Author Topic: Amazing Raffle - AA covered trip  (Read 2970 times)

Offline Dan

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Re: Amazing Raffle - AA covered trip
« Reply #15 on: July 27, 2011, 12:24:11 PM »
No it doesn't bump you into a higher bracket. Any earnings over the amount of the old bracket is taxed at the higher rate. Besides, the effective tax rate is far more indicative of the costs of winnings.
Let's say a single NYC'er will make $80,000 this year.
Federal=16,125 ($4,750 plus 25% of excess over $34,500).
NYC=2,801
State=5,083
Total=$24,009
Ignoring deductions/exemptions as well as SE tax issues. That's a 30% effective rate.

Now you're adding $15,350 to that.
Federal 3,650 at 25%=913. 11,700 at 28%=3,276, so $4,189 in taxes.
State is 15,350 at 6.85=1,051
Citi is 15,350 at 3.65=560

So he owes $5,800 in taxes.  That's a 37.8% tax rate.  If you just looked at his effective tax rate excluding the winnings you would assume 30%.  Why is 30% more indicative of the cost of winning?

That's also not counting for any other myriad of tax benefits that may be phased out as he has more income now...
« Last Edit: July 27, 2011, 12:27:12 PM by Dan »
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Offline bosoxfan

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Re: Amazing Raffle - AA covered trip
« Reply #16 on: July 27, 2011, 04:24:55 PM »
most people have dependents that significantly reduce their income, if we're sticking to the 80k example. But you're correct single taxpayers get screwed.

Offline Dan

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Re: Amazing Raffle - AA covered trip
« Reply #17 on: July 27, 2011, 05:15:47 PM »
most people have dependents that significantly reduce their income, if we're sticking to the 80k example. But you're correct single taxpayers get screwed.
Not sure what your point is.
Dependents definitely can reduce your effective tax rate.  However winning a prize is not reduced by having dependents, the prize goes straight to your top (or higher than your top) marginal rate.
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Offline AsherO

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Re: Amazing Raffle - AA covered trip
« Reply #18 on: July 27, 2011, 07:35:12 PM »
Not sure what your point is.
Dependents definitely can reduce your effective tax rate.  However winning a prize is not reduced by having dependents, the prize goes straight to your top (or higher than your top) marginal rate.

And to add insult to injury, they make you pay tax on the full FMV of the prize, not what it cost the sponsoring company (i.e. the 1st class tickets don't cost AA $10k or anywhere near that).

Offline bosoxfan

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Re: Amazing Raffle - AA covered trip
« Reply #19 on: July 28, 2011, 09:23:33 AM »
Not sure what your point is.
Dependents definitely can reduce your effective tax rate.  However winning a prize is not reduced by having dependents, the prize goes straight to your top (or higher than your top) marginal rate.

The prize is not in a special category. It is part of your earned income for the year, which is reduced by above the line deductions. So someone with a wife a two kids isn't have a very high effective rate even with the winnings.

Offline Dan

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Re: Amazing Raffle - AA covered trip
« Reply #20 on: July 28, 2011, 10:57:23 AM »
The prize is not in a special category. It is part of your earned income for the year, which is reduced by above the line deductions. So someone with a wife a two kids isn't have a very high effective rate even with the winnings.
I'm still really not sure what your point is.  Those "for AGI" deductions are set flat rates.  They aren't going to reduce the prize winnings at all which will go straight to your highest marginal rate, if not higher than your highest marginal rate.  It's got nothing to do with your effective rate.

I'm no accountant though (but I did stay in a holiday inn express last night ;)), how about anyone else?
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Offline bosoxfan

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Re: Amazing Raffle - AA covered trip
« Reply #21 on: July 28, 2011, 11:19:26 AM »
I'm no accountant though (but I did stay in a holiday inn express last night ;)), how about anyone else?

I am.

Offline Dan

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Re: Amazing Raffle - AA covered trip
« Reply #22 on: July 28, 2011, 11:34:14 AM »
I am.
And you would advise your clients winning a prize to look at their effective tax rates rather than their marginal tax rates for what would happen if they had more income??
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Offline bosoxfan

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Re: Amazing Raffle - AA covered trip
« Reply #23 on: July 28, 2011, 11:42:09 AM »
I don't work in personal income tax, or tax at all for that matter.