## Tax Caster Example - The HumpTurboTax TaxCaster is a great tool for estimating your taxes. Make it a yearly event to run this program the Friday after Thanksgiving. That will give you enough time to make any yearend adjustments that might be necessary to minimize your tax burden. The following is an example of the effect of an additional $1,000 withdraw from your IRA. It illustrates the 46.25% tax bracket.
Note that your "Marginal Tax Rate" is 25% and that your "Balance Due" is $5,124 on a "Taxable Income" of $36,350.
Your "Marginal Tax Rate" is still 25%. Your "Balance Due" increased to $5,586. This is a $462 increase. It was actually $462.50 but the program rounds everything to the nearest dollar. Your “Taxable Income” increased $1,850 to $38,200. This example illustrates The Hump perfectly. You withdrew an additional $1,000 from your IRA but your taxable income increased by $1,850. At the 25% tax bracket this increased your taxes by $462.50 which is 46.25% of the original $1,000 that you withdrew. |
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