Tax question

[Georgie]

I have a quasi-hypothetical question for those of you who are Federal Income Tax-savvy.  I know a teacher whose annual salary is in the mid $70k range.  Side jobs this past summer earned an additional $5700.  If the $5700 is claimed as intended, Turbo-tax says $2K of the additional money will go to taxes.  Just doing basic math in my head, that amounts to almost a third of the additional earnings.  Wouldn't normal tax brackets for an $80K-ish AGI be more like 25%??  

What am I missing?

[seabob4]

Assuming you teacher friend makes $75K in salary, a 25% tax rate would mean $18,750 in taxes.  Add in the $5700, which brings the total income to $80,700, using the same 25% rate, we see a tax of $20,175, meaning $1425 of the additional income goes to taxes.

Using the IRS 2013 tax table, which shows a good bit lower percentage on taxable income, we see basically the same amount, a bit over $1400.

Has your friend done the math using the IRS forms?

[Georgie]

Not sure how much actual research has been done on his end, but my calcs definitely follow yours in principle, which I guess is why I felt it was worth exploring in the first place.  He may need to try something other than Turbotax....like a CPA!  I will mention comparing to the standard brackets and see if he can navigate this a bit better.  

Thanks.

[seabob4]

Ryan, unless your friend has some oddball chit that needs to be itemized and "written off", he doesn't need a CPA.  The math is straight forward.  And given his/hers tax bracket on the teacher salary alone, the additional $5700 is not going to push him/her into a higher bracket such that the tax penalty is going to go from $14XX to $20XX.

Remember, with Turbo Tax, you just input the data, the "program" does the number crunching for you.  Be prudent, do your own number crunching using the same forms as Turbo Tax.  Get a descrepency (more than a couple bucks)?  Find out why...

[Capt. Bob]

Just a couple of quick things here.

First, your tax rate is based not only on your "taxable" amount of income but also your filing status (which hasn't been mentioned).
Also, the tax rate is progressive, meaning you don't pay 25% (the figure you chose) on the entire taxable amount.

Lastly, while SB is correct that you can gather the worksheets and "do the math", Turbo Tax does exactly that. You enter "data" and it places that into the worksheets you specify. You have every opportunity (and you're not prudent if you don't) to check the math just the same as if you entered it longhand and used a trusty slide rule.

No program is perfect and as with anything, only as good as the person entering the data. Knowing what you have and where to place it is the key. A good CPA (with a discipline in taxes) is the best way to go if your situation warrants it but in my case, stock options, foreign investment and such left me looooong ago and I never worked for a railroad.

Yes I do use Turbo Tax and have for quite some time.

Good luck.

[seabob4]

I have long wondered about that RR chit, Bob.  It's like, there are a million and 1 goddam professions in this country, and the RR guys get their own lines on the tax forms!


Shoulda went to work for the Illinois Central when I had the chance.  God knows I jumped enough of their trains for a free ride downtown...    

[Capt. Bob]

Yep, me too.
It must be something that dates back to when railroads were the dominant mode of travel and transporting goods. I have seen it every year I've filed but never took the time to figure out what it's all about. Kinda like a chattel. Always wanted a couple three of those just so I could report it.

[Norton is trying to tell Ralph what to do when he goes to the IRS]
Ed Norton: When you get down there tomorrow, I got the idea: stand on the 18th Amendment.
Ralph Kramden: Are you nuts or somethin'? Stand on the 18th Amendment? You mean stand on the Fifth Amendment. The 18th Amendment was for prohibition.
Ed Norton: Well, that's just what I mean. Tell 'em you were drunk when you made out your taxes!

Ain't life grand.......

[futch13]

Don't forget, the extra income has to have all the extra taxes taken out also ie, self employment, SSI, etc, etc.  All the taxes that the employer pays on top of the salary.  The amount you see taken out of a pay check is about 70% of what your employer actually pays in to the govt.

[SaltH2OHokie]

Any of y'all actually tax professionals (or play one on TV...or sleep at a Holiday Inn Express last night?)

I have a hypothetical as well (really...its hypothetical...my taxes are filed and checks written) but I won't bore the general population with it if y'all are all in the same boat as I am (I can read directions, add, subtract, Google where necessary, and make educated guesses at the rest).

[seabob4]

I hate Holiday Inn Express.  Miserable place to stay.  Stayed in one up in Kent Narrows, MD once, 3 days.  Sorry bastards thought they could foil us smokers by screwing the windows shut.  Fortunately for me, since I was up there doing a job for Proline, I had my tools with me.  5/16" nutdriver solved that little "problem"...

Those damn hotels always have that, "If any eveidence of smoking in the room is found, you will be billed $$ to clean..."  I always told PL, you send me on a job, you know I smoke, if you get a "cleaning" bill...YOU pay for it!!

[Capt. Bob]

 Sorry bastards thought they could foil us smokers by screwing the windows shut.

They screw the windows shut to keep you drunk bastards from tumbling out and marring the landscape.

[seabob4]

 Sorry bastards thought they could foil us smokers by screwing the windows shut.

They screw the windows shut to keep you drunk bastards from tumbling out and marring the landscape.

Hey, I resemble that remark!!  

Anyway, Ryan, gonna pose your "hypothetical"?

[SaltH2OHokie]

1st:  I just got done doing 14 months worth of nursing home additions and renovations.  We bolt the windows shut so they can't escape.  Seriously.

2nd: Why not...sounds like a couple of great accountants around  

[Complicated airing of dirty laundry to follow]:

Early in tax year 2013, wife's living relative, knowing she was not long for this world, passed on savings bonds to my wife that were still in relative's name (I think mostly paper EE-series).  Wife's moron parents (I love my in-laws   ) took the bonds, and rather than have them re-issued or my wife's name added, or whatever the other options may have been, went and cashed every last one of them.  Mature, not mature, didn't matter...just took Nana to the bank, had her sign the back of every last one, and out the door they walked with cashiers check in my wife's name for a sum of money substantially less than what could have been realized by hanging on to them and cashing as-needed/when mature.

That gripe out of the way, we asked our accountant about tax liabilities on that money (yes, I have foreign investments and I worked for the railroad...so I need professional help) and he said that there would be interest associated with cashing them, but it would be the grandmother's (or the grandmother's estate's) to pay.  To be clear with the family, we asked them about whether they expected us to pay the taxes and apparently after consulting with "their" accountant, the answer was also, "no".

Later last year, wife's grandmother passed.  Her two sons (my father-in-law being one) were the main benefactors as well as co-executers of the estate.

Fast forward to a few days ago (yay, tax season) and in-laws call and say that we owe them $X in taxes.

What I want to know, hypothetically is 'how in the hell is that the case'?

I have two issues with this (beyond the obvious, "we asked you, and you said no"):  
1.) If $X is what is owed in taxes, it would represent about 22% of the amount of "inheritance" via the prematurely cashed bonds.  Only the interest is taxed as income when cashing a bond, correct?  So even at the highest federal income tax rate, that would mean approx. half of the value of the bonds was in interest, in spite of the fact that many of them hadn't even hit face value.  Is that possible?  

2.) Even if that is an accurate amount of taxes owed, isn't the estate responsible for the decedent's taxes along with the "estate's" taxes?  I feel like we're being asked to pay someone else's taxes, and my wife doesn't want to create any family issues, so in spite of the fact that we don't have that money to give (we're American...we spent it...), we're apparently going to come up with some way to pay it...

Am I missing something?

[RickK]

Maybe we should add another forum  

[Capt. Bob]

Let's take it a step at a time, remembering, I don't do this for a living.

At the lowest level.
Two types of "death" taxes.

State and Federal. Inheritance and Estate.

If this is in Va., I don't believe you have a State inheritance tax. If you do, each beneficiary is responsible for their tax.

Federal Estate tax is levied against the entire value of the estate and the Feds get their share first with the remainder being divided amongst the beneficiaries. Taxes are accounted for before you see the first dime. Still, the Feds usually only start looking for tax money when the estate is valued at a million or more. I'm fuzzy on the exact amount for 2013 but was the estate that large?
Also, one's relationship can have impact on the taxable amount.

Concerning the bonds.
If they were Series EE,(my son has several of these) then they were purchased at 1/2 face value ($25 dollar bond cost $12.50) therefore you pay the difference of the original amount paid and the current value. At maturity that would include the other half of the bond value ($12.50) plus any interest earned.
This taxable amount is owed by the "owner of the bond" who name is on the document. Was your wife's name on the bonds?