Tax brackets

 

 

How bad is it to go into the next tax bracket?        

This is a commonly misunderstood concept. Although it’s never good to pay more taxes of course, going into the next bracket is not as costly as most people think.

Let me explain.

Let’s assume that a client’s income is one dollar below the next bracket. Then they remember that they won a two dollar bet on the golf course, which of course has to be added into their income, pushing them into the next bracket by one dollar! Before that gamble, they were in a 15% bracket, but have been moved into the 25% bracket by virtue of having made a putt! Should they have missed the putt?

We find that most clients believe that if they move up into the next tax bracket, all of their income gets pulled up into that bracket and would be taxed, in this case, at 25%, costing them a bundle. That is simply not the case! In this example, only the $1 that moved into the 25% bracket is taxed at that rate.

So, do your best to make that putt. It will cost you only a quarter, which is in your pocket being used as a ball-marker.

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