What's your average tax rate?

[scrinch]

I had a good news/bad news year in 2006. Megacorp closed our local office, and rather than move overseas (again), I took the severance package and started w*rk as a consultant. I was hired back on a pretty much full time basis, so with salary, a severance package, self-employment income, and my wife's salary, this was a big year. Not just for me...for Uncle Sam and Governor Arnold also. My average tax rate (total tax divided by AGI plus pre-tax items) was a little more than 22% for the feds, and 7% for the state. As I ease away from w*rk and into ER over the next couple of years, I'm wondering what average tax rate I can expect.

 

[justin]

Gross income - a little over $100k. Federal tax burden - ~2.6%. State tax burden - also ~2.6%.

Definitely a "good" year for us income-wise. We also paid a ton more in tax this year.

 

[Sam]

Justin, are you sure? Your Federal rate of 2.6% does not look right. What's the magic?

 

[kumquat]

Using Canada's tax rules where 50% of capital gains are considered income and my top marginal rate is ~46%, Because of huge CG's from Megacorp options, my average rate was about 40%

.

 

[scrinch]

Using Canada's tax rules where 50% of capital gains are considered income and my top marginal rate is ~46%, Because of huge CG's from Megacorp options, my average rate was about 40%

Ouch! That's almost...One for me, one for you, one for me, one for you...

 

[teejayevans]

Using Canada's tax rules where 50% of capital gains are considered income and my top marginal rate is ~46%, Because of huge CG's from Megacorp options, my average rate was about 40%

Do you have other deductions, here we have to add SS taxes, State Taxes,
and local taxes, I'm sure some city folk with high local taxes approach the
46% rate here too.

 

[OAG]

I voted 5-10% but that is just for Federal and State income taxes -- If you add Medicare Taxes, RE Taxes then it is more like 27%. I suspect if one adds sales taxes, utility taxes, and all the other "junk" taxes it would be closer to 30% to 35%.

 

[Nords]

Haven't even downloaded TurboTax for this year, but in our last three years of full-ER taxpaying our rates (taxes paid/AGI) have been 8.42%, 10.58%, and 16.10%.

Must be those darn Roth IRA conversions. No, actually it seems that we finally used up all our capital-loss carryforwards. Gotta throttle back on the trading activity...

 

[SecondCor521]

Justin, are you sure? Your Federal rate of 2.6% does not look right. What's the magic?

Mine are in that range as well.

In my case, it is a combination of massive deductions (401(k), house mortgage, state income taxes, and large charitable contributions) plus the child tax credit. New this year due to the divorce is the child care tax credit.

2Cor521

 

[Empty Pockets]

Marginal rates are 28% Federal, 15% + for Self Employment and around 8% for the privilege of living in the state of Minnesota.

Average rate paid on 2005's return = 30.83% of adjusted gross income.

 

[Sam]

Mine are in that range as well.

In my case, it is a combination of massive deductions (401(k), house mortgage, state income taxes, and large charitable contributions) plus the child tax credit. New this year due to the divorce is the child care tax credit.

2Cor521

And your income is more than 100K as well? I still don't see it. 401k maximum deductions is only ~15K. Unless you just recently bought a very expensive house, deduction can't be that great. I do see the advantage of child credit, though.

Edit to add: A few years from now when I finally stop working, my federal tax would still be at least twice yours, percentage wise.

 

[MooreBonds]

23.11% Federal (helped by a large Donor-advised fund contribution)
5.48% State

Subject to adjustment after I finally receive a few K-1s and one two three God-only-knows how many 1099-DIV revisions. And, I'm assuming that I don't fall victim to the AMT monster. I'm saving the joy of doing the AMT worksheet until April 14 when I have my "final final" 1099s in hand, although preliminary back-of-the-envelope websites indicate that I should be okay (only Sch A deductions are state taxes and charitable contributions).

 

[Payin-the-Toll]

Fed tax, state tax, and local tax divided by A.G.I. is about 12%. No debt whatsoever, so the big thing helping us out is that standard deduction on the Fed form for $10,300. Have tried very hard to fly below the wire. Separate rant--what gripes me, here in Indiana, when you do state taxes, they start out and say list your A.G.I. from your Fed. form, then run their calculations. But they only allow $1000 for a personal exemption, while the Fed allows $3300. Always considered this a gyp. Speaking of 'flying under the wire', my father is 84 years old and survives on $10,000 a year--he got tired of doing taxes about 5 years ago, so he doesn't--gotta love it. But I've promised myself I will not go near his estate when he passes--his assets are pretty nil.

 

[justin]

Justin, are you sure? Your Federal rate of 2.6% does not look right. What's the magic?

Yep - I'm sure. $23000 in 401k deductions for DW and I. $2500 in student loan interest. $8000 in traditional IRA deductions (this is the last year for the T IRA - we'll make too much next year probably). $7000+ in flexible spending acct and medical insurance premiums paid out of paycheck pre-tax). $5000 in favorable cap gains and qualified dividends (taxed at 5%). $10300 std deduction. $13200 for exemptions (me+DW+2 kids). $457 capital loss carryover deduction from 2005. $2000 child tax credit. A couple other small misc. credits and deductions.

That comes to $64457 in deductions, $5000 taxed at 5% instead of 15%, and $2000 in tax credits. Total tax of ~$2700.

We can't even itemize, since our property tax+income tax+mortgage interest+everything else doesn't exceed the $10300 hurdle.

Last year we had a total federal income tax liability of -$1000 federal due to a refundable additional child tax credit (and we earned a lot less last year).

I guess we're the S.O.B.'s you hear about "manipulating" : the tax system making six figures, but paying next to nothing in tax. Of course we did pay $7000 in SS and medicare tax. Money down the drain...

 

[Sam]

WOW! Make that double WOW!

 

[scrinch]

I guess we're the S.O.B.'s you hear about "manipulating" Roll Eyes the tax system making six figures, but paying next to nothing in tax.

One for me, one for me, one for me, one for me.....

 

[justin]

One for me, one for me, one for me, one for me.....

Every once in a while a slender penny falls out of my pocket and into ole Uncle's pocket.

 

[SecondCor521]

And your income is more than 100K as well? I still don't see it. 401k maximum deductions is only ~15K. Unless you just recently bought a very expensive house, deduction can't be that great. I do see the advantage of child credit, though.

Edit to add: A few years from now when I finally stop working, my federal tax would still be at least twice yours, percentage wise.

Off the top of my head: I get the $15K 401(k) deduction, plus I think my Schedule A deductions added up to close to $30K (yes, I did recently buy an expensive house, but also gave away about $15K that year). Schedule C loss of say $3K due to home office expense and depreciation. Five of us in the family means ~$13K in exemptions, so that gets you down to about, what, $100K - $15K - $30K - $3K - $13K = $39K in taxable income. At 15% tax that's $5850, minus three kids child tax credit of $3K equals $2850. I don't think those numbers are exactly right but they're in the ballpark.

2Cor521

 

[HFWR]

Marginal - 25%, actual - 14.9%

 

[Sam]

I think my Schedule A deductions added up to close to $30K

That Schedule A deduction is impressive.

 

[audreyh1]

Well I won't know this until early April!!!

But we usually end up paying 26% AMT rate. More than half our income is taxed at the capital gains/qualified dividend rate of 15%.

So somewhere between those two numbers!

Audrey

 

[Empty Pockets]

Don't ya just love that AMT

 

[jazz4cash]

It's not the Federal taxes that killya. As Justin can attest there's all sorts of ways to get those down if you have kids, tuition, mortgage, etc. I did a detail breakdown last year including FSA, 401k w/ employer match, and other stuff and I'm usually down around 5%. That also included some capitol losses that recently expired. This year I'm around 10%. Turbotax "effective rate" went from 5.9% to 12.7%. Marginal rate is 25%. I have no complaints about this level of taxation, except I'm pretty worried about AMT. Lemme say that again...I think my Federal taxes are reasonable. I've pretty much exhausted my capacity to do tax schemes planning, anyway. Actually, our return is pretty conservative because we can't afford to be audited.

 

[d]

I think my Federal taxes are reasonable

i finished my first pass at my 1040 just the other day and last night was thinking that the feds take a mighty big chunck of my $, and that i'm not getting my money's worth. (taxes are by far my largest expense.) sadly, i doubt that congress cares about how well our dollars are spent, only that they get to spend them, then go looking for more.

 

[audreyh1]

According to my estimated taxes, the taxes we will pay for 2006 will be almost the same as my (other) total expenses for the year!

We have no kids, no mortgage, no tuition, no state income taxes, no business deductions, no IRA or 401K contributions (we are retired). And any other deductions that we might claim (like charity contributions) get disallowed under AMT.

Audrey