I have joined, with one main question in mind first - Taxable income

[guy]

..although I do have many things to figure out, one thing to figgre out right now is "is this side job worth it to me?"

I know this isn't a 'saving' question directly, but it sorta is and I searched Google for financial forums, and found a couple, and this seemed most active. So, hi! Hope you are all doing well, hope I can get some help, and perhaps hope I can stay around with more stuff through the year as I get my finances in order.

Ok, so here is my main problem.

I have a few jobs. One of them I make 12k a year, and it is very very stressful. I need to find out if it is financially "worth it" to ME.

I am paying BIG every year for taxes. So, what I'm wondering. I know on the 12k I pay taxes. I dunno how much, maybe 2 or 3 grand. But what I want to know is if this income is bumping me into a higher bracket and thus causing me to pay more taxes on ALL my income, therefore I'm realizing even less of it.

And also, is it MY income or me and my wife both I have to consider with this question?

Married filing jointly.
Our income combined is 132k a year
My income is 102k, hers is 30k
2 kids being claimed, own a home, etc, in TN.
No real other credits or deductions or whatever
We are taxed on about 100k. Was 96900 this year, should be around 99900 next year if nothing at all changes.

I know it's hard for someone to tell me what is best. But, is there a calulator or chart or soemthign I can look at to generally tell me "Yes, you are over a line by 5 or 10 grand, that now causes ALL your income to be taxed at THIS rate rather than THAT rate, and in this particular grey area you may be breaking close to even".

Is this a tall order, or a pretty standard question? Anyway, appreciate any help..

Edit: Looking at this: (Ok can't link.. bankrate tax brackets)

the bracket is 74k to 149k or so, and I'm right in the middle. It LOOKS like this income has zero effect on my overall tax rate, then. Would you agree?

[KTP]

Although extra income can cause financial cliffs by eliminating things like ability to deduct tuition or some ACA subsidies, it does not cause all of your income to be taxed at a higher rate. Only the extra income is taxed at the higher rate (if you are just below a certain bracket before the income is added in).

It is however enough of a factor that some couples will find it is not really worth it for one of them to work, since their income can be considered subject to really high taxes.

Example:

A married couple, one makes $200,000 the other makes $30,000. You could consider the $30,000 as being the extra income, and it is taxed at 33%. Add to that SS taxes and you are at 40%. (I justify treating the SS as lost taxes because if the lower income spouse didn't work at all, they would still be eligible for half of the amount the larger income spouse gets, in extra money to the couple).

If you then add in commuting expenses and work related expenses (clothes, car, gas) it could be another $5,000, which is like a 20% tax.

So the poor 2nd person in the couple is effectively paying 60% tax rate to work. Might as well collect cans on the side of the road.

[guy]

Yeah I was hoping to learn I could quit this job and have all my income taxed less because I'm right over the bracket and then would be right under, thus effectivly losing less by quitting than otherwise.

But, looks like this side job, and maybe even my other side job, neither are causing it. Because we make 81k from our main jobs, still putting us even in that area. Deductions might drop us to 73.8 but, I dunno, it would be very very close.

Which is why I guess this question would better be posed with both jobs considered. But, I do consider the 62k 'worth it' even if it does then cause the other 50 to be taxed 25% instead of 15%.

Whew. My head hurts.

[doingitallwrong]

The jump from the 15 to 25 percent tax bracket for married couples filing jointly is at $72,500 for 2013, and at $73,800 for 2014. That's taxable income, not AGI.

For married filing separately, the 15-to-25 jump is at $36,250 (2013) and $36,900 (2014). However, the 25-to-28 jump is at $73,200 and $74,425.

It's possible that you could be in the 15% brakcet on your wife's income by filing separately, but you might end up in the 28% bracket on yours. You'd want to prepare the returns both ways and see which is more advantageous. Some credits aren't available or have lower thresholds for married filing separately, and remember that on separate returns if one spouse itemizes the other must also itemize.

[Singuy]

I think you still don't understand how the tax system works.

If you make 80k/year as a married couple filing jointly, this is how you end up paying your taxes.

From 0-7800, you pay 0% tax, this is the tax exemption for a married couple.
7800-18150, you pay 10%
18151-73,800, you pay 15%
only from 73,800-80000 you end up paying the 25%

Total approx tax paid is 10850 on your earnings of 80k

If you divide 10850/80000, your tax rate is only 13.5% on your entire earnings.

As you see, if you average out how much you actually pay in taxes after making 80k, it's not $20000 in taxes(which is 25% of 80k), it's only 10850, which is 13.5% of the entire pay.

Hope this clears it up. There's no such thing as hitting the next tax bracket and ALL your earnings become taxed at that bracket.

Many people thinks that when you make more, you end up going backwards once you hit that tax bracket. This only SEEMS like it's true. When you receive payroll, it is taxed based on your earnings at that tax bracket.

For example, if you make 4000/month per paycheck, your taxes are withheld at tax bracket of 4000/month x 12 months = 48000= 15%
But say for one of the month, you decided to work overtime like a crazy person and ended up with 8000 that month. Your withholdings is 8000/month x 12 = 96000 = 25%

So yes, for that one check, you ended up paying WAY more taxes, which makes you think you lost money by working harder(or you didn't make anymore than if you didn't do the overtime). But that's just how corporate withholdings work, which is based on what you made on that paycheck X 12 months, NOT how much you actually made for the year, and this is why MOST people ends up with a tax refund.

[guy]

"There's no such thing as hitting the next tax bracket and ALL your earnings become taxed at that bracket. "

I did not know this! I have no idea why I didn't see that in KTPs first reply. It's written right there. What the heck. /headdesk

Wow.This changes everything.

Ours ends up, according to turbotax form, at 22%.

I never thought about trying separate to see which is better.

Appreciate everyones help btw. So, I think we should try re-preparing as separate and see.

[scfr]

Here is a nice general explanation of tax brackets and progressive taxation, courtesy of Khan Academy:

https://www.khanacademy.org/economics-finance-domain/core-finance/taxes-topic/taxes/v/tax-brackets-and-progressive-taxation