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CPA Wilmington NC | IRS 2010 Tax Rates and Tax Forms

CAP in Wilmington NC demonstrates new tax proposals with numerical examples

A CPA in Wilmington NC demonstrates taxes will actually decrease for most Americans under the new proposed regulations

There’s public interest over President Obama potentially allowing the top two marginal income tax rates to revert back to their higher levels. 

Update: on Dec 17th Congress finally passed legislation.  As we know, tax rates are basically unchanged for 2010.  All of the Bush era cuts were kept.  Several tax provisions were re instated as well, prompting delays in E File ability for many Americans until late February 2011, delaying tax refunds.  Multiple tax forms have to be revised too.  For more info see our numerous other posts on these topics.  I think the example below shows the core of the controversy over these rates and how few and privleged the affected taxpayers were.

But the Wilmington Star’s story on September 12th didn’t explain that the income level these tax rates affect are expected to change too.  As a CPA tax accountant, I think a numerical example of the new proposed tax, versus the current tax might might help clarify the issue. 

“The new rates would actually decrease income taxes for single folks having up to $450,000 of taxable income a year.”
Gary Bode, CPA Wilmington NC 
Tax Accountant

Background on our Progressive Tax System: with a tax example of marginal and aggregate tax rate

American income tax is based on taxable income, which as any tax preparer knows, is not your gross income.  Deductions and credits significantly decrease taxable income. Your taxable income is taxed at progressive higher percentage rates.  These are called marginal tax rates. For a single person in 09 it starts off at:

  • 10%, up to $8,375. 
  • Then it goes to 15% on taxable income of $8,376 to $34,000. 
  • Then 25% from $34,001 to $82,400. 
  • Then 28% from $82,401 to $171, 850. 

I think accountants and CPAs help cloud the issue because our tax strategies often affect the last bits of income, which we cite at the marginal tax rates above.  But the total amount of tax due on $171,850 is $41,827.25, a 24.3% aggregate tax rate.  Which is less than the marginal tax rate.

Poor and Middle Class: tax rates stay the same but taxes actually decrease

Tax cuts Bush enacted expire at the end of 2010.  President Obama wants to, basically, extend those reduced tax rates into 2011 and beyond for the bottom four marginal tax brackets above. But the taxable income base increases under the proposed new tax regs, leading to overall tax decreases, albeit miniscule ones.

The total tax under the new proposed tax rates, on the same $171,850 example above is $41,674, a $153.25 savings, which is so small it still comes out to a $24.3% rounded aggregate tax rate. 

These tax decreases continue up to about $450,000 of taxable income.

The Wealthy: a $600,000 Taxable Income example

A single person, under the new tax regulations, on a simplistic tax preparation scenario, with $600,000 of Taxable Income, and a 39.6% marginal tax rate, pays an extra $6,848 compared to current rates.  For a 32.4% aggregate tax rate.  But he gets to keep $143,152 of the additional $150,000 he made.

No one likes to pay additional taxes.  Sometimes we don’t like what they’re used for.  Or how much waste there appears to be in government spending.  We hope this example better demonstrates the proposed changes.

If you or your company needs a free consult from a Wilmington NC CPA and tax accountant, please call us at (910) 399-2705.

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