October 13, 2005

Calculating Taxes

One very important lesson I learned is that every income level has it’s own tax percentage. It’s hard to explain without an example. If your income is less than $29,050 you are taxed at 15%. $29,051 to $70,350 the tax is 25%. So I thought that someone making $30,000 would be screwed because they’d pay such a high tax rate compared to the person making $29,000. But that’s not the way it works. If you make $30,000, here is how to calculate tax:

$7,150
x 10%
——–
$715 — Everyone pays this amount for the first $7150 they earn

$29,050
– 7150
———
$21,900
x .15
———
$3285

$30,000
– 29,050
———-
$950
x .25
———–
$238

Taxes due: $715 + $3285 + $238 = $4238

Tax rate of: 14.1%

So, the only people who really pay the entire percentage of their tax bracket are the extremely poor (who pay the entire 10%) and the very rich (where the richer they are the closer to a straight 35% they pay). Of course, I would argue that the very rich are taxed at about the same percentage as someone making $60,000. A tax is a tax is a tax and Social Security’s 12% only applies to the first $90,000 and is barely a blip to the very rich.

Oh, and did I mention that the capital gains tax is only 15%? That’s where the filthy rich get most of their money.

I got the tax rates from http://en.wikipedia.org/wiki/JGTRRA which talks about is the Jobs and Growth Tax Relief Reconciliation Act of 2003. Here’s another interesting link:

http://en.wikipedia.org/wiki/Income_tax

Sheldon