 and see what you think.

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sun Jan 21, 2018 1:53 pm

retiredjg wrote:
Sun Jan 21, 2018 1:48 pm
fortfun wrote:
Sun Jan 21, 2018 12:59 pm
So I would do the standard deduction (-24,000) and 2 kids (-4,000) on top of the other items that you mention above? Many thanks!
I don't have kids, but I don't think that is how this works.

The standard deduction comes off income. I think the child tax credit comes off the tax. See page 2 of form 1040 and see what you think.
Thanks retiredjg!

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fortfun
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Re: Figuring your tax bracket

Post by fortfun » Sun Jan 21, 2018 1:54 pm

FiveK wrote:
Sun Jan 21, 2018 1:47 pm
fortfun wrote:
Sun Jan 21, 2018 1:40 pm
Thanks The Wizard. I'm trying to decide if I should contribute to my 457 that has a fairly high ER (.69+) or just pay down the mortgage, or invest post tax. It looks like with all of our pre-tax investing, etc., we will drop into the 12% tax bracket next year. Since we will be in such a low tax bracket, I've been leaning towards paying down the mortgage (3% 120k-11yrs remaining) or just doing some post tax investing.

We've already maxed out 401k, 403b, wife's 457, Roth IRAs. Kids 529s are in good shape. Emergency fund great shape. Excess savings of 50k+. Only dept is 130k mortgage (3%).
For a graphical view of your marginal tax rate, you can use the personal finance toolbox spreadsheet if you have some Excel knowledge.
Thanks FiveK. Yes, Excel is one thing I'm good at. Wish I knew as much about finance/investing :)

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BL
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Re: Figuring your tax bracket

Post by BL » Sun Jan 21, 2018 2:10 pm

retiredjg wrote:
Sun Jan 21, 2018 1:48 pm
fortfun wrote:
Sun Jan 21, 2018 12:59 pm
So I would do the standard deduction (-24,000) and 2 kids (-4,000) on top of the other items that you mention above? Many thanks!
I don't have kids, but I don't think that is how this works.

The standard deduction comes off income. I think the child tax credit comes off the tax. See page 2 of form 1040 and see what you think.
+1
You calculate the tax first, then subtract the child tax credit from that. It can only bring the tax down to zero. Only if qualified, do you get the Additional Child Tax Credit as a refundable amount. I am not aware of any changes here for 2018.

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FiveK
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Re: Figuring your tax bracket

Post by FiveK » Sun Jan 21, 2018 2:19 pm

BL wrote:
Sun Jan 21, 2018 2:10 pm
+1
You calculate the tax first, then subtract the child tax credit from that. It can only bring the tax down to zero. Only if qualified, do you get the Additional Child Tax Credit as a refundable amount. I am not aware of any changes here for 2018.
No change in the generic "some part of the CTC is non-refundable, and some part may be refundable" descriptor, but there were significant changes in the new tax law. See What The Expanded Child Tax Credit Looks Like After Tax Reform.

AFAIK the personal finance toolbox spreadsheet does the 2018 calculations correctly.

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