I like doing my taxes manually (own spreadsheets), so that my reliance on e.g. TurboTax doesn’t impair my tax knowledge currency. If you go through all the forms yourself, you develop a tangible proficiency that bleeds over into the rest of your financial plan.
Great point but let's be honest, not everyone gets excited about spreadsheets like you and I do. Tax filing software is a "necessary evil" in my opinion if there is such a thing. If the tax system wasn't so complex then we wouldn't need it. We wouldn't need a lot of things come to think about it.
Thank you! Glad to help! AGI is Adjusted Gross Income, then you take the standard deduction OR itemized deductions. After taking the deductions, you should have your "Taxable Income" related video: ruclips.net/video/oZ-6QtxjpWY/видео.html
Thank you so much!!! I’ve reading a book on taxes rn and I was still confused at this part so I came to this video 😂 I do have a question tho it says in my book that someone had 6,858.50 as their total income tax divided by 50,000 (their taxable income). It also says in the footnotes that effective tax rate can be calculated using total income as the denominator rather than taxable income. This is confusing me because won’t you get two different answers?
Yes, you would get two different answers. Your taxable income is certainly different from your gross income (total income). To go from total income to taxable income you have to make adjustments (to get adjusted gross income) and then you have to deduct itemized expenses or the standard deduction to finally arrive at taxable income. My guess is that the book is saying that the effective tax rate is commonly referred to as being calculated in those two different ways.
Can you do a video explaining the standard deduction? Is it realistically possible to fund a 401k with all of your gross income assuming you don't live off that income? I know there are annual caps, however I read in my payroll accounting class that you could contribute all of your salary into a 401k. How would that affect the standard deduction.
Standard Deduction Video: ruclips.net/video/EzuVOTLn42o/видео.html You can contribute all of your payroll into your 401k until you reach the annual maximum limit. It would not affect the standard deduction at all, it remains the same either way. Hope this helps! :)
Effective tax rate is (kinda) like a personalized flat tax rate (as opposed to a statutory flat tax rate, were we to have one of those, which we don’t).
But effective tax rate is one that we can reduce through various means in order to positively affect our bottom line. A flat tax would eliminate that real quick.
So, when an accountant tells you that they saved you $20000 on tax, based on marginal tax rate, because effectlively they saved you much much less on effective (actual).... is that correct?
Not exactly. Take your original total taxes and divide it by your total income to find effective tax rate. Then take the new tax bill (total taxes - 20k taxes saved) and divided it by your total income to find the new effective tax rate. Your effective tax rate will go down..
You got the Effective Rate wrong. Let me explain... As you said, 50,000 was the taxable income, not the gross income. Again as you said earlier in the video (which is true), that Effective rate = Total Tax you pay/Gross income (not taxable income). So to get the Effective Rate you will have to divide the 5000 by whatever the gross income suppose to be, not the 50000 (which is taxable income, not gross). I would be glad if you correct this.
You are correct, sir. Looks like I misspoke around 5:20 I meant to say "median income of $50,000 of gross income" and I should have left out the part about deductions. When I put the math up on the screen at 6:01 I did correctly say "total income" Thank you for catching this! I will see if I can use some of RUclips's tools to put up a correction on the screen.
@@OnCashFlow Thank you! Do you know why some "experts" say Effective rate = Total Tax you pay/ Taxable income? Internet seems to be divided on this one. Too much mix info. Although I personally feel like it should be gross income. I use the below formula to make things simple. What you think of that, let me know! TakeHomePay = Gross Pay - (Federal Income Tax - Medicare&SocialSecurity withholding - Local/State Tax withholding - Contributions(401K))
@dipesh patel I would agree that effective tax is tax bill / total income. The debate might come from confusing the corporate effective tax rate? I believe for corporations, their effective tax rate is based on their profit (income - business expenses) however, for an individual, it is taxable income (income - deductions). I like your simple formula, technically your take-home pay is simply the money that gets deposited into your account!
I was watching a video on German tax rates and the host said the tax rate in Germany is 55%. This is incorrect. As you said if you’re making under €9700 you don’t pay any tax. The 55% tax rate applies to the highest income earners. Also, it is a nominal tax rate. If for example somebody’s making under €10 million per year they pay lower tax rate but once they get over €10 million a year they pay 55% tax rate on whatever they make after €10 million. So if they made €10 million they are taxed at a lower tax rate, not 55%, but if they make over €10 million, for example €10,100,000 then they pay 55% on that extra $100,000. The rest of the €10 million is taxed at a lower tax rate, which is called a nominal tax rate. I don’t know the specific numbers I’m just using this as an example. Can you do a video or explain to me how the nominal tax rate works for different income levels, not just the very rich but at all income levels and do all income levels have nominal tax rates? For example somebody making €50,000 per year would pay the lower tax rate on that €50,000 but if they made €51,000 they would pay a higher tax rate on that extra €1000. Another words they would be text differently on those two incomes. A different tax rate of €50,000 and the different tax rate on the extra €1000. Nominal tax rate.
@@OnCashFlow No problem. Basically what I’m asking is somebody said the tax rate in Germany is 55% which is not true, it’s 55% for the highest income income earners, but these high income earners pay a lower tax rate until they reach a certain level of income. For example at $1 million they pay for lower tax rate but if they make $1,100,000 then they pay 55% on that extra $100,000. I hope it makes sense.
@@surreallife777 Yes so that is what we can a "marginal rate" in the U.S. Once their taxable income (for example) 1M the 1 millionth (Euro?) will be taxed at 55%. The Effective tax rate (total taxes / total income) will always be lower than 55% in that example.
Just get started, keep educating yourself and seek help from others. If you have the opportunity to be a freelancer or self-employed then do it if you think you will enjoy it! Don't let taxes hold you back from your dreams!
@@OnCashFlow Kind of.. this year in January, the government signed into law that if you’re self employed, if you make $600 you owe the government income taxes and self employment tax. It used to be $20,000 - So, even if I don’t make much money, I’m going to owe about 30% taxes to the government, which is lame.
@@milkteanomnom As far as I recall, the $600 from self employment was always the case, not just this year in Jan. I think you may be confused with bank reporting laws?
You need to watch my complete guide to slashing your income tax bill!
ruclips.net/video/WlAbAg07LH8/видео.html
I like doing my taxes manually (own spreadsheets), so that my reliance on e.g. TurboTax doesn’t impair my tax knowledge currency. If you go through all the forms yourself, you develop a tangible proficiency that bleeds over into the rest of your financial plan.
Great point but let's be honest, not everyone gets excited about spreadsheets like you and I do. Tax filing software is a "necessary evil" in my opinion if there is such a thing. If the tax system wasn't so complex then we wouldn't need it. We wouldn't need a lot of things come to think about it.
Wow! I’ve gone my whole life without understanding marginal tax rates. Great explanation.
Thank you very much 0mua! I'm so glad that it was helpful!
That was incredibly easy to understand. Thank you so much! 😊
So glad that it was helpful!!!
This is a really good explanation, thank you!
I'm always happy to help Susanna! Thank you for watching! :)
Thanks for helping me to finally understand marginal tax.
Absolutely, I am always happy to help!
great explanation, thanks!
I'm really glad it was helpful! :)
Very helpful, thank you!
Awesome! So glad it was helpful!
Helpful sir! So is taxable income you mention in this video the same as AGI?
Thank you! Glad to help! AGI is Adjusted Gross Income, then you take the standard deduction OR itemized deductions. After taking the deductions, you should have your "Taxable Income"
related video:
ruclips.net/video/oZ-6QtxjpWY/видео.html
Very clear and precise , can also do a video about concessional Rate
thanks
Thanks for the positive feedback! Here in the U.S. we don't have a concessional rate to my knowledge
Very well explained, thanks!
Glad it was helpful!
Thank you so much!!! I’ve reading a book on taxes rn and I was still confused at this part so I came to this video 😂 I do have a question tho it says in my book that someone had 6,858.50 as their total income tax divided by 50,000 (their taxable income). It also says in the footnotes that effective tax rate can be calculated using total income as the denominator rather than taxable income. This is confusing me because won’t you get two different answers?
Yes, you would get two different answers. Your taxable income is certainly different from your gross income (total income). To go from total income to taxable income you have to make adjustments (to get adjusted gross income) and then you have to deduct itemized expenses or the standard deduction to finally arrive at taxable income. My guess is that the book is saying that the effective tax rate is commonly referred to as being calculated in those two different ways.
Can you do a video explaining the standard deduction? Is it realistically possible to fund a 401k with all of your gross income assuming you don't live off that income? I know there are annual caps, however I read in my payroll accounting class that you could contribute all of your salary into a 401k. How would that affect the standard deduction.
Standard Deduction Video:
ruclips.net/video/EzuVOTLn42o/видео.html
You can contribute all of your payroll into your 401k until you reach the annual maximum limit. It would not affect the standard deduction at all, it remains the same either way. Hope this helps! :)
Great video!!
Thank you very much!
Effective tax rate is (kinda) like a personalized flat tax rate (as opposed to a statutory flat tax rate, were we to have one of those, which we don’t).
But effective tax rate is one that we can reduce through various means in order to positively affect our bottom line. A flat tax would eliminate that real quick.
So, when an accountant tells you that they saved you $20000 on tax, based on marginal tax rate, because effectlively they saved you much much less on effective (actual).... is that correct?
Not exactly. Take your original total taxes and divide it by your total income to find effective tax rate. Then take the new tax bill (total taxes - 20k taxes saved) and divided it by your total income to find the new effective tax rate. Your effective tax rate will go down..
I am definitely interested in saving money on taxes
Everyone should be right? It's one of the easiest ways those of us that want to grow our wealth can easily learn and implement!
@@OnCashFlow oh for sure
i love u sir u make my doubt clear
Happy to help!
You got the Effective Rate wrong.
Let me explain... As you said, 50,000 was the taxable income, not the gross income.
Again as you said earlier in the video (which is true), that Effective rate = Total Tax you pay/Gross income (not taxable income).
So to get the Effective Rate you will have to divide the 5000 by whatever the gross income suppose to be, not the 50000 (which is taxable income, not gross).
I would be glad if you correct this.
You are correct, sir. Looks like I misspoke around 5:20 I meant to say "median income of $50,000 of gross income" and I should have left out the part about deductions. When I put the math up on the screen at 6:01 I did correctly say "total income" Thank you for catching this! I will see if I can use some of RUclips's tools to put up a correction on the screen.
@@OnCashFlow Thank you! Do you know why some "experts" say Effective rate = Total Tax you pay/ Taxable income?
Internet seems to be divided on this one. Too much mix info. Although I personally feel like it should be gross income.
I use the below formula to make things simple. What you think of that, let me know!
TakeHomePay = Gross Pay - (Federal Income Tax - Medicare&SocialSecurity withholding - Local/State Tax withholding - Contributions(401K))
@dipesh patel I would agree that effective tax is tax bill / total income. The debate might come from confusing the corporate effective tax rate? I believe for corporations, their effective tax rate is based on their profit (income - business expenses) however, for an individual, it is taxable income (income - deductions). I like your simple formula, technically your take-home pay is simply the money that gets deposited into your account!
I was watching a video on German tax rates and the host said the tax rate in Germany is 55%. This is incorrect. As you said if you’re making under €9700 you don’t pay any tax. The 55% tax rate applies to the highest income earners. Also, it is a nominal tax rate. If for example somebody’s making under €10 million per year they pay lower tax rate but once they get over €10 million a year they pay 55% tax rate on whatever they make after €10 million. So if they made €10 million they are taxed at a lower tax rate, not 55%, but if they make over €10 million, for example €10,100,000 then they pay 55% on that extra $100,000. The rest of the €10 million is taxed at a lower tax rate, which is called a nominal tax rate. I don’t know the specific numbers I’m just using this as an example. Can you do a video or explain to me how the nominal tax rate works for different income levels, not just the very rich but at all income levels and do all income levels have nominal tax rates? For example somebody making €50,000 per year would pay the lower tax rate on that €50,000 but if they made €51,000 they would pay a higher tax rate on that extra €1000. Another words they would be text differently on those two incomes. A different tax rate of €50,000 and the different tax rate on the extra €1000. Nominal tax rate.
I do not mean to be rude, but you lost me in this wall of text my friend :/ Can you condense this for me please
@@OnCashFlow No problem. Basically what I’m asking is somebody said the tax rate in Germany is 55% which is not true, it’s 55% for the highest income income earners, but these high income earners pay a lower tax rate until they reach a certain level of income. For example at $1 million they pay for lower tax rate but if they make $1,100,000 then they pay 55% on that extra $100,000. I hope it makes sense.
@@surreallife777 Yes so that is what we can a "marginal rate" in the U.S. Once their taxable income (for example) 1M the 1 millionth (Euro?) will be taxed at 55%. The Effective tax rate (total taxes / total income) will always be lower than 55% in that example.
@@OnCashFlow Thank you very much.
Still confused after watching this video. I want to be a freelancer, but the taxes don’t make sense to me 😔
Just get started, keep educating yourself and seek help from others. If you have the opportunity to be a freelancer or self-employed then do it if you think you will enjoy it! Don't let taxes hold you back from your dreams!
@@OnCashFlow Thanks! I just don’t want to screw up and then owe the government a bunch of money lmao
@@milkteanomnom Well if you make a lot of money then that usually means you owe the Gov a lot of money lol So it's sorta good news
@@OnCashFlow Kind of.. this year in January, the government signed into law that if you’re self employed, if you make $600 you owe the government income taxes and self employment tax. It used to be $20,000 - So, even if I don’t make much money, I’m going to owe about 30% taxes to the government, which is lame.
@@milkteanomnom As far as I recall, the $600 from self employment was always the case, not just this year in Jan. I think you may be confused with bank reporting laws?
Amazing information! Thank you
Thank you so much!