The Glade 4.0

http://www.taxbrackets2011.com/

I'm sure many of you are aware of the tax brackets in the USA, but I'm sure many of you are probably not.

It is possible that you may fall into a certain range where you make just enough money to get taxed in a higher tax bracket, but not make enough to overcome the higher tax rate, resulting in less take home pay.

I make about 32k a year and i just got a [laughably] slight raise and i also have another small raise coming. This could put me dangerously close to the $34,500 barrier.

If I'm profitable in my other ventures, I could end up with an income of about 35k - 36k by the end of this year, which would put me at a higher tax bracket, causing me to be taxed at 25% rather than 15%, and I could lose anywhere from $2000ish to $3000ish that I don't think the IRS deserves to get. As far as I'm concerned, the IRS gets way too much from me as it is, and I don't want to have to pay more for having done a good job.



There's a small range that i could get stuck in and end up paying more AKA this is one of the many ways the IRS **** you over.

To add insult to injury, the biggest percentage jump in tax brackets occurs between 15% to 25%.


In order to not fall into this range, the profit I make outside of my normal ordinary income (which will also be taxed as ordinary income) combined with the additional increase from my small raise, would have to be less than ~$2000 or greater than ~$6000 by my estimates.

Since trading stocks can be volatile, and the incentive pay and overtime at my job can fluctuate, it is impossible for me to account for variance in terms of how it affects my tax bracket this year.

Is there any way around this or way to safeguard myself from falling into this small range and getting screwed over in 2011?

No I'm not getting married and filing HOH is not an option for me.

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Ron Paul 2012

Yes, in the lowest level of a bracket you are netting less than in the highest level of the bracket before it. The difference isn't a lot, but it can be very annoying.

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The U. S. Constitution doesn't guarantee happiness, only the pursuit of it. You have to catch up with it yourself. B. Franklin

"A mind needs books like a sword needs a whetstone." -- Tyrion Lannister, A Game of Thrones

Donate just enough money to charity so the deduction results in you falling into the lower bracket.

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Learn how to "not" make money, Nevandal. If you're serious about investing as a form of actual income, instead of a deferred access savings plan ...

You have to be cagey.

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Exactly. This is one of the main reasons I told you to start interviewing advisors, Nev.

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Ezekiel 23:19-20 

This seems doable.


Not making money, doesn't. (this strategy may work in years to come as I get closer to the next bracket, but within the next 2 months it won't work--also due to the style of trading there is a higher amount of variance which would make this difficult to employ as the trades are short term)


I mean, I can slack off at work (which I am doing and plan to continue to do) to forego bonus pay which is a ponzi scheme anyways, but then I'd also have to make sure I make less than 1500 or so on my trades (which is a realistic goal) by the end of the year, OR make sure that I make more than $6000, which is possible but a pipe dream in my opinion.

What's more realistic is I could make 1000-2000 or so, which could put me smack dab in the middle of this dreaded $4000ish range at the beginning of the 25% bracket.

Maybe if I could give the money as a gift, and that person could give it back as cash (sort of like in the Shawshank Redemption)?

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Ron Paul 2012

Or ...

You could research ways to have income without making money.

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I'm listening...

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Ron Paul 2012

This is not one of those situations where anyone who knows or understands what I'm saying is going to spell it out for you. I'll assure you I'm advocating nothing illegal, immoral, or otherwise unethical. I'm simply suggesting you look at the very visible and very public alternatives available to you. If you think hard enough, you'll have a way to do this.

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I will start where I always start.



Gooooogle.

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Ron Paul 2012

Yes but like I said, if I don't know what questions to ask the interviews will be useless.

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Ron Paul 2012

Nev,
Look at deferring income. Ask your boss to give you your bonus in the next tax-year, for example. Starting a traditional IRA could provide additional tax shelter options in the current year.

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

Shoot, just contribute to a tax-deferred retirement account.

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In time, this too shall pass.

I'm not budgeted for an IRA just yet, but I plan to start one soon. Was planning on more of a 6-12 months from now timeframe, because my current investments are more profitable and the larger amount I'll be able to comfortably contribute then will more than over-compensate the small amount I'm able to contribute now. I do contribute to a 401k (max company match), and the bonus is something I have no control over and gets paid out bi-weekly.

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Ron Paul 2012

If your current investments are more than enough to compensate for the tax hit you'll take, OK, but if they're not...

It's kinda like min/maxing.

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

That's what I'm not sure of. In order for them to be more than enough to compensate I'd have to make over 6k by the end of the year which I consider to be totally unrealistic. More than likely I'll make something closer to 500-1500 which would put me (90% chance) at the beginning of the 25% bracket. Over time, if my trading account multiplies then this thread is a moot point, but I'd still not to have to pay that extra 1k-3k in taxes if I don't have to, while still maintaining and having an active trading account.

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Ron Paul 2012

I wonder if I could use bitcoin to my advantage, here.

After all, certain places do accept bitcoin donations.

...like Wikileaks.

I could write that off?

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Ron Paul 2012

You are getting some seriously bad advice in this thread. The answer to your question is NO.

Let's say right now you make $83,500, and you're boss wants to give you a $500 raise. New tax bracket, right? Correct.

However, you're only getting taxed 28% on the amount of money you make over $83,600.. Thus, you're "take home" pay cannot ever be reduced by a raise. Likewise, at $83,500, you're not currently paying 25% on all of your income. You're only paying 25% on your income over $34,500.

Hope that helps.

Is this true for all instances of income over a certain tax bracket cap?

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Ron Paul 2012

No. I have received raises that result in less take home.

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Heheh, please enlighten us as to how lowering his tax burden is somehow "seriously bad advice".

If his income is nudged into the next tax bracket, he'll be be paying more than if it wasn't. End of story.

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

We've had this discussion before ...

Your position assumes our system has no tax credits or another actual taxload altering mechanisms in it.

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Yes. There are possibilities that other factors can reduce income, perhaps, that you should look into. Khross makes a good point above. Credits could be an issue, though this will depend on an individuals situation and, IMO, would not be very likely to outweigh the raise. All things to look into, of course.

I bolded the important word. I didn't say all.

While this is a possibility that should be investigated, I don't think it's going to happen often. The credits I've gotten I don't think cut off at the income tax bracket values, so I'm not sure this would be applicable when you go to a new bracket (not familiar with all the numbers off the top of my head).

Also - Nobody has mentioned this before now in this thread that I can see. If the answer to his question is only "yes" in these more complicated scenarios, how come you didn't bring it up before?