How strict are the AGI boundaries for tax?

[FerrumB5]

This is purely "out of interest" question. Let's take 2015 brackets:


Tax Rate Single Married/Joint & Widow(er) Married/Separate Head of Household

10% $1 - $9,225 $1 - $18,450 $1 - $9,225 $1 - $13,150
15% $9,226 to $37,450 $18,451 to $74,900 $9,226 to $37,450 $13,151 to $50,200
25% $37,451 to $90,750 $74,901 to $151,200 $37,451 to $75,600 $50,201 to $129,600
28% $90,751 to $189,300 $151,201 to $230,450 $75,601 to $115,225 $129,601 to $209,850
33% $189,301 to $411,500 $230,451 to $411,500 $115,226 to $205,750 $209,851 to $411,500
35% $411,501 to $413,200 $411,501 to $464,850 $205,751 to $232,425 $411,501 to $439,200
39.6% over $413,200 over $464,850 over $232,425 over $439,200
 
Sorry for bad formatting. So, if one makes 1 (one) dollar more and MAGI after some pre-tax stuff blah blah goes from 74900 to 74901 you will pay 18.7k taxes as opposed to 11.2k taxes just for one extra dollar?

[Philociraptor]

This is a common misconception, no. Let's assume single: from the first to $9,225th dollar, you are taxed at 10%. The $9226th dollar through the $37,450th dollar are taxed at 15%. It doesn't change how much you pay on the first $9,225. This table makes it clearer:

Single:

Taxable Income                            Tax Rate
$0 to $9,225                                    10%
$9,226 to $37,450                            $922.50 plus 15% of the amount over $9,225
$37,451 to $90,750                            $5,156.25 plus 25% of the amount over $37,450
$90,751 to $189,300                    $18,481.25 plus 28% of the amount over $90,750
$189,301 to $411,500                    $46,075.25 plus 33% of the amount over $189,300
$411,501 to $413,200                    $119,401.25 plus 35% of the amount over $411,500
$413,201 or more                            $119,996.25 plus 39.6% of the amount over $413,200

As you can see, if you are in the 15% bracket you only pay 15% on income over $9,225. You pay $922.50 in taxes on that $9,225, 10%.

[FerrumB5]

Got it!! Now it's clear

[dandarc]

Your income tax bill is not based on AGI - it is based on taxable income.  AGI is a higher number than taxable income - it happens before exemptions and your standard or itemized deductions.

[FerrumB5]

That is what I meant, didn't word properly - see my "after all pre-tax blah blah" (that included deductions, exemptions, etc).

[seattlecyclone]

There are a few cliffs in the tax code where one dollar over a limit can make a big difference in the amount of tax owed. The saver's credit has a few of these, and the earned income credit has a cliff where a certain amount of investment income will disqualify you.

The base tax brackets and even most credits that have phase-outs are much smoother, set up so that you'll be better off earning an extra dollar after paying the tax on that dollar.

[FerrumB5]

Thanks for advice. We are rather far away from 74900 MAGI after all deductions, exemptions, etc in 2015 even with ALL my investments sold to make a 20+% downpayment for a house. In 2016 this will still hold as we'll be paying for my wife 2nd degree tuition and it's at least partially deductible.

Now, it looks like I cannot deduct a single penny of my closing costs in 2015 tax year (bought house in Sept 2015). Correct? Taxes not paid yet in 2015 (may be partial, but not to exceed the itemized limit)

[MDM]

Thanks for advice. We are rather far away from 74900 MAGI after all deductions, exemptions, etc in 2015 even with ALL my investments sold to make a 20+% downpayment for a house. In 2016 this will still hold as we'll be paying for my wife 2nd degree tuition and it's at least partially deductible.

Now, it looks like I cannot deduct a single penny of my closing costs in 2015 tax year (bought house in Sept 2015). Correct? Taxes not paid yet in 2015 (may be partial, but not to exceed the itemized limit)

If you are far away on the high side, well, "1st world problem" etc.  If far away on the low side, seattlecyclone's comment about the saver's credit cliffs might be applicable.  E.g., see http://forum.mrmoneymustache.com/investor-alley/sell-taxable-to-keep-maxing-tax-advantaged/msg945982/#msg945982 and others in that thread.

As for closing costs, see https://www.irs.gov/publications/p530/ar02.html.

[FerrumB5]

58k taxable so far (not including DIV or INT or cap gains yet)