Heather wrote:
> I have no doubt this is a completely ignorant question, so I will
> apologize in advance. Where can I find the bracket amounts? How/
> where can I see the brackets to determine what amount of income moves
> me into the next higher bracket? Once I know the brackets, how do I
> apply the logic? Do the brackets apply to Line 43 of the return
> "Taxable Income"?
No need to apologize for asking an ignorant tax question, the answer
isn't at all obvious. I just did one of these projections for a client
and every rate we came up with for "taxes on the next dollar earned" was
a strange hybrid rate that didn't match any of the tables. Especially
when adding in Social Security/self-employment taxes.
To address "what amount of income moves me into the next higher
bracket?" you need to know what type of additional income you're talking
about, and how much & what types of income you currently have.
Yes, line 43 on 2007 Form 1040 is your "taxable income" and that's the
figure used to calculate your tax bill. And if all your income (and any
additional income) is "ordinary income" such as salary/wages or taxable
interest, you can just look to those tables to see when you'll cross
into the next bracket, and do the same with your state income tax
bracket chart, and that answers the question for a lot of people.
There are many complicating factors though...just a couple examples:
If some of your income, or the additional income you'd tack on, would be
from long-term capital gains or qualified dividends, then a different
rate applies (0% initially, then 15%). If you paid AMT in 2007 (see line
45), then those bracket rates probably wouldn't apply for 2008. And if
you itemize your deductions or claim certain credits on your return, as
you increase your income you'll gradually lose some of those deductions
and credits, resulting in a different effective tax rate (if you lose a
deduction, line 43 gets bigger).
Which is to say, this isn't always an easy question to answer. As JoeT
suggested, you can put the income into TurboTax or something similar and
see what comes out, though that won't factor in tax-law changes from
year to year (including the bracket changes).
-Tad
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