nevermind
don’t fear the tax bracket – more earnings are always better!!
nevermind
don’t fear the tax bracket – more earnings are always better!!
Last edited by h0ttie; 10-21-2012 at 02:03 PM.
"Achieving success is a challenge but so is struggling so you may as well choose success."





The rates only apply to the money earned in the bracket. So, your first $35,349 is taxed at 15%. From $35,350 to $85,649 is taxed at 25% and so on. Even though earning a little more may put those last few dollars in a marginally higher bracket, since the rate is still below 100%, you are dollars ahead.
HTH
Z
^This. It's not possible to come out at the end of the year with less money in a higher tax bracket than you'd have earning less in a lower bracket, so just keep working your butt off and enjoy the money.
ohhhhhhhhh thank u both so much!!!!
so does this also mean that my calculations are all messed up and i will have to pay a lot less than i am thinking?
"Achieving success is a challenge but so is struggling so you may as well choose success."





In America this isn't necessarily true ... at least in terms of NET standard of living / 'discretionary' dollars. The reason of course is that, as incomes fall below a certain level, eligibility for tax credits, eligibility for social welfare benefits and subsidies etc. begin to provide extra cash, begin to provide discounted rent and utilities, begin to provide 'free' food and medical care etc. Or stated the other way around, as incomes rise above a certain level, lost eligibility for tax credits, social welfare benefits, and subsidies, can leave the person with fewer 'discretionary' dollars to spend than if they had continued to earn less $$$ .It's not possible to come out at the end of the year with less money in a higher tax bracket than you'd have earning less in a lower bracket
Indeed in some US states, where eligibility for tax credits, social welfare benefits, and subsidies extends up to the mid $20k per year earnings level, a 'moral hazard' situation exists where a marginal increase in income can actually 'cost' the person a large amount of additional out of pocket dollars. Lost eligibility for tax credits may literally cost $1000+ per year in the form of a smaller tax refund / higher tax bill. Lost eligibility for food, rent and utility bill subsidies may literally cost $3000+ per year in the form of having to pay 'full price' for rent and utility bills versus the state paying some fraction in subsidies. And lost eligibility for MedicAid can translate into additional thousands of dollars per year to purchase 'private health insurance' coverage, or uninsured out-of-pocket medical expenses. And of course all of these additional out-of-pocket cost increases must be paid for with 'after tax' dollars, meaning that with progressive income tax rates an even greater amount of pre-tax dollars are necessary to provide those additional 'after tax' dollars.
Thus in some US states, for a person to actually wind better off in terms of net 'discretionary' income, they either need to limit their income to something just below the gov't eligibility level ( varies by state, but often in the low $20,000 per year ballpark ), or increase their pre-tax earnings above the $35,000 per year ballpark, in order to avoid an actual DECLINE in their 'discretionary' dollars.





I was considering this when it came to qualifying for our state children's health insurance program. I am just recently went over the high end limit which means I had to purchase private health insurance for my kids, and added my husband and I also for good measure.
I seriously considered working less in order to stay in the lower range to qualify!!! What was I thinking?!?! Earning MORE is always going to be better!!!
I just purchased a health insurance policy for my family and now I'm paying $6,000/year for health insurance... but I intend to make A LOT more anyway, so it is definitely the better option. It took a lot of shopping around and I finally contacted a broker who helped me find a good plan, which saved me a TON because the one I was considering on my own was twice as much! :-/
I'm glad you decided the same about tax brackets!![]()
xoxo ~ Sarah





^^^ just to add real world perspective, in order for SarahTime to actually pay for that $6,000 in private health insurance coverage, she will not only need to earn an extra $6000, but also an extra 15.3% = $918 to cover 'self-employment' tax on the $6000, and also an extra 10% = $600 to cover federal income tax on the $6000 ... total just over $7,500. If SarahTime only earns an extra $6,000 she would actually wind up being 'in the hole' by some $1,350 ( because of the taxes ) compared to earning $6000 less and still being eligible for the 'free' gov't health insurance coverage.
In some states, besides the $6000 out of pocket cost of private health insurance, earning one dollar too many can put the person over the gov't eligibility threshold for food stamps, for rent assistance, for utility assistance etc. Thus in addition to paying out of pocket for the $6000 'cash value' of health insurance, the person would also probably wind up paying an additional $2,500 per year in out-of-pocket grocery bills, plus another $1,800 out-of-pocket annually to replace the gov't rent subsidy, plus another $1,200 out-of-pocket annually to replace the utility bill subsidy ... or $11,500 per year. And, similarly, to actually come up with an additional $11,500 in after tax money, the amount of additional pre-tax money which would need to be earned would be over $14,000. So in a scenario including all of these gov't benefits, if the person earns one dollar too many, they would actually need to increase their pre-tax earnings level by some $14,000 beyond the gov't income eligibility threshold in order to avoid winding up 'in the hole' in terms of net 'discretionary' income left over at the end of the month.
In states with generous social welfare benefits like New York, the eligibility threshold for a mother and child is probably in the $21,000 ballpark. So if that New York mother earns anywhere between $21,001 and $34,999, she will actually wind up 'in the hole' in terms of 'discretionary' dollars left over at the end of the month versus limiting her income to $21,000 and continuing to receive the gov't benefits and subsidies.
Last edited by Melonie; 10-23-2012 at 12:23 PM.





I live in a state that is expensive and in a cold northern climate, but not quite as expensive as New York. When I first started working I had seeral years where I earned around $35000, when I worked in the corporate world.
I was so broke, ALL THE TIME, and this is before gas prices skyrocketed. I had an old Kia to drive and lived in an $800 a month apartment, so I wasn't living it up by any means.
I just can not imagine a cam host who works regular hours on any high traffic site making less than that. It's not easy and it is work but it's absolutely within reach to make double or triple that. Nobody should be aiming that low.





^^^ oh, agreed. The 'sweet spot' is somewhere between $42,000 ( where at least you've got a few extra 'discretionary' dollars to show for all of the additional effort versus limiting earnings to $21,000 to stay eligible for the gov't benefits ) and $86,000 ( where the federal income tax rates begin to rise rapidly ). Then there is a second 'sweet spot' from $106,000 ( where the Social Security / 'self-employment' annual tax cap kicks in ) to about $178,000 ( where the Alternative Minimum Tax plus rising federal income tax brackets really get obnoxious ).
Obviously, we haven't talked about states which also levee their own income tax ... which unfortunately provides an even stronger incentive to limit income to just below the gov't benefit eligibility threshold, which raises the 'break even' earnings point even higher, and which provides an even stronger dis-incentive to earn anything between $86,000 and $106,000.
Last edited by Melonie; 10-23-2012 at 12:40 PM.





While we're on the subject, if you truly want to determine whether or not workeng harder to earn more pre-tax money is 'worth it', you also have to consider the issue of additional expenses. For dancers, this means incurring the extra costs to drive to the club an extra night per week. And for dancers as well as camgirls this means the extra expenditures you'll wind up making by shopping at convenience marts because you're 'too busy' to plan a big box store shopping trip, by ordering take-out or eating restaurant meals because you're 'too tired' to cook, by hitting a hair / nail salon because you're 'too busy' to do your own hair / nails, by paying retail price because you're 'too busy' to clip coupons, and a host of similar possibilities.
Individually they don't add up to much, but collectively they can easily add up to several thousand dollars per year. And, again, these must be paid for with ( mostly ) after-tax dollars, meaning that the equivalent amount of pre-tax dollars needed to cover these sort of expenditures will be even higher than the amount of additional after-tax dollars you actually spent. Prior to my 'retirement', there were lots and lots of weeks where I probably 'lost money' by pushing myself to go to the club for that 5th or 6th night, and as a result started spending more money than I would have really needed to if I wasn't 'too tired' or 'too busy'. Similarly, there were more than a few times when I spent more hours camming than I really should have, with the same result that I started spending more money because I was 'too tired' or 'too busy'.
And in both cases, in retrospect, the amount of money that I actually earned during that extra night of dancing or last few hours of camming was almost always significantly lower than average ... no doubt because I looked tired and/or couldn't project my usual high energy level.
Ultimately, I finally figured out that I was better off by not pushing quite so hard ... and particularly so if my earnings were in danger of 'bumping up against' the $86,000 or $178,000 'corner' for higher income tax rates and disallowed deductions due to the AMT.
I should also note that, after January 1st, next year's federal income tax bracket amounts, Social Security = 'self-employment' tax cap amount, AMT threshold amount etc. are going to change ( for the worse ). This will be affected by a 'lame duck' congressional session taking place after the election is over. So once we find out what congress votes on for tax brackets, AMT thresholds etc. the 2013 scenario might wind up being very different than the 2012 scenario I described above.
Last edited by Melonie; 10-23-2012 at 01:25 PM.





Thankfully we were only using state insurance and nothing else! That puts it into a bigger perspective for me, thank you Melonie! I intend to make quite a bit more this year tho it's definitely an added expense but I'll be able to offset it with a lot more income (and a lot more taxes in turn, I suppose!)
Melonie, do you know are there any tax write offs or deductions for purchasing private health insurance? I haven't looked into this yet but it just occurred to me that perhaps there may be?
xoxo ~ Sarah





Unfortunately, health care related tax deductions for individuals are limited to those greater than 7.5% of adjusted total income - which goes to 10% soon under new ObamaCare law. A tax exempt Health Savings Account was also available, but this is due to be severely reduced come January 1st under new ObamaCare law. However, if you form an S-Corp, any 'employee' benefit related expenses the corporation provides for you and your family ( including the purchase of private health insurance ) become a write-off against the S-Corp's taxable income.Melonie, do you know are there any tax write offs or deductions for purchasing private health insurance?
Just a word of caution though ... if ObamaCare goes forward as already authorized, the whole arena of health care related tax deductions, new taxes, new penalties etc. for both small businesses and self-employed individuals is likely to change significantly. At the moment, the ObamaCare effects on small businesses is limited to those with 50 or more 'employees', which SHOULD leave single owner S-Corps unaffected. In the way of a personal opinion, before putting forth the time and expense to set up an S-Corp ( or LLC electing S-Corp tax treatment if your state allows this ), it might be worth waiting to see how new ObamaCare taxes - as well as 2013 changes in individual and business tax rates - actually shakes out over the next few months.
I'll obviously try to stay 'ahead of the curve' on 2013 US tax changes, and post accordingly in the future.
Last edited by Melonie; 10-24-2012 at 03:31 AM.





I did not read all the posts, so maybe someone already said this: instead of working less to stay in a lower tax bracket, you can contribute more to your 401(k) or qualified plan. The income you contribute to the plan will be excluded from your taxable income, until it is withdrawn from the plan. These funds will grow tax-free, until you withdraw them in your retirement. Presumably, you will be earning less when you retire, so when you withdraw these funds, you will be in a lower tax bracket.
You need the money now? You can, mostly likely, borrow (not all, but some) money from your 401(k) which would not be taxable (because it a loan and not "gross income") and you would be paying yourself interest.
Unfortunately, there is a limit to how much you can contribute to your 401(k) or qualified plan each year.
Women are meant to be loved, not to be understood.
- Oscar Wilde





401k's, IRA's etc. which 'defer' the collection of income taxes for decades involves a calculated risk that future tax rates and the future consequences of booking additional income via 401k and IRA withdrawls, will have a net positive outcome. This could change with the stroke of a pen, with future changes such as means testing of SSI benefits ( i.e. if you have saved 401k or IRA money, you don't need to receive an SSI check ), or any number of potential tax law changes. This could also change at the stroke of a pen, with assets already 'locked up' in 401k's and IRA's being forcibly 'swept' entirely into US treasury bonds ( already proposed a couple of times ), which would 'trap' this money exclusively US dollar denominated gov't debt instruments. This could also change at the stroke of a pen, with capital controls preventing any of this money from being transported and/or accessed from outside the USA.
Because of the tax deferred nature of 401k's and IRA's, the gov't retains the right to 'control' this money essentially forever. Yes, past wisdom held that these were a 'good investment'. But past wisdom also held that buying houses and college educations were a 'good investment' too. In reality, putting money in a 401k or IRA is a 40 year 'game', where the other party has the ability to 'change the rules' after the game is started, and where the 'playing field' has no guarantee of remaining 'level'.
Granted that, generally speaking, over the past few decades the US economy, the US dollar's purchasing power, US tax policy etc. haven't made any 'crazy' moves. But then again, neither had Greece or France until the last few months. The point i'm trying to make in a non-fear mongering fashion is that there are Greek citizens who spent decades saving money for retirement, who are now unable to access that money as a lump sum, unable to move that money out of the country, and very probably going to be forced to endure a 50% loss in purchasing power of that money once Greece returns to the drachma.
Please understand that I am not totally opposed to 401k's and IRA's, but caution against using them as your major / only investment vehicle. For example, 401k's that involve ( partial ) matching funds from one's employer are a 'no-brainer' up to whatever level of contributions the matching funds are available. Unfortunately, the majority of dancers and camgirls aren't going to be in a position to take advantage of an 'employee' 401k plan, and certainly not one which involves matching contributions. Instead, the majority of dancers and camgirls would be forced into a SEP-IRA, where every dollar going into the IRA is their own money. There is some potential for dancers and camgirls to incorporate, and to create a SEP-IRA where money earned by the corporation can be used to make matching contributions, and the matching contributions can be deducted as a business expense thus providing a tax savings, etc. but this is 'advanced' stuff that ties in with the S-Corp comments above.
Last edited by Melonie; 10-25-2012 at 08:43 AM.





I'm not sure that's completely accurate. Anybody can withdraw their funds at any time, granted, they would have to pay the tax plus an early withdrawal penalty. Also, the money is the account is vested property of the plan participant. The government may revise the tax code, raise and lower taxation and early withdrawal penalties, but it cannot take these funds and do whatever it want with them. If they did, you would probably have a fifth amendment "takings" constitutional claim - like if the government takes a piece of your land through its eminent domain power to expand the road. They cannot take without adequate compensation.
I agree and I would rather invest my money myself then help wall street bankers get richer. I merely brought them up in the context of this thread, i.e., as an alternative to working less to stay in a lower tax bracket.
Women are meant to be loved, not to be understood.
- Oscar Wilde





Not wanting to throw this thread even further off topic, but ...I'm not sure that's completely accurate. Anybody can withdraw their funds at any time, granted, they would have to pay the tax plus an early withdrawal penalty. Also, the money is the account is vested property of the plan participant. The government may revise the tax code, raise and lower taxation and early withdrawal penalties, but it cannot take these funds and do whatever it want with them. If they did, you would probably have a fifth amendment "takings" constitutional claim
Your comments citing the fact that any American can pay a 10% tax penalty TODAY and withdraw 90% of the money in their 401k or IRA prior to meeting gov't conditions regarding retirement age etc. is true AT THIS MOMENT. There is no assurance, however, that this will remain true for the next 40 years, or even the next 40 months.
Yes legally speaking the cash in a 401k or IRA is the property of the contributor. But that does not mean that the contributor will remain free to choose the types of investments that cash can be deployed into, or free to choose what currency that cash can be in. That does not mean that the contributor will remain free to withdraw the full amount in one transaction or remain free NOT to withdraw anything if the money isn't needed ( this is already the subject of a rule change ). There is also no guarantee whatsoever in terms of the future versus present 'purchasing power' of the US dollar. So from a technical standpoint, the gov't is able to maintain de-facto 'control' over most of the important aspects of 401k and IRA retirement money as long as a balance remains in said 401k or IRA account.
Circling back on topic, the SEP-IRA is really only relevant in terms of the topic of this thread in its ability to reduce taxable income in the current year. Thus the real 'value' of a SEP-IRA to a dancer or camgirl is the potential ability to make a reasonable percentage contribution to a SEP-IRA to help avoid her taxable income falling outside one of the 'sweet spots'. For example, if her annual earnings wind up coming in at say $91,000, it might make good economic sense to make a $5,000 contribution to a SEP-IRA in order to avoid having any of her current year's income from being taxed at the higher $86,000+ tax bracket rate. And, as mentioned earlier, IRA's involving an S-Corp with 'matching contributions' becoming a straight dollar for dollar business expense tax deduction is another method of working an angle to reduce taxes owed. But all of these scenarios are really only worth bothering with at high 5 figure income levels. IRA contributions are NOT counted when the gov't eligibility threshold for social welfare benefits comes into play. That low income end of the spectrum is where 'strategic' manipulation of income level to maintain gov't social welfare benefit eligibility has major economic implications.
Last edited by Melonie; 10-25-2012 at 01:26 PM.





Melonie, I found this information for 2012 tax year:
http://turbotax.intuit.com/tax-tools.../INF12128.html
This makes me think that the 7.5% is only in regards to NON self employed individuals:
http://www.irs.gov/taxtopics/tc502.html
Am I reading this right? I should, since I am self employed and meet the other requirements, be able to deduct my premiums, correct?
xoxo ~ Sarah





^^^ Individuals can only deduct medical expenses that EXCEED 7.5% of their adjusted gross income in 2012. An LLC, S-Corp or C-corp which purchases health insurance coverage can deduct the cost of the premiums as a legitimate business expense, regardless of the amount of money 'paid' to individuals working for the corporation. Technically speaking an unincorporated sole proprietor business should be able to do the same ... however the IRS is likely to question this in the absence of a business registration, segregated business bank accounts, etc.
There is a legal work-around for individuals via the formation of a Health Savings Account ... which essentially allows you to use 'pre-tax' money to pay medical expenses. However, both of these 'change for the worse' in 2013 due to provisions of the ObamaCare law.
Last edited by Melonie; 11-02-2012 at 02:26 AM.





But if you are sole proprietor you are still considered a business and self employed, so as I'm understanding it I should be fine to deduct premiums since it says self employed people can do so. I keep a separate bank account for my "DBA" and get all my checks to my business name, so I think that will help.
I'll probably have to ask an accountant just to be sure, I don't want any red flags.
xoxo ~ Sarah





^^^ I would speculate that, as long as you have registered your business ( the DBA ), and as long as your business banking and accounting are separate from your personal banking and accounting, that you should have no problem taking the deduction even though your business is 'unincorporated'.

I agree and I would rather invest my money myself then help wall street bankers get richer. I merely brought them up in the context of this thread, i.e., as an alternative to working less to stay in a lower tax bracket.[/QUOTE]
You can open a self-directed IRA at Vanguard or Fidelity, etc. and hold stocks or index funds, etc. just as in any other investment account. It's extremely low-cost. The differential - even 10-20 basis points a year (.1-.2%) - compounds to a significant amount over extended periods. For example, for a $40,000. account, compounded at 4.10% instead of 4.00% over a 35 year period, yields an extra $5,400. pre-tax. That is, a total (principal plus appreciation) of $163,243. instead of $157,844. I think one can readily do better than 4% over a very extended period, but at any rate no need to enrich Wall St. intermediaries who will skim fees and expenses and add no value (in the best of cases). Also, you'd be doing well to get away with a mere 20 basis points extra larded on in transaction costs and expenses. You can easily get hit with fees of 100-150 BP's.
Good luck.
James





^^^ and how much of that extra $5,400 would be left if a 10% penalty had to be paid to withdraw the $163,243 one day before whatever future legal age threshold the gov't might set instead of the present age 59 1/2 ? Answer ... none, plus an additional $11,000 'loss'. Just trying to reinforce the point that, like investing in housing or college educations, the 'real world' fact is that investing in an IRA involves risk factors that are almost never 'priced into' the equation.





This is a very clear explanation that is relevant for low income people. However, this discontinuity is a consequence of a bad support design, not a necessary consequence of any type of support design. That that in turn is a consequence of piece-wise legislation spiced up by interest groups. It is certainly possible to design a rational system that would also include some work <incentivization>. However, due to the predominance of incompetent legislators, it would take a bit more than an 'act of congress' to fix this system.
The term "moral hazard" likely was coined by the same legislators who designed the stupid system. Actually it should be called a "stupidity hazard" and its consequences should be blamed on, and our ire directed at, the design team, not at all the recipients of the system.
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.





This is a very clear explanation that is relevant for low income people. However, this discontinuity is a consequence of a bad support design, not a necessary consequence of any type of support design. That that in turn is a consequence of piece-wise legislation spiced up by interest groups. It is certainly possible to design a rational system that would also include some work <incentivization>. However, due to the predominance of incompetent legislators, it would take a bit more than an 'act of congress' to fix this system.
The term "moral hazard" likely was coined by the same legislators who designed the stupid system. Actually it should be called a "stupidity hazard" and its consequences should be blamed on, and our ire directed at, the design team, not at all the recipients of the system.
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.
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