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50% Tax Rate. How Does This Happen?

  
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Subject Author Date
50% Tax Rate. How Does This Happen? runtwoday 01-29-2008
Posted by runtwoday on January 29, 2008, 10:25 am
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 Using my tax prep software I added $16 in bank interest to my return.
Taxable income (1040 line 43) increased from $52,026 to $52,042 as
expected. However Tax (1040 line 46) increased from $5,810 to %5,818.

So that $16 interest caused my tax to increase by $8. I paid 50% tax on
that $16. How does this happen?

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Posted by dpb on January 29, 2008, 11:12 am
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 runtwoday wrote:
> Using my tax prep software I added $16 in bank interest to my return.
> Taxable income (1040 line 43) increased from $52,026 to $52,042 as
> expected. However Tax (1040 line 46) increased from $5,810 to %5,818.
>
> So that $16 interest caused my tax to increase by $8. I paid 50% tax on
> that $16. How does this happen?

If uses tables then at the breakpoint between ranges there are step
discontinuities as the tables are computed at mid-range.

But, your data doesn't seem self-consistent -- I just looked at the irs
2007 1040 tables at irs.gov and the number 5,810 doesn't appear -- 5,811
and 5,810 do, but for $42K in income...

That was real quick so I may have inadvertently misread, but the
apparent marginal 50% bracket is owing to the tables...

--

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by rick++ on January 29, 2008, 11:43 am
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> If uses tables then at the breakpoint between ranges there are step
> discontinuities as the tables are computed at mid-range.

You can use one of the alternative tax computation methods
(and check that box) if you think your time is worth four saved
dollars.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Jonathan Kamens on January 29, 2008, 12:37 pm
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>> If uses tables then at the breakpoint between ranges there are step
>> discontinuities as the tables are computed at mid-range.
>You can use one of the alternative tax computation methods
>(and check that box) if you think your time is worth four saved
>dollars.

Shouldn't the tax prep software automatically figure out which
computation method yields the lowest tax and use it? I
thought TurboTax, at least, did this, but perhaps I am
mistaken. I suppose I'll find out in a week when I do my
taxes (estimates, for school financial aid -- can't do the
final until the 1099's come out, and they're not likely to be
out until the end of February).

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--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Harlan Lunsford on January 29, 2008, 5:47 pm
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Jonathan Kamens wrote:
>>> If uses tables then at the breakpoint between ranges there are step
>>> discontinuities as the tables are computed at mid-range.
>> You can use one of the alternative tax computation methods
>> (and check that box) if you think your time is worth four saved
>> dollars.
>
> Shouldn't the tax prep software automatically figure out which
> computation method yields the lowest tax and use it? I
> thought TurboTax, at least, did this, but perhaps I am
> mistaken. I suppose I'll find out in a week when I do my
> taxes (estimates, for school financial aid -- can't do the
> final until the 1099's come out, and they're not likely to be
> out until the end of February).
>
1099's? You mean as in reporting your income? If so, they are suppose
to be "out" by January 31st.

ChEAr$,
Harlan Lunsford, EA n LA

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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