Tax Bracket vs. Effective rate

[ratface]

My tax bracket is 25%. My effective rate is 15%. Wondering how others are stacking up?

 

[ziggy29]

Is that effective rate relative to AGI or relative to all income, whether taxable or not?

 

[DougViages]

For me, marginal federal rate is 28%, but add 4% for Michigan, and 7.5% for earned income. Totals 39.5% - Wow, hardly worth w*rking!

 

[JDARNELL]

Marginal Rate was 15%. Effective rate was 4.6%. Much of my military pay is tax free plus we sheltered everyting we could in 401K and wife's S-Corp retirement plan. Throw in some tax loss selling and depreciation on two rentals and there you have it. Oh yeah 2 dependents under 17.

Tomcat98

 

[Bikerdude]

Federal is 15% and 6.6%. With state income tax, effective is 9.4%. With property tax, effective is 25%.

 

[LOL!]

I won't do 2008 taxes until later this year, but for 2007, marginal rate was 33% and effective rate was about 15%.

For me, the marginal rate answers this question: "What would my 401(k) contributions be taxed at if I didn't make them?"

 

[OAG]

15% Highest Tax Bracket - 10.4% Actual of Taxable Income. However, that does not tell the WHOLE story as that is the tax rates on TAXABLE income. Taxable income is 60% of TOTAL INCOME (the other 40% of TOTAL INCOME is not taxable). This going to be another "IT DEPENDS" threads!

 

[freebird5825]

According to TurboTax...
Tax bracket = 25%.
Effective rate = 12.43%.
2008 is the first year I had no earned income. I still have enough itemized deductions to use Schedule A. Next year I won't unless I get really generous (charitable contributions) or my property taxes increase dramatically to equal the standard deduction for single filers.

 

[ziggy29]

However, that does not tell the WHOLE story as that is the tax rates on TAXABLE income. Taxable income is 60% of TOTAL INCOME (the other 40% of TOTAL INCOME is not taxable). This going to be another "IT DEPENDS" threads!

That was my point. First of all, my W-2 income was nearly $20,000 lower than my total income because of 401K and HSA contributions. Second of all, what's left is basically the AGI before other deductions and exemptions.

My federal tax bracket was 25%, but the total tax I paid was 12% of total income, 14.1% of AGI and a little over 17% of taxable income (AGI minus deductions and exemptions).

 

[ziggy29]

Next year I won't unless I get really generous (charitable contributions) or my property taxes increase dramatically to equal the standard deduction for single filers.

I never get to deduct charitable contributions since I have a small home (i.e. small property tax bill), no state income tax and no mortgage. I've been thinking about putting something like $10,000 into a charitable trust so I can itemize and get a deduction for most of it, then dole out some donations from that while I save up another batch of money for the next time I "reload" this account a few years later. That way, at least, I'd be able to write off most of my giving, even if in a roundabout way.

But right now I can't part with $10,000 of my emergency fund. Not in this economy and job market.

 

[freebird5825]

I never get to deduct charitable contributions since I have a small home (i.e. small property tax bill), no state income tax and no mortgage. I've been thinking about putting something like $10,000 into a charitable trust so I can itemize and get a deduction for most of it, then dole out some donations from that while I save up another batch of money for the next time I "reload" this account a few years later. That way, at least, I'd be able to write off most of my giving, even if in a roundabout way.

But right now I can't part with $10,000 of my emergency fund. Not in this economy and job market.

I am totally pessimistic...I suspect Albany is poised to solve the problem for me - big education cuts will result in higher school taxes. My school district budget is out of control. Such is life.
No mortgage also. My home is late 1970s vintage and approx 2000 sq ft. Nothing fancy.
OTOH, my pension and annuity are both state income tax exempt. I verified that and have it in writing from NYS.

No way can I afford a charitable trust. Great idea, though.

 

[MichaelB]

That was my point. First of all, my W-2 income was nearly $20,000 lower than my total income because of 401K and HSA contributions. Second of all, what's left is basically the AGI before other deductions and exemptions.

My federal tax bracket was 25%, but the total tax I paid was 12% of total income, 14.1% of AGI and a little over 17% of taxable income (AGI minus deductions and exemptions).

You still have a tax liability on the 401K and HSA, you are just not including it in your current calculations.

 

[ziggy29]

You still have a tax liability on the 401K and HSA, you are just not including it in your current calculations.

On the 401K, yes, but one can't calculate it without knowing future tax rates and income levels when I withdraw it.

On the HSA, there's no tax liability if you use it for its intended purpose. If you withdraw it for non-medical purposes after age 65, see the 401K disclaimer.

 

[Fireup2020]

Tax bracket officially 25%, but 2008 Effective Tax Rate was 3.08% - it is GOOD to be a grad student who maxes out TSP/def comp contributions!
(this does not include the tax exempt housing & food $$$ from military)

 

[FIREd]

for 2008, marginal tax rate = 28%
Effective tax rate = 19.5% of taxable income, 16.4% of AGI, 13.7% of total gross income.

 

[audreyh1]

My tax rate is driven by the AMT - 26%

My effective tax rates averages somewhere between 15% (capital gains) and 26% (AMT) depending on how much of my annual income is capital gains.

Tax tables? What tax tables!

Audrey

 

[MichaelB]

On the 401K, yes, but one can't calculate it without knowing future tax rates and income levels when I withdraw it.

Sounds like one of those "mark to model" excuses to me. Lehman, Bear, AIG, ziggy29... Still a tax liability.

On the HSA, there's no tax liability if you use it for its intended purpose.

Right.

If you withdraw it for non-medical purposes after age 65, see the 401K disclaimer.

See response above...

 

[ratface]

Ziggy

My AGI is actually about $26K higher than my taxable income. I was simply concentrating on taxable income and only on the Federal level. Ironically enough it seems that my SIRED income will be almost exactly what this years taxable income is. I figure my exemptions will remain the same and possibly better with a $3000 health care deduction.

Since DW has been handling the taxes I never realized what a disparity there is between the bracket and effective tax. This means i've miscalculated by about 10K to the plus side during retirement.

Additionally it seems that I'm not going to jail for all the years DW has been at the controls. I'm also not surprised at how adept everyone here is at avoiding the taxman.

 

[bongo2]

Federal Tax Bracket: 28%
Actual marginal Federal income tax rate: 37.5% (including AMT and phase-outs)

 

[ziggy29]

Sounds like one of those "mark to model" excuses to me. Lehman, Bear, AIG, ziggy29...

Well, thanks for not saying "Madoff," anyway...

 

[MichaelB]

Well, thanks for not saying "Madoff," anyway...

Jeez, ziggy, I'd never say that. You're too nice a dog. Besides, madoff got busted an' you're still free.

'course, if you were sayin' that your tax rate was lower 'cause you left out the deferred tax on the 401K, and then you nominated yourself for a low tax rate bonus, got the board to fund it , then the members had to pony up to keep the board open, well... that'd be another story altogether.

 

[ERD50]

Yep, you really need to define "effective rate". TaxAct gave me a different number than what I would calculate. They calculate before credits. I'd calculate on my total out of pocket towards taxes divided by AGI (which is a funny number to begin with).

-ERD50

 

[donheff]

I have been traveling and haven't been able to follow posts closely. Soooo, what is this "SIRED" acronym I am seeing? It isn't on the acronyms list (or at least not on the thread that listed acronyms that I found).

 

[FUEGO]

Just did the 2008 returns last night. Fed marginal bracket is 15% and average rate is 2.5%. State marginal rate is 7% and average rate is 3%. State tax burden was higher than federal this year. All this on a six figure gross income.

 

[ziggy29]

I have been traveling and haven't been able to follow posts closely. Soooo, what is this "SIRED" acronym I am seeing? It isn't on the acronyms list (or at least not on the thread that listed acronyms that I found).

I've heard that the "S" stands for "secure" -- those with pensions and retiree health coverage.

Of course, even that has degrees and nuances; since I have a tiny (frozen and non-COLA'd) pension from a previous employer coming to me in the future, some would say I'm SIREd but the pension is small enough that the combination of that pension and SS will be not even close to being enough, so I consider myself more FIREd than SIREd since there's no way I can retire without substantial savings and investments on my own.