is earning $50,000 better than $51,000?

[Electricute]

When I was in school I was under the impressiong that if you earned between 50,000 and 100,000 annually, then you would be taxed 50%, but you you earned less than $50,000 annually then you get taxed a lot less.

Sorry about the newbie question, but would you get the tax money back? If I earned $60,000 a year, would i only keep $30,000? whereas if i made $45,000 i would keep say $40,000?

can some1 pls clarify

[Carpe Diem]

If you make 100,000 your taxed at 1-50,000 @ 30% and the 50,000-100,000 @ 50%. (Not sure about the % or income brackets)

Someone correct me if I'm wrong. The #'s are not exact.

[m85d1]

When I was in school I was under the impressiong that if you earned between 50,000 and 100,000 annually, then you would be taxed 50%, but you you earned less than $50,000 annually then you get taxed a lot less.

Sorry about the newbie question, but would you get the tax money back? If I earned $60,000 a year, would i only keep $30,000? whereas if i made $45,000 i would keep say $40,000?

can some1 pls clarify

The more you made, the more you get to keep (not the percentage amount, but the dollar amount).

[BadDrafter]

The more you made, the more you get to keep (not the percentage amount, but the dollar amount).

There is an old proverb a boss told me once. It is better to make more money and pay more taxes than to make no money and pay no taxes.

Other than that I don't know anybody who makes more than $100,000 that is stupid enough to not declare themselves an incorporated business. Business taxes are far less than personal taxes and you can actually get your tax burden down to reasonable levels by using various tricks.

[knapper]

If you make 100,000 your taxed at 1-50,000 @ 30% and the 50,000-100,000 @ 50%. (Not sure about the % or income brackets)

Someone correct me if I'm wrong. The #'s are not exact.

Correct concept. For the OP, the $50K is taxed the same, and the extra $1K could be at a different rate.

[TrevorK]

Taxes are tiered. An example is below (And it does NOT use the proper tax percentages)

Say you'll be taxed, 30% for $1 -> $50,000 and 60% for $50,001 -> $100,000.

If you earn $50,000 you'll pay $15,000 in taxes (50,000 * 0.30).
If you earn $51,000 you'll pay $15,600 in taxes (50,000 * 0.30 + 1,000 * 0.60)


As you can see, it's a tiered system. Everything over $50,000 is taxed at a different rate, but it doesn't change that everything under $50,000 is taxed at 30%.

[sparkplug]

Federal tax rates for 2006:
$0 - 36378 = 15% tax
$36378 - 72756 = 22%
$72756 - 118285 = 26%
118285 and over = 29%

[ynot]

Federal tax rates for 2006 are:
15.25% on the first $36,378 of taxable income;
22% on the next $36,378 of taxable income;
26% on the next $45,529 of taxable income; and
29% of taxable income over $118,285.


Provincial taxes rates for Ontario are:
6.05% on the first $34,758 of taxable income, +
9.15% on the next $34,759, +
11.16% on the amount over $69,517

Here's the linky.

[mangotango]

here is a quick calculator

http://www.ey.com/GLOBAL/content.nsf...5_Personal_Tax

[Sylvestre]

it surprises me how many people still think that making more money i.e. going into a higher tax bracket means they will take home less.

as explained, you will never take home less after a raise. a worst case, you go into a higher marginal tax rate and instead of keeping 80% of that increase, you only see 70%. it's still more than 0%

[sparkplug]

If you work for a smaller company with more flexibility in your compensation package, ask for the equivalent in dividends (shares) instead of cash when you get a raise.

[Bullseye]

Other than that I don't know anybody who makes more than $100,000 that is stupid enough to not declare themselves an incorporated business. Business taxes are far less than personal taxes and you can actually get your tax burden down to reasonable levels by using various tricks.

I know lots of people who make over $100k, they can't simply just 'declare themselves an incorporated business'. They are employees, and there are reasons why they would not do this, even if it were allowed by their employer.

Also, business taxes are not 'far less' than personal taxes. The way it works out is that corporate taxes plus personal taxes on the salary/dividends drawn from the corp work out to be not much different from straight personal tax. Yes, a business gets more deductions, but these are for legitimate business expenses only, anything else would be entering into tax cheating territory. I assume these are the 'tricks' you refer to? You mean breaking the law?

[sparkplug]

Also, business taxes are not 'far less' than personal taxes. The way it works out is that corporate taxes plus personal taxes on the salary/dividends drawn from the corp work out to be not much different from straight personal tax.

You save CPP.
You also save EI because you're not going to fire yourself.
You'd be a shareholder drawing those dividends, which means you can have more than one shareholder receiving dividends and taxed at lower brackets. As I recall, you can draw dividends of approximately $40,000 grossed up without paying a penny in personal tax. There must be thousands of corporations in the country where entire families work in the "family business".

[Bullseye]

You save CPP.
You also save EI because you're not going to fire yourself.
You'd be a shareholder drawing those dividends, which means you can have more than one shareholder receiving dividends and taxed at lower brackets. As I recall, you can draw dividends of approximately $40,000 grossed up without paying a penny in personal tax. There must be thousands of corporations in the country where entire families work in the "family business".

Yes, there is always the if's, and's, or but's...

You only save CPP if you take straight dividends, and it's not always beneficial to do so (the millionaire I do the books for take a salary, as does his wife, and believe me, he's consulted tax accountants on it). Besides, CPP is a pension plan, not a tax, but lets not get into semantics.

Yes, you can use a corporation to income split...if you have a family to split it with, and if that family has no other income. I'm sure not every single $100k+, non-stupid person baddrafter refers to has a spouse to split with, who already has no other income.

[gheart008]

Taxes are tiered. An example is below (And it does NOT use the proper tax percentages)

Say you'll be taxed, 30% for $1 -> $50,000 and 60% for $50,001 -> $100,000.

If you earn $50,000 you'll pay $15,000 in taxes (50,000 * 0.30).
If you earn $51,000 you'll pay $15,600 in taxes (50,000 * 0.30 + 1,000 * 0.60)


As you can see, it's a tiered system. Everything over $50,000 is taxed at a different rate, but it doesn't change that everything under $50,000 is taxed at 30%.

And just to add (and to answer the OP's question), no it is NOT better to make $50K compared to $51K. From these calculations, you can see that:

If you earn $50,000, you'll bring home $35,000.
If you earn $51,000, you'll bring home $35,400.

This fact will be true no matter what percentages you plug in as tax since it's a tiered system and not a direct percentage of the whole amount.