my light-bulb moment: tax brackets

[Derek]

i had a light bulb moment talking with our new tax guy the other day. most of you no doubt know all this stuff already, i am pretty clueless about taxes and such.

anyways the tax guy informed us that once you hit $115k you are in a new tax bracket of 25%...below that, like we have always been, is 15%.

question for you 100% legit tax paying owners: if we're still around in a few years time and hit that $115k mark, are there some type of tax-free investments to put excess $ into so that it isn't taxable? i shoulda asked the accountant but i was too stunned to think straight at the time.

it seems like i'd only wanna make $114k and then make a quick jump to say $140k the next year so that i can see some type of $ increase, after taxes.

please learn me how to legally put that $ away tax free - if that is even possible and if that makes any sense

 

[Chris A]

Definitely talk to your cpa again but I would think maxing out IRA HSA and kids college funds (pre tax in Ohio) for starters.

 

[boazcan]

Definitely max out your health savings account (HSA) - $5800 for married couples. This comes right off the top.

The rest can be explained here - SEP IRA

 

[Derek]

tx fellas! this is my 1st year doing the high-deductable health insurance plan, so the HSA is a good option. the 115k is in the future, just wanting to know about this stuff before we get there. no kids here, so IRA's are our best bet. phew!

 

[KevinD]

I believe once you enter a new tax bracket you do not pay the higher rate on all your income.

Only the amount that exceeds the first bracket is taxed at the higher rate.

Always confirm questions with Professional first though.

 

[Derek]

interesting Kevin. seems too good to be true i hope you're right though!

 

[Chris A]

I believe once you enter a new tax bracket you do not pay the higher rate on all your income.

Only the amount that exceeds the first bracket is taxed at the higher rate.

Always confirm questions with Professional first though.

Thats interesting , I hadn't heard that before.

 

[J Scott W]

The HSA and IRA and good ways to eliminate the tax or put it off until you retire.

Kevin is correct on the tax brackets. In the situation you mentioned, you pay 15% on the first $114,999. Then you pay 25% for whatever you earn above that amount. You are not taxed at the higher rate on the entire amount.

 

[Shane Deubell]

Tax avoidance is last on the list, not going to stop working or cut back because of a higher tax rate.

 

[Chris A]

The HSA and IRA and good ways to eliminate the tax or put it off until you retire.

Kevin is correct on the tax brackets. In the situation you mentioned, you pay 15% on the first $114,999. Then you pay 25% for whatever you earn above that amount. You are not taxed at the higher rate on the entire amount.

Yeah I guess that would make sense otherwise at 115 you'd be taking a net pay cut.

 

[Derek]

tx for the info Scott!

 

[Derek]

Tax avoidance is last on the list, not going to stop working or cut back because of a higher tax rate.

based on what Scott said i agree with that.

 

[Ron Werner]

what do you need health insurance for? You've got Obamacare now!

 

[steve_64]

what do you need health insurance for? You've got Obamacare now!

i need to sign up for my VA beenies. talked to a customer last night who is real involved and says he will help me out. they are opening a new facility in south bend soon.

 

[tmiklethun]

You guys way want to double check the HSA. Obamacare limits the amount of tax free investment you can make into an HSA. I think it dropped to $2,000. I could be wrong, but I know it dropped significantly. This totally sucks and its one of those line items that we wouldn't know about until it was passed. It a brave and bold new world. right.