tax advice 101 anyone?

eman1200

eman1200

Touchdown! Greaser!
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Bro do you even lift
this is probably so entry level and basic that I don't feel bad asking it (think WDD asking what a calendar month means.......;) )

made up numbers to protect the guilty:

tax rate X is up to $49,999 taxable income
tax rate Y is $50,000 up to whatever

you make $50,001 in 2021

can you sell a stock at a loss of $2 and basically put your entire taxable income into the lower bracket? I kind of understand tax loss harvesting, I'm just not sure if that applies to your entire taxable income or just capital gains.

I understand you can only claim a loss of up to $3k, but since our example is only $2, not to worry

I'm getting paid on friday, 12/25, leaving 6 days left in 2021. the next paycheck obviously comes in 2022, but from work done in 2021. does this in any way impact my 2021 taxable income? reason for asking is it might make more sense for me to sell stock at a slightly higher loss than $2 to cover that potential taxable income.

muchas gracias por responder una pregunta tan estúpida
 
Can you put money in an IRA? You have until April for IRA contribution for 2021.
 
If you’re gnat’sassing it that close, why bother. If we’re talking the difference in the number of commas in the check you write to the IRS, go pay for good advice and representation.
 
The first $49,999 is taxed at X Only $2 would be taxed at Y. But your way would also work.
Only money paid this year is taxed this year.
 
ColoPilot said:
You only pay tax rate Y on the earnings over $50k, so on $1 in your example.
Click to expand...

ah. I think this is the part I was missing. so in my example, where u are literally a coupl'a bucks over the higher rate, doesn't seem like its worth the effort.
 
I'm accepting charitable contributions ... folding money in plain white envelopes only. :dunno:
 
Floyd said:
The first $49,999 is taxed at X Only $2 would be taxed at Y. But your way would also work.
Only money paid this year is taxed this year.
Click to expand...

thanks. and floyd is my all time favorite band.
 
midwestpa24 said:
I think a lot of people misunderstand how tax brackets work.
Click to expand...
Yep lot of people believe that tax brackets apply to your whole income rather than just the portion over . I would almost say a majority of people i've run into believe it works like that.
 
I would talk to HR to figure out if this year’s w2 income statement will include last 6 days worth of pay you’ll get next year.
 
eman1200 said:
this is probably so entry level and basic that I don't feel bad asking it (think WDD asking what a calendar month means.......;) )

made up numbers to protect the guilty:

tax rate X is up to $49,999 taxable income
tax rate Y is $50,000 up to whatever

you make $50,001 in 2021

can you sell a stock at a loss of $2 and basically put your entire taxable income into the lower bracket? I kind of understand tax loss harvesting, I'm just not sure if that applies to your entire taxable income or just capital gains.

I understand you can only claim a loss of up to $3k, but since our example is only $2, not to worry

I'm getting paid on friday, 12/25, leaving 6 days left in 2021. the next paycheck obviously comes in 2022, but from work done in 2021. does this in any way impact my 2021 taxable income? reason for asking is it might make more sense for me to sell stock at a slightly higher loss than $2 to cover
Click to expand...
 
eman1200 said:
I'm getting paid on friday, 12/25, leaving 6 days left in 2021. the next paycheck obviously comes in 2022, but from work done in 2021. does this in any way impact my 2021 taxable income?
Click to expand...
No. You get taxed on actual payments, not accrued payments.
 
On a related matter, I plan on using the "head room" between my current income and the next tax bracket to convert incremental traditional IRA funds each year into a Roth via the backdoor method. If I don't plan it correctly and go over by a little it's no biggie consistent w/ the answers here. Given the current country debt and no apparent willingness to acknowledge or address it, having retirement $ in both traditional and Roth accounts seems prudent.
 
falconkidding said:
Yep lot of people believe that tax brackets apply to your whole income rather than just the portion over . I would almost say a majority of people i've run into believe it works like that.
Click to expand...
Yup. But then you have to remember that some things in the tax code are a "cliff" at each level, where $1 over really hits you -- IRMAA for Medicare rates, for instance, and I think maybe ACA rates, though I'm not sure.
 
MooneyDriver78 said:
I would talk to HR to figure out if this year’s w2 income statement will include last 6 days worth of pay you’ll get next year.
Click to expand...

No need to check with HR, his W2 will include only the income he received in 2021. Some years you may receive an extra pay for the year due to how the pay days fall.
 
ColoPilot said:
You only pay tax rate Y on the earnings over $50k, so on $1 in your example.
Click to expand...
+1 most people don't know this, i think, but you only pay the higher tax rate on the part over the ceiling of each tax bracket.
 
ColoPilot said:
You only pay tax rate Y on the earnings over $50k, so on $1 in your example.
Click to expand...
And, shockingly, all of this information is available for free, on a website that has the same initials as the organization tasked with collecting revenue, internally!
 
I think some of the confusion stems from ancient times (1970s) when the rate for the top bracket in the US was 70%. So when your income pushed into that bracket you weren't taking home much of what you earned anymore (especially with state and other taxes added on).

Not that it changed the way the tax brackets work, but it was such a penalty for any income in the higher brackets.
 
ColoPilot said:
I think some of the confusion stems from ancient times (1970s) when the rate for the top bracket in the US was 70%. So when your income pushed into that bracket you weren't taking home much of what you earned anymore (especially with state and other taxes added on).

Not that it changed the way the tax brackets work, but it was such a penalty for any income in the higher brackets.
Click to expand...

I think people get the wrong impression as well from their pay stubs when occasional overtime is included. The withholding system makes the assumption your annual pay will be higher, raising your overall average tax rate, so it deducts more than probably necessary. So working a few hours OT can dramatically increase the taxes withheld. I once worked somewhere at a perfect rate, than if I worked less than half an hour OT, I took home $1 less than if I worked 40 hours.
 
Ouch.

1944 Single Tax Brackets
Tax Bracket Tax Rate
$0.00+ 23%
$2,000.00+ 25%
$4,000.00+ 29%
$6,000.00+ 33%
$8,000.00+ 37%
$10,000.00+ 41%
$12,000.00+ 46%
$14,000.00+ 50%
$16,000.00+ 53%
$18,000.00+ 56%
$20,000.00+ 59%
$22,000.00+ 62%
$26,000.00+ 65%
$32,000.00+ 68%
$38,000.00+ 72%
$44,000.00+ 75%
$50,000.00+ 78%
$60,000.00+ 81%
$70,000.00+ 84%
$80,000.00+ 87%
$90,000.00+ 90%
$100,000.00+ 92%
$150,000.00+ 93%
$200,000.00+ 94%
 
How did we ever become a world leader with tax rates like that?

Or did we become one because of it?

Maybe investment in infrastructure and one’s population matters.
 
NealRomeoGolf said:
Ouch.

1944 Single Tax Brackets
Tax Bracket Tax Rate
$0.00+ 23%
$2,000.00+ 25%
$4,000.00+ 29%
$6,000.00+ 33%
$8,000.00+ 37%
$10,000.00+ 41%
$12,000.00+ 46%
$14,000.00+ 50%
$16,000.00+ 53%
$18,000.00+ 56%
$20,000.00+ 59%
$22,000.00+ 62%
$26,000.00+ 65%
$32,000.00+ 68%
$38,000.00+ 72%
$44,000.00+ 75%
$50,000.00+ 78%
$60,000.00+ 81%
$70,000.00+ 84%
$80,000.00+ 87%
$90,000.00+ 90%
$100,000.00+ 92%
$150,000.00+ 93%
$200,000.00+ 94%
Click to expand...
I’m confused. 8% of 100k is 8k. 10% of 90k is 9k… so either my math is wrong (I’ve been dipping into the eggnog), or incentives were different?
 
kaiser said:
I’m confused. 8% of 100k is 8k. 10% of 90k is 9k… so either my math is wrong (I’ve been dipping into the eggnog), or incentives were different?
Click to expand...

No, you are misunderstanding how tax brackets work. Using the 1944 example:

The first $2,000 you make is taxed at 23% = $460
The next $2,000 you make is taxed at 25% = $500
The next $2,000 you make is taxed at 29% = $580

So if you made $6,000 you would pay $1,540 or 25% total average

Not 29% for all of it.

So at $100,000 you aren't paying 92% of the entire $100,000, just the amount that exceeded $100,000.

Staying in a certain tax bracket to save on taxes is mostly a myth. However there are other thresholds that trigger additional taxes such as AMT, or cut offs for other tax rebates or deductions. Those are much more important.
 
OUCH! That 94% tax doesn't motivate someone to produce much more after making $200k for the year. Although, 200k in 1944 is the equivalent to almost $3 million now.
 
This is why I never went into tax. I really don't care. Haha. Passed the tax portion of the CPA exam with relative ease though.
 
Looks like all gave some back in 1944.
 
ColoPilot said:
OUCH! That 94% tax doesn't motivate someone to produce much more after making $200k for the year. Although, 200k in 1944 is the equivalent to almost $3 million now.
Click to expand...

My dad was a fairly well-to-do attorney in Washington, D.C. I remember in the 1950’s the schemes the wealthy were using to avoid paying those almost confiscatory tax rates. There was a virtual industry manned by tax lawyers and accountants and more than likely backed by well paid lobbyists.

I recall one such was forming LLC’s that would buy commercial jets and then lease them back to airlines. It helped because the lease payments as income were way more than offset by huge depreciation expense of the jets you could write off. There were also real estate ploys that worked similarly. It had the effect of distorting markets, which in the long run is always problematic.
 
FastEddieB said:
My dad was a fairly well-to-do attorney in Washington, D.C. I remember in the 1950’s the schemes the wealthy were using to avoid paying those almost confiscatory tax rates. There was a virtual industry manned by tax lawyers and accountants and more than likely backed by well paid lobbyists.

I recall one such was forming LLC’s that would buy commercial jets and then lease them back to airlines. It helped because the lease payments as income were way more than offset by huge depreciation expense of the jets you could write off. There were also real estate ploys that worked similarly. It had the effect of distorting markets, which in the long run is always problematic.
Click to expand...

And the game still runs today. The more you make, the higher your tax bracket, but also the more opportunities you have to find deductions and credits. That's why you see mega millionaires only paying an average of 18%. People say they are cheating, but I see it as playing the game and winning. Unless you are a politician, you didn't write the tax code.

Not to mention people associate wealth with income, which isn't always the same either. You can be a billionaire but not have any income in a particular year. Especially depending on how you structure your investment losses.

But the common person understands very little about how the tax code works.
 
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