Greetings FWF,
Long-time reader of FWF but this is my first post...
Various sources suggest that when completing ones tax return, that it is "best" to either have your taxable income closest to the bottom of your current tax bracket, whilst other sources suggest to have your taxable income near top of the next lower tax bracket.
Is there a rule of thumb to consider without having to go into personal tax specifics ATM?
Taxable Income - Rule of Thumb?
Re: Taxable Income - Rule of Thumb?
The difference is generally one wants to pay as little income tax as possible, so it would be better to try and stay within a lower tax bracket if one can arrange their taxable income to stay within the upper limit of that bracket for the current year. That said, it makes no sense to incur 'unnecessary' cost to stay within a lower tax bracket.
It is simply the math. For example, if you were $500 over the top of a 30% tax bracket into a 35% tax bracket, would you rather incur a $500 expense to stay in the lower tax bracket, or keep the $500 and pay 35% tax on that....and thus still have $325 in your pocket after paying tax, or nothing at all?
Investors sometimes use 'tax loss selling' of assets to help offset capital gains in a given year to reduce the tax bill. That makes sense if one has an extraordinary high capital gains burden in a given year and would otherwise potentially be exposed to a higher tax bracket.
Sometimes taxpayers, especially those self-employed, can defer income, e.g. self-employed income into the next year, or advance an expense into the current tax year to manage marginal tax rates, but I know of no circumstance where it makes sense to incur an unnecessary expense just to stay within the ceiling of a current tax bracket.
It is simply the math. For example, if you were $500 over the top of a 30% tax bracket into a 35% tax bracket, would you rather incur a $500 expense to stay in the lower tax bracket, or keep the $500 and pay 35% tax on that....and thus still have $325 in your pocket after paying tax, or nothing at all?
Investors sometimes use 'tax loss selling' of assets to help offset capital gains in a given year to reduce the tax bill. That makes sense if one has an extraordinary high capital gains burden in a given year and would otherwise potentially be exposed to a higher tax bracket.
Sometimes taxpayers, especially those self-employed, can defer income, e.g. self-employed income into the next year, or advance an expense into the current tax year to manage marginal tax rates, but I know of no circumstance where it makes sense to incur an unnecessary expense just to stay within the ceiling of a current tax bracket.
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Re: Taxable Income - Rule of Thumb?
Welcome to the forum as a poster!
I'm not sure if this answers your question, but ISTM the two rules are saying essentially the same thing. In either case you would be paying negligible tax in the higher bracket. The limiting cases of these two "rules" are the same, i.e., being on the boundary between the two tax brackets.Various sources suggest that when completing ones tax return, that it is "best" to either have your taxable income closest to the bottom of your current tax bracket, whilst other sources suggest to have your taxable income near top of the next lower tax bracket.
Re: Taxable Income - Rule of Thumb?
Now if only the Federal and Provincial brackets were the same!IdOp wrote: ↑17 Jan 2018 12:54I'm not sure if this answers your question, but ISTM the two rules are saying essentially the same thing. In either case you would be paying negligible tax in the higher bracket. The limiting cases of these two "rules" are the same, i.e., being on the boundary between the two tax brackets.
Re: Taxable Income - Rule of Thumb?
Not sure if the OP was looking for something like $30,000, $60,000 , $90,000. IIRC the idea was to keep both incomes below 30 or one below 30 and one below 60 or combinations of these, if you can't keep both below 30 then try to keep both below 60 this was a long time ago not sure how well it applied then or what the new numbers would be now.
With a quick look - looks like $40,000 ($39676), $47,000, $80,000 just the top of the first three tax brackets? Maybe 40,50,80 is close enough.
With a quick look - looks like $40,000 ($39676), $47,000, $80,000 just the top of the first three tax brackets? Maybe 40,50,80 is close enough.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed