Latest news with #deductions
Bloomberg
5 days ago
- Business
- Bloomberg
Johnson Says He's Fighting to Keep $40,000 SALT Cap in Trump Bill
House Speaker Mike Johnson said he is fighting to maintain the new $40,000 cap on state and local deductions in the draft tax bill now before the Senate, where Republicans are seeking to enact a less generous break. 'I am certainly trying to hold to that number,' Johnson said on Bloomberg TV on Thursday. 'I hope they tolerate it.'
Yahoo
31-05-2025
- Business
- Yahoo
Marginal tax rate: What it is and how to find yours
Your marginal tax rate is the highest income tax rate you'll pay on your income. Because the U.S. has a progressive tax system, different tiers of your income are taxed at different rates. The marginal tax rate is the rate that applies to your last dollar of income. It's important to understand how the marginal tax rate — and tax brackets in general — work, because your income isn't taxed at one single rate. What's more, by claiming all applicable tax deductions you may be able to reduce your marginal tax rate. As your income increases, portions of it are taxed at higher rates. The tax rate that applies to your final dollar of income is your marginal tax rate. Because only a portion of your income is taxed at the highest rate, your effective tax rate — which takes into account that some portions of your income are taxed at lower rates — is likely lower than your marginal rate. Suppose you're a single taxpayer who earned $70,000 in 2024. While your income falls into the 22 percent tax bracket — that's your marginal tax rate — a majority of your income is actually taxed at much lower rates. Based on the 2024 tax brackets, for taxes due in 2025, this is how your income is taxed: In other words, $11,600 of your income is taxed at 10 percent, $35,550 of your income is taxed at 12 percent and the remaining $22,850 of your income is taxed at 22 percent. As the above illustration shows, you pay the lowest tax rate on a subset of your income, until you've surpassed the top end of the income range for that tax bracket. Then the next tier of your income is taxed at the next highest rate, until you've surpassed the top end of the income range for that bracket, and so on. One of the biggest misunderstandings many Americans have about income taxes is that they think falling into a particular bracket, such as the 22 percent bracket, means that all of their income is taxed at that rate. In truth, that rate only applies to a portion of your income. Here are the 2025 income tax brackets, for taxes due April 2026, or October 2026 with an extension: Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately 10% $0 to $11,925 $0 to $17,000 $0 to $23,850 $0 to $11,925 12% $11,925 to $48,475 $17,000 to $64,850 $23,850 to $96,950 $11,925 to $48,475 22% $48,475 to $103,350 $64,850 to $103,350 $96,950 to $206,700 $48,475 to $103,350 24% $103,350 to $197,300 $103,350 to $197,300 $206,700 to $394,600 $103,350 to $197,300 32% $197,300 to $250,525 $197,300 to $250,500 $394,600 to $501,050 $197,300 to $250,525 35% $250,525 to $626,350 $250,500 to $626,350 $501,050 to $751,600 $250,525 to $375,800 37% $626,350 or more $626,350 or more $751,600 or more $375,800 or more Here are the 2024 income tax brackets for taxes due April 2025 (or October 2025 with an extension): Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately 10% $0 to $11,600 $0 to $16,550 $0 to $23,200 $0 to $11,600 12% $11,600 to $47,150 $16,550 to $63,100 $23,200 to $94,300 $11,600 to $47,150 22% $47,150 to $100,525 $63,100 to $100,500 $94,300 to $201,050 $47,150 to $100,525 24% $100,525 to $191,950 $100,500 to $191,950 $201,050 to $383,900 $100,525 to $191,950 32% $191,950 to $243,725 $191,950 to $243,700 $383,900 to $487,450 $191,950 to $243,725 35% $243,725 to $609,350 $243,700 to $609,350 $487,450 to $731,200 $243,725 to $365,600 37% $609,350 or more $609,350 or more $731,200 or more $365,600 or more Need an advisor? Need expert guidance when it comes to managing your money? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. To calculate your marginal tax rate, you need to know your taxable income and relevant filing status. With this information, it's simple to determine your marginal tax rate. Refer to the tax brackets above and identify the bracket with the income range that matches your total taxable income — that's your marginal tax rate. That said, your taxable income is a bit more complex to calculate: First, add up all of your sources of income to determine your gross income. Then, subtract certain adjustments to determine your adjusted gross income (AGI). Then, determine whether you will take the standard deduction or itemize deductions. Finally, subtract your standard deduction or itemized deduction from your AGI to get your taxable income (some taxpayers may also be able to deduct the qualified business income deduction from their AGI). On Form 1040, your adjusted gross income, or AGI, is listed on line 11, and your taxable income is listed on line 15. To reduce your marginal tax rate, you must reduce your taxable income. While it may be possible for some people to defer income that they earn late in the year to the following year, most people will need to take advantage of tax deductions. By reducing your marginal tax rate, you'll reduce your total tax bill. To reduce your taxable income, consider maximizing contributions to tax-advantaged accounts and claiming all applicable deductions. The more money you contribute to tax-advantaged accounts — like a 401(k), traditional IRA, health savings account (HSA) or flexible spending account (FSA) — the more you will reduce your taxable income, while also setting yourself up financially for the future. You should also make sure you're claiming all eligible deductions, even if you take the standard deduction. There are several 'above-the-line' deductions that will reduce your gross income, even if you don't itemize, including deductions for student loan interest and educator expenses, along with certain business expenses and self-employment taxes. Maximizing your deductions could lower your marginal tax rate. Finally, you may want to carefully assess whether it makes sense to itemize deductions instead of taking the standard deduction. By itemizing, you can take advantage of even more deductions, including those for charitable contributions, mortgage interest, property taxes, state and local taxes (SALT), and qualified medical expenses. Still, for it to make sense to itemize, generally your itemized expenses need to add up to more than the standard deduction. The standard deduction is worth $15,000 for single filers and those who are married filing separately, $22,500 for head of household filers and $30,000 for married filing jointly couples for tax year 2025. Another way to trim your tax bill is by realizing losses; that is, selling investments at a loss. Not only can capital losses offset capital gains (when you sell an investment for more than you bought it), but you can also reduce some of your taxable income. You need to be mindful of how long you've owned an asset before selling — the IRS generally uses the one-year mark to differentiate between short- and long-term gains and losses. By realizing net capital losses, you can reduce your taxable income by up to $3,000 a year, which will reduce your overall tax obligations and potentially reduce your marginal tax rate. Learn more: Short-term vs. long-term capital gains: How they work For most taxpayers, your marginal tax rate will differ from your effective tax rate. Knowing the difference between your marginal tax rate and effective tax rate is important because it informs how much you owe the IRS. Your marginal tax rate is the highest rate that applies to only that portion of your income that's in the highest tax bracket, whereas your effective tax rate is your average tax rate — or the tax rate you actually pay. Consider the example above of a single taxpayer earning $70,000. While that person's marginal tax rate is 22 percent, their effective tax rate is about 15 percent. To determine your effective tax rate, simply divide your total taxes owed by your taxable income. Learn more: Marginal vs. effective tax rates: How they differ and how to calculate each rate While the federal income tax system in the U.S. is progressive, some states impose a flat tax on income. With a marginal tax rate, you pay different tax rates up to your highest rate, but with a flat tax system all of your income is taxed at the same rate. There has been a movement in recent years among states to adopt flat tax systems, though specific rates across states vary widely. The 14 states with a flat tax system in 2025 are: Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, North Carolina, Pennsylvania and Utah, according to the Tax Foundation. Another nine states don't levy an income tax at all. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Daily Mail
26-05-2025
- Business
- Daily Mail
Expert reveals the biggest mistake Aussies can't afford to make at tax time
Aussies who rush to get their tax return in early are making a huge mistake, a peak accountancy group has warned. As the end of the financial year looms, income earners can claim up to $300 worth of work-related expenses, excluding travel, without the need for receipts. Manually claiming work expenses is often time consuming and many Aussies are tempted to complete their return as soon as possible on July 1 to get a quick tax refund so there's money in the bank to pay those bills. But Jenny Wong, the tax lead with CPA Australia - representing Certified Practising Accountants - said those who rushed to fill out their tax return could be missing out on important deductions. ' Cost of living pressures could mean some people are eager to lodge their tax return as quickly as possible to access a refund, but it's important to be patient, gather your evidence and claim everything you are entitled to,' she said. 'Firing the starting pistol on your tax return too quickly means you could end up shooting yourself in the foot. Failing to claim everything you're entitled to means less cash back than you could otherwise get.' Now is the time to chase up all those receipts to save the hassle later. 'Hopefully your receipts aren't down the back of the couch, but they might be in your emails and phone apps. Or maybe the junk draw?' Ms Wong said. Travel expenses Ms Wong said those filing their tax return too early were more likely to miss out on travel expenses incurred on the job. 'Maybe you travelled more for work and were not reimbursed by your employer for meals or other travel essentials,' she said. While it's possible to make a total claim on tax if the deductions are less than $300, this shortcut doesn't cover travel allowance, meal allowances, or the use of a car. That means workers whose employer gives them a travel allowance, also known as an award transport payment, can also make a claim if travelling for work still left them out of pocket after a workplace allowance. 'Any out-of-pocket work-related expenses could be tax deductible, but you'll need evidence in case you are asked in an audit. Think about what you've had to purchase for work. Check your bank statements,' Ms Wong said. Those using their car also need to identify which travel is used for work. 'For vehicle expenses, you must be able to identify and justify the percentage that you are claiming as business use,' Ms Wong said. 'To claim accurately, you will need to use a logbook or diary to show private versus business travel.' Buying new work tools Rushing a tax return could also jeopardise the expense of work-related items. Those working from home can claim the cost of a desk or a chair worth up to $300 in one financial year. If the item is worth more than $300, the item can be claimed on tax over several years, based on how long it's likely to last for. The same $300 rules applies to buying tools needed for the job. 'Or maybe you started a new job where you had to buy tools, subscriptions, or pay for training and security clearances, for example,' Ms Wong said. Australians have until June 30 to buy any essential work items to be able to claim the deduction for the 2024-25 financial year. Working from home claim Those working from home can multiply by 70 cents the number of hours they worked from where they lived in 2024-25. This method also requires daily diary keeping. H&R Block calculated the typical Aussie working from home would claim 1,095 hours over the financial year, adding up to $767. Or they can alternatively use the actual cost method, based on add up electricity and internet bills. 'Which work-from-home expense type makes most sense for you - fixed rate or actual cost method? If you've been good at keeping records throughout the year, the actual cost method may be more beneficial,' Ms Wong said. Tell the truth Those who lied about their work expenses are more likely to face an audit from the Australian Taxation Office. 'Getting your tax return right is your responsibility,' Ms Wong said. 'This means declaring all of your income and claiming the appropriate expenses. 'Failure to properly declare your income increases your chances of being audited by the ATO.'
Yahoo
24-05-2025
- Business
- Yahoo
Modified adjusted gross income (MAGI): What it is, why it matters and how to calculate it
Modified adjusted gross income, or MAGI, might sound like just more tax jargon, but knowing how to calculate your MAGI is key to determining your eligibility for several valuable tax benefits, including whether you can make Roth IRA contributions, claim education tax credits and more. The MAGI calculation starts with your adjusted gross income (AGI), and then you add back certain deductions or exclusions. Here's how MAGI works and how to calculate it. MAGI determines your eligibility for a number of tax breaks, so it's worth knowing how it differs from your AGI. MAGI is basically your AGI with specific items added back in. Adjusted gross income, or AGI, is the total income on your tax return — including wages, interest, dividends, etc. — minus certain adjustments, including: Retirement account contributions Student loan interest Alimony payments Educator expenses Deductible HSA contributions Deductible IRA contributions Deductible self-employment taxes Tax tip Adjusted gross income is calculated before subtracting the standard deduction or your itemized deductions. Your taxable income is calculated by subtracting your standard or itemized deductions from your AGI. MAGI adds back some deductions to your AGI because the IRS doesn't allow those items to reduce your income when deciding if you qualify for certain tax benefits. Essentially, MAGI is a stricter measure of income that the IRS uses to determine eligibility for tax credits and deductions. For example, MAGI may add back things like deductible student loan interest and employer-provided adoption benefits. Two key aspects of MAGI to keep in mind: You won't find an entry for MAGI on your Form 1040 tax return. You have to calculate it manually, use IRS worksheets or let your tax software automatically calculate MAGI for you. The MAGI calculation can vary depending on the specific deduction or credit you're hoping to claim. For example, the MAGI calculation to see if you're eligible to contribute to a Roth IRA is slightly different than the one for determining if you qualify to deduct your traditional IRA contributions. Learn more: Current tax brackets and federal income tax rates The formula for calculating MAGI is relatively simple: Start with your AGI (it's on line line 11 of the 2024 version of Form 1040). Add back any deductions or exclusions that can't be included in MAGI for the tax benefit you're hoping to claim (more on this below). The resulting number is your MAGI for the purposes of that specific tax benefit. Common add-backs include: Foreign earned income exclusion Foreign housing exclusion Deductible student loan interest Excluded U.S. savings bond interest Employer-provided adoption benefits For example, if you've claimed the foreign earned income exclusion to lower your AGI, the MAGI calculation generally requires you to add that income back in. MAGI usually also removes some above-the-line deductions from AGI, to give the IRS a clearer picture of your income. (Above-the-line deductions are deductions you can claim without itemizing.) Learn more: 5 tax deductions you can claim without itemizing Here are a few examples of how MAGI determines your eligibility for some tax benefits. Your ability to contribute to a Roth IRA is limited by your MAGI. If your MAGI is above a certain amount, you can't contribute to a Roth. The MAGI calculation for the purposes of Roth IRA contributions is affected by these items: Income resulting from a conversion or rollover to a Roth IRA Traditional IRA deduction Student loan interest deduction Foreign earned income or housing exclusion or foreign housing deduction Excludable qualified savings bond interest Excluded employer-provided adoption benefits Search for 'Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes' in this IRS publication to calculate how the above items go into calculating your MAGI. Below are the MAGI limits for making contributions to a Roth IRA. Roth IRA contribution amount starts to phase out at MAGI of… Roth IRA contribution not allowed above MAGI of… Single, head of household, or married filing separately and didn't live with spouse at any time during the year $150,000 $165,000 Married filing jointly or qualified surviving spouse $236,000 $246,000 Married filing separately and lived with spouse at any time during the year $0 $10,000 Need an advisor? Need expert guidance when it comes to managing your investments? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. There's also a MAGI calculation to determine how much of your traditional IRA contribution you're allowed to deduct. For context, the IRA rules are: Anyone, no matter what their income, can contribute to a traditional IRA. If you want to deduct that IRA contribution, then: If you, and your spouse if you're married, don't have a workplace retirement plan, you can deduct your IRA contribution, no questions asked. There is no income limit. If you or your spouse are covered by a workplace retirement plan, then MAGI limits kick in and determine whether you can deduct your traditional IRA contribution. The MAGI calculation for determining if you can deduct your IRA contributions is based on your AGI before you deduct any IRA contributions, and then the following items are added back to your AGI: Student loan interest deduction Foreign earned income or housing exclusion or foreign housing deduction Excludable savings bond interest Excluded employer-provided adoption benefits Search for 'Worksheet 1-1. Figuring your modified AGI' in this IRS publication to calculate your MAGI for the purposes of claiming a deduction for traditional IRA contributions. The 2025 MAGI limits for deducting traditional IRA contributions (which, again, only come into play if you or your spouse has a retirement plan at work) are below. Deduction starts to phase out at MAGI of… Deduction no longer available above MAGI of… Single filer or head of household and you have a workplace retirement plan $79,000 $89,000 Married filing jointly or qualified surviving spouse and you have a workplace retirement plan $126,000 $146,000 Married filing jointly and you don't have workplace retirement plan but your spouse does $236,000 $246,000 Married filing separately with workplace retirement plan $0 $10,000 MAGI is also used to determine if you qualify for education tax credits such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. The following items are added back to your AGI to calculate your MAGI for both the American Opportunity Tax Credit and the Lifetime Learning Credit: Foreign earned income and/or foreign housing exclusion Foreign housing deduction Exclusion of income by residents of American Samoa Exclusion of income by residents of Puerto Rico Search this IRS doc for 'Worksheet 2-1. MAGI for the American Opportunity Credit' to see the MAGI calculation for the purposes of the AOTC. The Lifetime Learning Credit uses the same calculation. Credit starts to phase out at MAGI of… Credit not available above MAGI of… Married filing jointly $160,000 $180,000 All other taxpayers $80,000 $90,000 No matter the tax break, the pattern holds: Your MAGI dictates what you qualify for. Stay under the income threshold, and you get the full benefit. Enter the phaseout range, and that benefit starts shrinking — or disappears entirely. Always check the IRS rules to see how MAGI factors into each credit or deduction. See the bottom of this IRS page for more information about MAGI rules for various tax benefits. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
17-05-2025
- Business
- Bloomberg
New York Republican Floats Higher Tax Rate to Pay for SALT
A key House Republican who is pushing for a higher cap for state and local tax deductions sought to revive the idea of raising the top rate for high earners to help pay for President Donald Trump's tax cuts — and to get the stalled legislation moving. 'The One Big Beautiful Bill has stalled — and it needs wind in its sails,' New York Representative Nick LaLota posted Saturday on X. 'Allowing the top tax rate to expire —returning from 37% to 39.6% for individuals earning over $609,350 and married couples earning over $731,200 — breathes $300 billion of new life into the effort.'
