It's Tax Time. How Did You Do?

Tax brackets don't mean very much in the big scheme of things, and I'll show you why.

Let's say a couple is married, filing jointly. Their taxable income (after all deductions) was $85,0000. The threshold for the 22% tax bracket is $77,400. But the whole $85k is not taxed at 22%. That is a popular misconception. It's not true, though.

Their first $19,050 is taxed at 10%.

The money they earned between $19,050 and $77,400 is taxed at 12%.

And the amount over $77,400 ($7,600) is taxed at 22%. This means that only 9% of their income was taxed at 22%, and 91% of their income was taxed at those lower rates of 10 and 12%.

In the past, I've heard people say they don't want a raise because it will jump them up to a higher tax bracket. That's wrong thinking. If it moves them up to a higher tax bracket, that higher tax bracket only applies to the amount of money over the threshold of that bracket. All of the money they earned under that threshold is still taxed at those lower rates. So yes, that couple is going to pay more in income taxes at $85k than they would at $77k, but not substantially more. A bit more, but not a huge amount more.

For the purposes of this thread, it would be interesting to know how much income a person made in 2017 and 2018 and if their taxes went up or down, but I think it is uncomfortable for most people to talk about their income, even online. So I didn't ask for it. So sure, there are a lot of individual variables we cannot know that effect the outcome, and so this is what it is. Imperfect, but just to get a general idea.

 

Yes, those are definitely variables. If you wanted to take the time, there are tax calculator sites on the web that can calculate your taxable income under the old law and the new law. You could plug in your taxable income from 2018 and see if you would have paid more or less under the old law or the new law.

Here's one. It's from H&R Block and it doesn't ask for any identifying info, and it only takes a couple minutes to go through the steps.

https://www.hrblock.com/tax-calculator/#/en/te/aboutYou

At the end of the steps it estimates your tax refund and there is a button labeled "Show Me" where it will compare your outcome with the outcome you would have had under the old law.

So you can see if you benefited from the new law this way, comparing apples to apples.

 

Sure.

What I'm saying is that the best apples to apples comparison is someone who made roughly the same last year as they did this year, in the same bracket.

I just did mine this weekend so haven't really had a chance to compare.

 

My main deductions always came from expenses related to my business. I own a antigue/pawn shop. I would always travel a lot to look at items to purchase and sell at my shop, and I would take the travel expenses, as well as the mortgage interest for my shop's building off my taxes. Trump did away with the mortgage deduction all together, and I was told I was no longer eligible for travel expense deductions because my business isn't incorporated. Apparently, now you have to at lest have an LLC. in order for your business expenses to be taken off of your taxes. I had never heard that before, but that's what I was told by the accountant who does my taxes. There has to be some record of the income coming from a licensed business. Before now, I didn't even have to have a business license. I just had to have financial records that proved income came from the shop's sales, which come in the form of invoices I print out whenever I make a sale. But I was told that if my business is not licensed for officially incorporated, it's no different than selling the items at a yard sale, and isn't considered a business, and therefore, I am no long eligible to take expenses for travel for my shop off my taxes. I spent thousands of dollars a year traveling, so this is what really cuts into my return. I am losing far more in my return than I am paying less in overall taxes. Even with lower rates, I am losing money.

 

in ny, even sole proprietors require a biz cert/license and an ein for the sales tax authority, so all expenses are the same, whether incorporated or not... biggest difference is once you have more than a handful of employees you'll be better off as a corp, llc's are popular because they don't require minutes to be recorded...

here, having the biz office within your home (spare room dedicated to the biz, portion of property/garage space for biz) than ordinary household expenses become deductible by the biz, ie: 2000 sqf home with 500 sqf dedicated to the biz would get 25% of the expenses deductible by the biz... iirk, 37% is maximum and pushing the threshhold for an audit...

i haven't filed yet, never believed in settling early...

 

Yikes! Better go get your business licensed!

 

Yes, perhaps I'll do this again with a more detailed poll.

 

While my total income has pretty much stayed the same my tax's owed have fallen by $19,000 from 2017 to 2018 some of it due to tax cuts and some of it due to hiring a better accountant.

 

Totally false, if someone without health insurance goes in for a treatment, they will be billed for that/those treatment(s) and will end up either paying for them of filing for bankruptcy if they cannot not.

 

Bull, with the sky high deductibles under the ACA most people would still be in over their head in medical bills.

 

Wow!!

 

Under federal law, medical bills are "justifiable expenses". They can't be put on someone's credit score, and one's wages can't be garnished in order to pay them. Hospitals and doctors are allowed to take the the majority of unpaid medical bills of uninsured patients off their taxes, and what they can't deduct, they add to their other patients bill. This is why everyone elses' treatment costs go up.

 

Totally false, unpaid medical bills will impact a person's credit score and has put many into bankruptcy.

 

I got a refund coming in the mail. I always get a refund.

 

taxes went up by $346 while I earned less. Due to A loss on a real estate transaction law expired.

 

I think non profits can not report it to the credit bureaus. But once they hire a collection agency that agency can and will report it.

 

YOu understand that most of the subsidies provided to CT ACCESS reduced income clients comes from federal funding.

 

Most hospitals for profit or not, will not get involved in collections, once the account goes 180 days past due the hospital will sell it off to a collection agency who will then pursue the debt and after two notices to the debtor, the collection agency will report the debt to the three major credit rating agencies, where that debt will ding the debtors credit rating for minimum of seven years.

What few realize is hospitals will almost always work out payments with the debtor, even small payments.

 

You should always try to owe the IRS at the end of the tax year, refunds do not earn interest, so it's like loaning the government money for free, money you could keep in your pocket versus Uncle Sam's pocket.

 

Did I understand your post? You paid $19,000 less in taxes in 2018 then you paid in 2017? How much do you pay in taxes?

I don't pay any as I only made a little over $19,000 last year.

 

That may be true if people actually behaved rationally and would put the additional money into a bank account to get the interest.

However, from a behavioral finance point of view, it is better for most people to over-withhold. That way, they'd actually get a "windfall" at tax refund time, making it easier to save some of that refund and avoiding over-spending for the remainder of the year. What you don't have in your account, you can't spend. That's what I do, and I don't mind giving the IRS and interest-fee loan. Half of my refund always goes to paying off the mortgage, which I will be done with this year. Then, it will go to investments next year.

 

Income from wages went up just over $13K in 2018 compared to 2017. Federal tax bill was $668 less in 2018 than 2017. Also first time using the standard deduction in 20 years.

 

Gangster

 

In 2017 I paid $62K, in 2018 I paid just over $43K.