I know there was just a (long) thread on effective tax rate for 2016. Buried in that thread there were bits and pieces of an interesting conversation. Basically, it was this ... How do you calculate your effective tax rate? I would like to focus more on that question in this thread. It seems like most people use adjusted gross income as the denominator, but why? When I calculate my effective tax rate, I want a more full picture. I want to know what rate I paid on all the money made and the tax paid out. Other than the argument "we use AGI because that's they way its always been done", why do people use this, am I missing something? My wife and I both fully funded 401k's and HSA (plus my wife has some stock purchasing options) last year so to me, I would rather use the net as the denominator because that is "real money" that we earned. The way I look at it is this ....
Net Income = 455,886
AGI = 414,044
Effective Tax Rates (of Net)
Fed 24.8 (113,06)
State/Local 4.5 (20,418)
Property 0.7 (3,073)
Med/SS 4.4 (20,212)
Total Effective Tax Rate = 34.4%
Could WCI (or someone who knows more about taxes than me) please tell me if this is a right or wrong way to think about this. I will be paying estimated taxes in the near future (next couple of years) so I think it is important for me to have a percent that I should with hold as I go thru the year.
Net Income = 455,886
AGI = 414,044
Effective Tax Rates (of Net)
Fed 24.8 (113,06)
State/Local 4.5 (20,418)
Property 0.7 (3,073)
Med/SS 4.4 (20,212)
Total Effective Tax Rate = 34.4%
Could WCI (or someone who knows more about taxes than me) please tell me if this is a right or wrong way to think about this. I will be paying estimated taxes in the near future (next couple of years) so I think it is important for me to have a percent that I should with hold as I go thru the year.
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