Wednesday, October 31, 2007

Death and taxes

From All Financial Matters, an excellent explanation of how taxes are calculated. His example is for married filing jointly, and my situation is a little different--for 2007, federal tax rates for a single person are as follows:

$0 $7,825 10% of the amount over $0
$7,825 $31,850 $782.50 plus 15% of the amount over 7,825
$31,850 $77,100 $4,386.25 plus 25% of the amount over 31,850
$77,100 $160,850 $15,698.75 plus 28% of the amount over 77,100
$160,850 $349,700 $39,148.75 plus 33% of the amount over 160,850
$349,700 no limit $101,469.25 plus 35% of the amount over 349,700

See IRS.gov for more information on your specific information.

My effective tax rate winds up being about 13.5%--and then there's New York State and City taxes to figure in. When I was at Starbucks, several employees realized that there was a per-week hourly limit after which it was pointless to work since we lost the extra income to taxes.

I also wondered the other day whether there is a problem with owing taxes each year as opposed to getting a refund. I aim to break even, but with my up and down side income, have had to pay for the last two years and expect to for 2007. I set money aside throughout the year in anticipation, although I do not file quarterly. As far as I can tell, as long as I pay by April 15, there's no problem at all.

I have some posts planned for the future regarding taxes as an interest-free loan (either way) and how to take advantage of what your tax dollars are buying you.

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