psychtobe said: orthros, are you an orthopedist? I can't remember; I recall you are an MD from prior discussions.

Actually, I'm a finance director for a Fortune 500 company. Two of my brothers are doctors, though, so I know more about medicine (and the tribulations of being a non-specialist doctor) than the average Joe.

You're a psychiatrist, correct? If so, did you run your own practice, and did this help with avoidance of the AMT?

What about the calculation for, say, the next 10K earned?

For me, it would be taxed at 24%. After additional expenses associated with working it's not worth going for. Would rather be doing other things than supporting a war.

Anyone else in a similar position?

dodgeman007 said:ummmm. my corp HR office said i can not claim more than 8 deductions on the w-4 i think, without proof, im only 1 person and claim 8 i hate the govt having my money...You must always have a reasonable basis for the claimed number of W-4 exemptions. Having said that, if you reasonably do not anticipate having any tax liability at the end of the year, you are perfectly within your rights to claim "exempt" on the W-4 or to enter such number of exemptions that would roughly correspond with your year end tax liability.

We've previously discussed the claimed exemptions issue on FW. I believe that the consensus at the time was that the IRS gets automatically notified any time someone claims 9 or more exemptions, which notification is obviously an issue only if you do not have a reasonable basis for claiming all the exemptions. In fact, if you lack such reasonable basis for your claimed exemptions (even if you claim fewer than 9 exemptions), the small benefit that you would get from floating your tax money for a little while is hardly worth the potential problems you could end up facing if the IRS issues a lock-in letter and audits your returns.

sredni said:How are people getting negative tax rates? Does that mean their refund is more than the tax they paid? How is that possible?

It's a function of the messed up tax system we have if you make a small enough income and have kids earned income credit ect... I would have had a negative tax rate excluding fica last year because of deductions (student + bad year for my wife's business +we give alot to charity)

A large portion of my income is not taxable VA disability and education benefits

Gross like 150k
Adjusted Gross Income $ 115,195.00
Federal Taxable Income $ 97,695.00
Total Tax $ 17,266.00
Effective Tax Rate 14.99%
No state income tax.

Married, Rent, no kids, few investments.

Mine is 21.8% including Fed, California, SS/medicare (but not employer's half of these). Would be higher if I added employer's half, property taxes (which everyone pays, directly or indirectly), and sales tax.

What's incredible is that my marginal tax rate is 41.8% plus the 2.9% for Medicare. Every extra dollar of income is getting slammed at 44.7%!

To compute your marginal rate, add $1000 to your 2007 wages or "Other income" on your tax program. Look at how much your total federal + state taxes went up (or refunds went down). Divide by 10. Add 2.9% for Medicare. If your income is below the SS cap, add 6.2% for that. The result is your marginal rate as a percentage. You are likely to be unpleasantly surprised.

Thanks, wdsaltman95 for the explanation. I have limited knowledge in the tax area (you can see that from my posts in tax questions stickey) but when I heard he say his liability was "10% of gross" I was a bit po'ed since mine was more than 10%.

wdsaltman95 said:bravebiffy said:Hold on a sec....

So if my friend's small business (he is a sole proprietor BTW) grossed $1M and paid $100K in taxes (State and Fed) after all his personal and business expenses (i.e. labor, COGS, etc), his effective tax rate is 10%?
The answer is, it depends. There are a number of possible outcomes absent further "facts." You would need to know such things as the amount of business expenses and if his business is an accrual or cash-basis taxpayer. Also, if you're trying to determine his overall "personal" effective rate rather than just his business rate, then you would need to know the amount of his other deductions.

The effective tax rate for the business is calculated as its tax expense divided by its earnings before tax. Its earnings before tax would be it gross income less business expenses (not necessarily the same as its deductions). If his business was on the accrual basis, tax expense would not necessarily equate to tax paid. Personal expenses, unless deductible, would not factor into one's effective tax rate.

So, for example, if we take a simplistic approach and assume a cash-basis taxpayer, $1mm gross income, $700k in business expenses before tax and $100k in tax expense, then the taxpayer's effective rate would be 33%.

Just as, in general, no one's personal rate provided here in this thread is necessarily comparable to any other person's rate (unless you're dealing with a "horseshoe or hand grenades" type of analysis), it can be difficult to compare effective tax rates for businesses unless you have the same or, at least a very similar, fact pattern amongst the comps.