New tax rates 1/1/2013

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
Colonel_Buck
Gunners Mate
Gunners Mate
Posts: 49
Joined: Sun Jan 22, 2006 4:13 pm
Location: West Hills, CA

New tax rates 1/1/2013

Postby Colonel_Buck » Sat Dec 08, 2012 9:19 pm

When newspaper articles talk about the new tax rates going into effect on 1/1/2013, they always talk about households that make over X amount or under Y amount. Are they talking gross income or taxable income?
What kind of bomb was it? The exploding kind.
How can a blind man be a lookout? How can an idiot be a policeman?
But that's a priceless Steinway. Not any more.

AndyK
Illuminatian Revenue Supremo Emeritus
Posts: 1299
Joined: Sun Sep 11, 2011 9:13 pm
Location: Maryland

Re: New tax rates 1/1/2013

Postby AndyK » Sat Dec 08, 2012 10:21 pm

Irrespective of gross versus taxable, it's important to remember that the higher rates only apply to income above the cutoff for the next lower level.

Most people assume that if the top tax rate goes up to, for example sake, 50%; they will be paying 50% on ALL of their taxable income.

Not true.

The 50% rate only applies to income above the cutoff for the current maximum.

Illustration: My family's taxable income last year was well into the top bracket (for which I'm thankful). However, our actual tax rate was at least 10% below the top rate since a lot of our income was taxed at the lower rates.

This concept is one fine detail which almost everyone doesn't comprehend.
Taxes are the price we pay for a free society and to cover the responsibilities of the evaders

rogfulton
Caveat Venditor
Posts: 523
Joined: Fri Aug 14, 2009 11:08 am
Location: No longer behind the satellite dish, second door along - in fact, not even in the same building.

Re: New tax rates 1/1/2013

Postby rogfulton » Sat Dec 08, 2012 10:46 pm

AndyK wrote:This concept is one fine detail which almost everyone doesn't comprehend.


And the one which is most often obfuscated by someone with an axe to grind or wealth to protect.

:Axe:
"No man is above the law and no man is below it; nor do we ask any man's permission when we require him to obey it. Obedience to the law is demanded as a right; not asked as a favor."
- President Theodore Roosevelt

Famspear
Knight Templar of the Sacred Tax
Posts: 7170
Joined: Sat May 19, 2007 1:59 pm
Location: Texas

Re: New tax rates 1/1/2013

Postby Famspear » Sun Dec 09, 2012 12:44 am

Colonel_Buck wrote:When newspaper articles talk about the new tax rates going into effect on 1/1/2013, they always talk about households that make over X amount or under Y amount. Are they talking gross income or taxable income?


The tax rates are imposed on "taxable income", which of course is a "net" figure, determined by starting with gross income and deducting, from gross income, all the deductions to which one is entitled.

The rate structure would be something like it was for the tax year 2000.

So, for example, for an unmarried individual with no dependents, filing as "single," with, say $100,000 of taxable income for the year 2000, the tax would have been computed as follows (I'm showing just the first three brackets, which are the ones that would apply in my example):

Taxable income range
$0 - $26,250.00: the 15% bracket
$26,250.01 - $63,550.00: the 28% bracket
$63,550.01 - $132,600.00: the 31% bracket

The tax on $100,000 of taxable income would not be $31,000 (i.e., $100,000 x 31%). The tax would be $25,681.00.

That's computed as follows:
Tax on the first bracket: ($26,250 less $0) x 15% = $3,937.50
Tax on the second bracket: ($63,550 less $26,250.01) x 28% = $10,444.00
Tax on the third bracket: ($100,000 less $63,550.01) x 31% = $11,299.50

Thus: $3,937.50 + $10,444.00 + $11,299.50 = $25,681.00
...why is anyone in this [losthorizons] community paying the least attention to...'Larry Williams' [Famspear], or other purveyors of disinformation from...quatloos? – Pete Hendrickson, former inmate 15406-039, Fed’l Bureau of Prisons

Famspear
Knight Templar of the Sacred Tax
Posts: 7170
Joined: Sat May 19, 2007 1:59 pm
Location: Texas

Re: New tax rates 1/1/2013

Postby Famspear » Sun Dec 09, 2012 12:49 am

FYI - For the year 2000, the other tax brackets for a single (unmarried) individual were as follows:

Taxable
income
range
Fourth bracket: $132,600.01 - $288,350.00: 36% rate
Fifth bracket: $288,350.01 and higher: 39.6% rate
...why is anyone in this [losthorizons] community paying the least attention to...'Larry Williams' [Famspear], or other purveyors of disinformation from...quatloos? – Pete Hendrickson, former inmate 15406-039, Fed’l Bureau of Prisons


Return to “Tax Practice & Policy and Tax Shelters”

Who is online

Users browsing this forum: No registered users and 1 guest