3 ms·

Tax is always on margin, so making more to put you into a different “bracket” does nothing. The only thing this could change is if they couldn’t pay $250k witho

by hacym 4y ago

Tax is always on margin, so making more to put you into a different “bracket” does nothing. The only thing this could change is if they couldn’t pay $250k without THEIR burden changing in regards to how they’re paying you, but seems unlikely.

justusthane 4y ago
Just to expand on this as I think this is a fairly common misconception about how tax brackets work: Say you have two tax brackets: $0 - $100: 10% $101 - $200: 15% If you make $150, the entire $150 is not taxed at 15%. The first $100 is taxed at 10%, and the remaining $50 is taxed at 15%. This is why being in a higher tax bracket is never (edit: usually not) a bad thing - you can't net less than you would have in the lower bracket.
- popotamonga 4y ago
  In some countries, depending on your max bracket you may or not be eligible for some breaks, meaning the extra $1 can in fact be a bad thing. For example in my country the amount you can deduct on health/education expenses depends on the bracket you are placed in.
  - hacym 4y ago
    This is true, but in this instance a $250k payment likely negates all benefits you’d be eligible for either way.
- pengaru 4y ago
  > This is why being in a higher tax bracket is never a bad thing - you can't net less than you would have in the lower bracket. It's a bad thing if you could defer realizing that higher-bracket income to a low-income year.
- tzs 4y ago
  A common belief based on that common misunderstanding of tax brackets is that when rich people give to charity the deduction saves them more in taxes than the amount they gave. For example if the person in your example made $105 and gave $5 to charity and brackets worked the way the common misconception worked that would reduce their taxes from $15.75 to $10, saving them $5.75 in taxes which is indeed more than their $5 donation, and they do indeed come out $0.75 ahead of where they would have been had they not donated. In reality, taxes without the donation would be $10.75 and the donation reduces taxes to $10, giving them a tax saving of $0.75 for their $5 donation, leaving them $4.25 behind where they would have been had they not donated. Note: there may be other tax consequences besides the deduction for the donation itself for some charity donations that also provide benefits, which might make a donation a net monetary gain for the donor.
  - codyb 4y ago
    It took me a bit to realize that people would think 105 taxed at 10% on the first 100 and 15% on the last 5 until I realized the idea is that people think that someone making 105 has the full 105 taxed at 15%.
  - coryrc 4y ago
    They do it by buying lots of artwork for $, sell one piece for $$ to their crony, donate the rest as valued at $$$, saving $$$-$ off their taxes.

by hacym 4y ago

justusthane 4y ago

Just to expand on this as I think this is a fairly common misconception about how tax brackets work: Say you have two tax brackets: $0 - $100: 10% $101 - $200: 15% If you make $150, the entire $150 is not taxed at 15%. The first $100 is taxed at 10%, and the remaining $50 is taxed at 15%. This is why being in a higher tax bracket is never (edit: usually not) a bad thing - you can't net less than you would have in the lower bracket.

popotamonga 4y ago
In some countries, depending on your max bracket you may or not be eligible for some breaks, meaning the extra $1 can in fact be a bad thing. For example in my country the amount you can deduct on health/education expenses depends on the bracket you are placed in.
- hacym 4y ago
  This is true, but in this instance a $250k payment likely negates all benefits you’d be eligible for either way.
pengaru 4y ago
> This is why being in a higher tax bracket is never a bad thing - you can't net less than you would have in the lower bracket. It's a bad thing if you could defer realizing that higher-bracket income to a low-income year.
tzs 4y ago
A common belief based on that common misunderstanding of tax brackets is that when rich people give to charity the deduction saves them more in taxes than the amount they gave. For example if the person in your example made $105 and gave $5 to charity and brackets worked the way the common misconception worked that would reduce their taxes from $15.75 to $10, saving them $5.75 in taxes which is indeed more than their $5 donation, and they do indeed come out $0.75 ahead of where they would have been had they not donated. In reality, taxes without the donation would be $10.75 and the donation reduces taxes to $10, giving them a tax saving of $0.75 for their $5 donation, leaving them $4.25 behind where they would have been had they not donated. Note: there may be other tax consequences besides the deduction for the donation itself for some charity donations that also provide benefits, which might make a donation a net monetary gain for the donor.
- codyb 4y ago
  It took me a bit to realize that people would think 105 taxed at 10% on the first 100 and 15% on the last 5 until I realized the idea is that people think that someone making 105 has the full 105 taxed at 15%.
- coryrc 4y ago
  They do it by buying lots of artwork for $, sell one piece for $$ to their crony, donate the rest as valued at $$$, saving $$$-$ off their taxes.