Tax Planning
I was really worried that my ad revenue and getting a bonus from work would bump me up a bracket this year and put me out of the program for real estate tax relief. However, I just ran some figures and it looks like I will actually end up safely under the wire for the 28% bracket.
Since my ad revenue has fallen off, I don’t have anything to worry about anymore. That’s good.
I’m doing this because I’m contemplating some changes to my 401k contribution and I wanted a better understanding of the tax implications of cutting off my contributions in favor of debt repayment at the suggestion of NCN in an online, off-blog conversation.
It’s not too early to start thinking of your taxes before the end of the year rolls around.
SJean wrote:
It seems to be a common misconception that if you reach the upper limit of a tax bracket (say, 25%), then all your money is taxed at the next level (28%). Really, only the ammount that is over the 25% limit is taxed at the next level.
This explains it more clearly: http://www.irs.gov/formspubs/article/0,,id=164272,00.html
I apologize if you already knew this and I just misinterpreted your post!
Posted on 19-Sep-07 at 8:50 am | Permalink
Lauren Wolfe: It’s Back to School Season, and Congress Finally Passes a Student Aid Bill That Matters at loan2guide.com wrote:
[…] Tax PlanningI was really worried that my ad revenue and getting a bonus from work would bump me up a bracket this year and put me out of the program for real estate tax relief. However, I just ran some figures and it looks like I will actually end up safely under. […]
Posted on 19-Sep-07 at 12:17 pm | Permalink
Pinyo wrote:
Unless the interest on your debt is really really high, I don’t see how that can offset the benefits of 401k — i.e., tax deduction and company match (if your company offer this).
Posted on 19-Sep-07 at 12:22 pm | Permalink
Means No Cents wrote:
Always a great idea to start thinking early about taxes …especially when you have so many various means of income and savings!
Posted on 19-Sep-07 at 2:21 pm | Permalink
mapgirl wrote:
SJean - I do understand marginal tax bracketing, but I appreciate your comment, since that might not be something other readers understand. I just didn’t want to hit the other bracket at all.
Pinyo - My debt is a mix, and when I ran the numbers, it does look like I am better off stopping my 401k contribution, but only ever so slightly. I’d have to start doing better in the market to flip the scenario in favor of continuing to save vs. debt payoff. And then there is the psychological housecleaning that comes from being debt free, which is what I am really after.
Posted on 19-Sep-07 at 2:40 pm | Permalink
Sistah Ant wrote:
Yeah that reminds me, I want to make sure my withholding isn’t too high (and won’t be after I start contributing to my 401K). IRS Withholding calculator, here I come!
Posted on 19-Sep-07 at 2:51 pm | Permalink
Single Ma wrote:
I’ve never known anyone who DIDN’T want their salary to hit another tax bracket. LOL I’d rather beef up my 401k to offset the higher income than have a lower income for tax purposes, plus reduce 401k for debt reduction. Maybe I’m misunderstanding something here.
Posted on 19-Sep-07 at 6:30 pm | Permalink
Single Ma wrote:
I should have said “earnings” not salary.
Posted on 19-Sep-07 at 6:30 pm | Permalink
mapgirl wrote:
Single Ma:
“Put me out of the program for real estate tax relief.”
There is an income cap on that program and I was trying to make sure that I still get this refund because this also impacts my 1040. I was counting on getting this money back for something.
Posted on 19-Sep-07 at 8:16 pm | Permalink
Single Ma wrote:
Oooh, I see now. Key point that I missed. Make sense.
Posted on 19-Sep-07 at 9:51 pm | Permalink