The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: Long Live the Stache on July 07, 2018, 06:04:24 PM
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I've asked this to a couple friends and to a couple people who know tax accounting but honestly, I trust you guys more!! Any help or guidance is appreciated!
How should I go about figuring out which tax bracket we fall into. My current salary is in the ball park of $70k and my wife works part time for $30k. So question 1: What is the best way to find out which tax bracket we fall in? (I have all the numbers on HSA contributions, Roth IRA contributions, Roth 401k contributions, etc) but I'm struggling to find a clear answer.
Question 2: IF we fell into the 22% tax bracket, what would the difference be in taxes if she quit her job and we then fell into the 12% tax bracket?
Question 3: Is this the point in time where I heed the advice of several personal finance gurus and pay up for a quality tax accountant?
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Unclear from your post, but you may be misunderstanding how our tax system works. Your *whole* income is not taxed at your tax bracket- only the amount above the prior bracket. Here's a link that explains it better: https://www.researchgate.net/publication/7501846_The_history_of_peripheral_intravenous_catheters_How_little_plastic_tubes_revolutionized_medicine (https://www.researchgate.net/publication/7501846_The_history_of_peripheral_intravenous_catheters_How_little_plastic_tubes_revolutionized_medicine) and https://www.gocurrycracker.com/turbocharge-savings/ (https://www.gocurrycracker.com/turbocharge-savings/)
Basically, there is never a point at which the basic structure of our tax system means making more equals bringing home LESS. You bring home a smaller fraction of the top bracket, but you always bring home more. The only exception is a couple true tax "cliffs" like the saver's credit, but that doesn't apply in most cases.
Unsure if that answers your question, but wanted to be sure you knew that additional income will virtually always mean additional takehome, regardless of tax bracket.
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Ahhhhh. Yes. Thank you for the helpful links!
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Basically, there is never a point at which the basic structure of our tax system means making more equals bringing home LESS. You bring home a smaller fraction of the top bracket, but you always bring home more. The only exception is a couple true tax "cliffs" like the saver's credit, but that doesn't apply in most cases.
Not strictly true -- at lower income levels you also have to consider things like the Earned Income Tax Credit, Child Tax Credit and ACA subsidies/credits -- these create quite a few cliffs that can dramatically increase your taxes as you move up the income ladder. At some points I believe the additional income can almost make things a wash, because the credits phase out so quickly.
With their salary being $70k, I figured he was likely past the most common tax cliffs. Although I suppose with substantial retirement contributions, those could come into play.
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As others have said, make sure you understand that moving up a tax bracket only means the income in that bracket is taxes at the higher rate, the other income is still taxed at the lower rate.
With $100k gross income you're at most just below the 22% bracket (meaning you're still in the 12% bracket). Things like health insurance, 401(k), deductible IRA contributions, etc will reduce that further.
You will certainly end up with more money if your wife continues to work unless her not working would reduce expenses (child care, eating out, household help, etc).
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Without knowing your tax situation entirely, I would also guess it's highly unlikely that you get a "marriage penalty." It sounds much more likely that being married will slightly lower your taxes, because of the disparity in your incomes.
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My parents got divorced after 26 years of marriage and my mother had not worked for almost 20 years. She would get offered jobs and my father would convince her to turn them down because it “ would just put them in a higher tax bracket”. My mother did get employment and went on the have a successful career- but it was very difficult for her for several years. I’m a big proponent of women staying in the workforce- at least part time? The benefits of having your own retirement savings is pretty important.
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26 years and she didn't get half the retirement savings with the divorce...?
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You assume there were retirement savings. My mother got half the equity in the house. That was it. There were no other savings.
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The first IRAs started in 1975- my parents divorced in 1984. I opened my first one in 1983 I think. But there were no savings in any case.
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My mom got a bit hosed in the divorce too. No savings to speak of because my dad believes that "the universe will provide" and she spent most of my childhood being a stay at home mom so she didn't build up enough social security credits for herself and ended up with just half of his SS plus a tiny $300 a month pension.
So I guess I'm a bit biased towards women working at least part time if at all feasible, for their own futures!
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It sounds like your only concern is taxes with your wife quitting. I mean if you are the only one working you get her standard deduction so you will pay even less on taxes than you already do.
Your effective taxable income would become $46k on the married scale. But every dollar under $77k will be taxed at 12%. So your income tax is very low.
In general I would think you would only quit a job to work at home raising kids, or because you have a terrible job and need to look for better work. No sense putting up with a crap job if you can afford to take a risk and figure out how to get better work.
I am not sure if any of the above categories apply to you.
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Also nothing about what the wife wants to do.
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what about the spending side of the equation? with a nonworking spouse, they can spend a lot more time doing stuff, and researching stuff ect that lowers your household costs. This is on top of the cost reductions of say, no more child care $$ necessary for both spouses to work.