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Old 01-16-2015, 09:55 AM
 
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Really dumb question coming up:

I was looking at the 2015 tax brackets and was curious. When it says Taxable Income...

Does it mean:
A. Your income after insurance and 401K deductions taken out?
B. Your income after insurance, 401K AND standard federal deductions taken out? AKA your AGI?

I googled it and it shows both of the above as the answer. So which is it?
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Old 01-16-2015, 10:03 AM
 
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The brackets apply to agi
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Old 01-16-2015, 10:08 AM
 
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Quote:
Originally Posted by Lowexpectations View Post
The brackets apply to agi
To be clearer, they apply to one's taxable income, which is AGI - personal exemptions & deductions.
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Old 01-16-2015, 10:26 AM
 
Location: Southlake. Don't judge me.
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Quote:
Originally Posted by MadManofBethesda View Post
To be clearer, they apply to one's taxable income, which is AGI - personal exemptions & deductions.
Yes, that. For the OP, AGI is income after taking out insurance and 401K, but NOT before standard/itemized deductions or personal exemptions. TAXABLE income (what the brackets apply to) is as described - AGI less Schedule A deductions (or the standard deduction) and personal exemptions.

And just to be certain, if you're in "the 25% bracket", that 25% rate applies only to income AT OR ABOVE the threshold level. The first $X of taxable income are taxed at a 10% rate, then the next $Y are taxed at a 15% rate, and THEN the next $Z are taxed at a 25% rate. You probably know this but some people don't.
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Old 01-16-2015, 10:33 AM
 
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Quote:
Originally Posted by synchronicity View Post
Yes, that. For the OP, AGI is income after taking out insurance and 401K, but NOT before standard/itemized deductions or personal exemptions. TAXABLE income (what the brackets apply to) is as described - AGI less Schedule A deductions (or the standard deduction) and personal exemptions.

And just to be certain, if you're in "the 25% bracket", that 25% rate applies only to income AT OR ABOVE the threshold level. The first $X of taxable income are taxed at a 10% rate, then the next $Y are taxed at a 15% rate, and THEN the next $Z are taxed at a 25% rate. You probably know this but some people don't.
Quote:
MadManofBethesda
Quote:
Originally Posted by Lowexpectations View Post
The brackets apply to agi
To be clearer, they apply to one's taxable income, which is AGI - personal exemptions & deductions.
Okay I am confused. This is what I have been seeing all over the net, to me these two answers are opposites.

To simplify:

If I am making $40,000. Have $2000 in insurance and 401K. Only use the federal standard deduction of $12600.

What is my taxable income for tax brackets, married filing jointly?
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Old 01-16-2015, 10:36 AM
 
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Quote:
Originally Posted by momtothree View Post
Okay I am confused. This is what I have been seeing all over the net, to me these two answers are opposites.

To simplify:

If I am making $40,000. Have $2000 in insurance and 401K. Only use the federal standard deduction of $12600.

What is my taxable income for tax brackets, married filing jointly?
25400 is your taxable income
Edit that's wrong you get personal exemption so subtract another 8k I think it's 3950 per person so 17,500 taxable
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Old 01-16-2015, 10:37 AM
 
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Originally Posted by Lowexpectations View Post
25400 is your taxable income
Thank you! I feel so stupid in asking this!
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Old 01-16-2015, 10:42 AM
 
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Originally Posted by momtothree View Post
Thank you! I feel so stupid in asking this!
I edited it. It's 17.5k after exemptions
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Old 01-16-2015, 12:24 PM
 
Location: Southlake. Don't judge me.
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Summarizing the info the OP supplied and answers from everyone on this thread, and giving the exact calculation for 2014...

Assumptions - OP is married filing jointly and has no children. Amounts are total for both spouses combined (so, for example, one spouse earned 30K and the other 10K, or one earned 40K and the other 0, or whatever combination adds up to 40K). There are no other items outside of what has been presented on this thread, and nobody can claim either spouse as a dependent.

Earnings in 2014: $40,000
Payroll deductions for insurance premiums and 401K contributions: $2,000
Taxable earnings (reported on line 1 of your W-2, http://www.irs.gov/pub/irs-pdf/fw2.pdf) $38,000.

The $38,000 amount is reported on line 7 of your Form 1040, http://www.irs.gov/pub/irs-pdf/f1040.pdf. Actually, in this example you could file a Form 1040-EZ and report that amount on line 1 http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

Now, take that amount and subtract:
Standard Deduction: $12,400
(The standard deduction is reported on Line 40 of Form 1040)

Personal Exemption: $7,900
(The personal exemption in 2014 is $3,950 per person. Since we're talking two spouses, the amount is $3,950 times 2 or $7,900. This is shown on line 42 of Form 1040)

Note that if you're filing a Form 1040EZ, you just subtract $20,300 (the amount of the standard deduction and the personal exemption), as directed on line 5 of that form.

So, $38,000 less $20,300 gives a TAXABLE income number of $17,700.

In 2014, the first $18,150 of TAXABLE income is taxed at 10%. So there is no need to look any higher on the tax tables. 10% of $17,700 is $1,770.

HOWEVER, for taxable incomes below $100,000, you look at the tax tables in the instructions for the form for your actual tax liability. http://www.irs.gov/pub/irs-pdf/i1040tt.pdf If you look there, you'll see that taxable income amounts of at least $17,700 but below $17,750 have a tax liability of $1,773 for Married Filing Jointly filers. So it's $3 more than the strict calculation would be (why? Because it's the average tax liability between $17,700 and $17,750. Basically it's the tax due on someone earning $17,725, rounded to the nearest dollar).

That last bit is a little confusing, but the short answer is that the number on the tax tables in the instructions may be a few dollars (literally $2 or $3 or $5, say) higher or lower than the calculated tax liability.

I hope that's helpful.
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Old 01-16-2015, 05:12 PM
 
7,672 posts, read 9,829,445 times
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Quote:
Originally Posted by synchronicity View Post
Summarizing the info the OP supplied and answers from everyone on this thread, and giving the exact calculation for 2014...

Assumptions - OP is married filing jointly and has no children. Amounts are total for both spouses combined (so, for example, one spouse earned 30K and the other 10K, or one earned 40K and the other 0, or whatever combination adds up to 40K). There are no other items outside of what has been presented on this thread, and nobody can claim either spouse as a dependent.

Earnings in 2014: $40,000
Payroll deductions for insurance premiums and 401K contributions: $2,000
Taxable earnings (reported on line 1 of your W-2, http://www.irs.gov/pub/irs-pdf/fw2.pdf) $38,000.

The $38,000 amount is reported on line 7 of your Form 1040, http://www.irs.gov/pub/irs-pdf/f1040.pdf. Actually, in this example you could file a Form 1040-EZ and report that amount on line 1 http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

Now, take that amount and subtract:
Standard Deduction: $12,400
(The standard deduction is reported on Line 40 of Form 1040)

Personal Exemption: $7,900
(The personal exemption in 2014 is $3,950 per person. Since we're talking two spouses, the amount is $3,950 times 2 or $7,900. This is shown on line 42 of Form 1040)

Note that if you're filing a Form 1040EZ, you just subtract $20,300 (the amount of the standard deduction and the personal exemption), as directed on line 5 of that form.

So, $38,000 less $20,300 gives a TAXABLE income number of $17,700.

In 2014, the first $18,150 of TAXABLE income is taxed at 10%. So there is no need to look any higher on the tax tables. 10% of $17,700 is $1,770.

HOWEVER, for taxable incomes below $100,000, you look at the tax tables in the instructions for the form for your actual tax liability. http://www.irs.gov/pub/irs-pdf/i1040tt.pdf If you look there, you'll see that taxable income amounts of at least $17,700 but below $17,750 have a tax liability of $1,773 for Married Filing Jointly filers. So it's $3 more than the strict calculation would be (why? Because it's the average tax liability between $17,700 and $17,750. Basically it's the tax due on someone earning $17,725, rounded to the nearest dollar).

That last bit is a little confusing, but the short answer is that the number on the tax tables in the instructions may be a few dollars (literally $2 or $3 or $5, say) higher or lower than the calculated tax liability.

I hope that's helpful.
It was. thanks! I was looking at the 2015 tax brackets and idly wondering about the taxable income.
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