Who Pays Income Tax (loans, free market, status, purchase)
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Huh? Joe Q. Middleclass doesn't have have a 21% effective tax rate. Make Joe Q. Middleclass married with $60K household income is paying $3,939 in Federal income taxes and another $4,590 in payroll taxes. $8,529 pulled out in Federal, FICA, and Medicare. He's living on $51.5K. Compared to anywhere else in the first world, that's an extremely low effective tax rate. 14.22%.
The people who really get slaughtered are the self-employed making low 6 figures. 15.3% in self employment tax layered on top of Federal. If you're filing single making $130K, you have mostly 22% and 24% bracket income. In states with high state income taxes, you can easily be paying 40% of your gross as taxes.
many high earners got whacked with the amt tax . so that can be very different than a marginal rate tax system .
Huh? Joe Q. Middleclass doesn't have have a 21% effective tax rate. Make Joe Q. Middleclass married with $60K household income is paying $3,939 in Federal income taxes and another $4,590 in payroll taxes. $8,529 pulled out in Federal, FICA, and Medicare. He's living on $51.5K. Compared to anywhere else in the first world, that's an extremely low effective tax rate. 14.22%.
The people who really get slaughtered are the self-employed making low 6 figures. 15.3% in self employment tax layered on top of Federal. If you're filing single making $130K, you have mostly 22% and 24% bracket income. In states with high state income taxes, you can easily be paying 40% of your gross as taxes.
You excluded both of the FICA tax from the Joe Q. Middleclass. If you included them for a business owner or independent contractor, you have to include them as costs for the W-2 employee. Payroll taxes are part of employee compensation.
There is a ceiling on the wage subject to the FICA taxes, except for the Medicare tax. On the lower end of the income scale, there are refundable tax credits which allow the filer to recapture payroll taxes. The tax rates can be negative for some amount and then often top out when the FICA wage ceiling is reached.
On the other hand, compensation often takes account of the contractor being responsible for paying the tax and the labor rate is adjusted higher to compensate for the cost.
it is funny because my son became a partner in a national law firm. he said now that he has to pay both fica halfs , his own medical and all the other things he got as just a worker he made more money salary wise before .
as a partner he really does not know how he actually does until year end when the firm tally's up ..
it is funny because my son became a partner in a national law firm. he said now that he has to pay both fica halfs , his own medical and all the other things he got as just a worker he made more money salary wise before .
as a partner he really does not know how he actually does until year end when the firm tally's up ..
Come end of the year he'll be pulling a 7 figure wagon so... and that's where a good accountant comes into play because as a partner he's also a business owner. Lots of deductions there. Never saw a partner who was starving. If anything, the horizontal growth (despite organic growth from the lack of general movements) is astounding!
my son's wife is a cpa. she runs the tax dept for a famous hedge fund .
the partners do very well but the buy in's are very expensive .
first level general partner was 250k . the full equity partner requires you to be voted in and selected , and is another 275-300k . there are attorneys waiting their whole lives for a shot at equity partner , there are 900 attorney's in the firm . my son is their youngest full equity partner .
you can't even get a shot at first level partner at his firm unless you do at least 1800 hours a year at 600 per for x amount of years .
Are there any policies that would stand in the way of someone achieving that? I've heard general remarks alluding to the fact that billable hours definitely =/= hours actually worked.
Say, if there's a standard number of billable hours for a specific type of request, (assume 8 hours) and the attorney gets it done in half the time, and does that same thing for two client that day. Does he get to bill each for 8 hours, or would that go against some law or internal code?
Come end of the year he'll be pulling a 7 figure wagon so... and that's where a good accountant comes into play because as a partner he's also a business owner. Lots of deductions there. Never saw a partner who was starving. If anything, the horizontal growth (despite organic growth from the lack of general movements) is astounding!
Exactly!
This is why those who earn serious money employ a good accountant.
it is funny because my son became a partner in a national law firm. he said now that he has to pay both fica halfs , his own medical and all the other things he got as just a worker he made more money salary wise before .
as a partner he really does not know how he actually does until year end when the firm tally's up ..
Likely has to make estimated quarterly tax payments as well, but welcome to the wonderful world of being self employed.
Again not really a huge deal; a thoroughly experienced accountant can set things up to minimize tax consequences.
Most doctors, lawyers, and other high income persons one knows in NYC area use firms like Citrin Cooperman, or any of the ones located out in Garden City, LI to mange their finances including taxes.
On the good side once employed it is like that episode from I Love Lucy; the wives cannot write checks for anything. Everyone in household puts things on charge/credit cards and or bills are sent directly to accountant for payment. Sort of like American Express cards with their annual reports; the accountants keep a running tab of where money is going and yearly summation shows where money went.
Are there any policies that would stand in the way of someone achieving that? I've heard general remarks alluding to the fact that billable hours definitely =/= hours actually worked.
Say, if there's a standard number of billable hours for a specific type of request, (assume 8 hours) and the attorney gets it done in half the time, and does that same thing for two client that day. Does he get to bill each for 8 hours, or would that go against some law or internal code?
I’d imagine it’s incredibly hard for a senior manager+ to get 1800 billable hours (that seems incredibly high for a partner—their job is usually BD...or business development). That’s easy for a staff or senior who is churning through grunt work...but someone at that level is billing out at 500 or 600 dollars an hour. They would have to have a **** ton of major clients to be doing that...and most likely clients that large can get some kind of fixed rate for a line with you anytime. The firms will put you off being partner until they can’t anymore. Aka once your book of business and connections is so large that they can’t afford the possibility that you might leave and those clients choose to leave with you.
And no....time billed doesn’t equal time worked. You have to eat hundreds of hours per year.
Public accounting sucks. And big law is the same way...but with probably more pressure because billable rates are higher. So every hour the partners can claw from down the pyramid is just more money for them.
And no, they don’t sit there actually timing the work. Before you’re engaged to do work...there’s usually a fixed fee. You play with the numbers to fit it all in because you as a professional are always trapped between being measured by realization and utilization. In other words, the partners will lowball the cost of the work to drive sales for themselves....and force their staff to eat hours to get it done under budget. Then of course, they will blame the staff for their own unrealistic budget if you hit the code too much...which results in eating more time. People will hit the codes they need to to balance their numbers. For example, I never touched a clients work without hitting the code for at least an hour.
Last edited by Thatsright19; 10-15-2018 at 07:40 PM..
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