Tax question

Hay hay hay · Aug 31, 2017

Who has turned down a higher paying job, or a profitable business deal, or a profitable crop venture because the
marginal taxes on the increase would be a few percentage points higher?

paul · Aug 31, 2017

There are notches in the stair step of taxes that can catch a person that way. But one would hope to get above the notch or find ways to shelter income and drop back to a lower bracket......

Jack Morris pitched for the MN Twins, won our first World Series, thrn he opted to sign with a Canadian team for a million more over the contract period than the Twins offered him.

My under standing is he netted less after the complicated multi country taxes than if he had stayed with the Twins for less money in this country.

For a high profile example.

Mostly people, as Jack did, go for the bigger gross bucks tho. So I bet the answer is - not many.

Others will take pay cuts or lower paying jobs for personal enjoyment of their job or lifestyle, and again taxes don't really enter into it.

Paul

fixerupper · Aug 31, 2017

In farming I have never passed up a profit to save on taxes but I am small time compared to some of the larger farmers.

W_B · Aug 31, 2017

With the wide tax brackets today a few points increase in salary won't make much difference in the percent of tax you pay. Unless of course your favorite ball team calls and wants to sign you to a multi-year, multi-million dollar contract, with signing bonus.

JMOR · Aug 31, 2017

A very wealthy man (oil I think) took this position: "I want to pay more taxes because if I pay more taxes that means I have more profits and I am earning more. The more you earn, the more taxes I pay.
So having to pay more taxes is a good thing."

coshoo · Aug 31, 2017

I've always taken the same view as JMOR- higher taxes means higher income, so don't worry about it.

I'm even taking a further step of opting for a short-term capital gain rather than wait a year to make it long term. I'll make a good profit on a house I'm flipping, and I don't want to miss out on selling it during the current strong real estate market. In a year, the bubble may have burst, and we're back in 2008 again!

Ken Macfarlane · Aug 31, 2017

Few people seem to understand that marginal taxes only apply to the chunk in that bracket. Have had several people tell me they declined raises because they would make less after the raise... no, that isn't how it works lol

Hay hay hay · Aug 31, 2017

I asked the question because I have dealt with literally thousands of business men in my life and all but a very few
focused on making money and growing their business, with the attitude "make as much as you can, and the taxes will be a
nice problem to have".

Hay hay hay · Aug 31, 2017

I have had hundreds of employees and not a single one ever turned down a raise.

K Effective · Aug 31, 2017

We have certain days in our work schedule that are paid as double-time when covering OT with another crew, as compared with the usual time-and-a-half. Most of those days kinda need an incentive to make them more palatable, like switching to cover a day shift after working nights, or breaking up the traditional weekend.

I have had guys say they will not take a double day, as the taxes even out the net income. Supposedly, IF you have a large bi-weekly pay gross amount, the employer is required to collect taxes at a higher rate than if you worked fewer hours, and that rate is applied to all the hours for that pay period, not just the double-pay day.

My contention is that may well be true, and some folks may well be right on the edge of stepping up to the next tax bracket by being paid for an extra six hours on one day, but that every other pay period is then judged on it's own total. AND, the total tax liability for the year is calculated on the annual adjusted gross, not your highest single pay period, so you will get the "extra" taxes back in a refund or reduced amount owed.

Maybe I'm just too trusting, or these guys are too short-sighted, but I'll take every one of those days I can get, and the straight-time and time-and-a-half days as well. Grandpa always said that a bigger tax bill was a good sign.

ss55 · Aug 31, 2017

I've seen people continually turn down time and a half or double overtime "because they worked overtime once and their paycheck wasn't much bigger because the gubermunt took all the overtime pay". They would not accept the idea that they would get it almost all of it back as a tax refund, or that they could adjust their dependent levels to avoid overpaying their weekly income tax payments.

JMS/.MN · Aug 31, 2017

Decades ago I worked with similar people who said they didn"t come out ahead by working overtime. Never made any sense to me, but they weren"t the brightest bulbs on the tree, either. Your explanation does make sense.

dhermesc · Aug 31, 2017

So when did he go out of business?

dhermesc · Aug 31, 2017

Depends.

Lets say I am looking at new job that pays $20,000 a year more. After taxes in that bracket I'd be looking a gain of $13,600. If that job also requires that I put in an extra 10 hours a week - I'd turn it down flat. Why would I put in an extra 10 hours a week and get the lowest pay rate for hardest hours? That's why overtime is 1.5X regular pay not 3/4 your regular pay.

Everybody turns down opportunities to earn more money because the "more" isn't enough to make it worth what you have to do to earn it.

dhermesc · Aug 31, 2017

Just curious - why would they get it back as a refund? If you have your withholding set up correctly the computer will correctly withhold the taxes.

JMOR · Aug 31, 2017

(quoted from post at 14:39:01 08/31/17) Decades ago I worked with similar people who said they didn"t come out ahead by working overtime. Never made any sense to me, but they weren"t the brightest bulbs on the tree, either. Your explanation does make sense.

ep, "What everybody knows to be true, simply is not." :roll:

moresmoke · Aug 31, 2017

Not here. There was a time in my life that I paid no taxes. Pretty simple I was flat broke. I have no problem paying the taxes that are required, it means I am making money.

Now if the county doubles the property taxes this again this year, I may have to go demand that they actually plow the road so the school bus can get through.

Mike(NEOhio) · Aug 31, 2017

BULL!! If you're not paying taxes you're not making it in the first place. Payroll deductions are a percentage of wages. Yeah, they may deduct a little more if it could bump you to a higher bracket, but that's not likely. The company I worked for paid a yearend bonus that nearly doubled annual earnings. THAT put us in a higher bracket, an nobody complained. I had two kids and took four exemptions. Ended up owing 3 to 5 hundred every year. I know guys that filed single, no dependents PLUS $50 or $100 extra just to get something back at the end of the year. That's just an interest-free loan the gubmint.

Greg1959 · Aug 31, 2017

dhermesc- That's what kills me about 'Comp' Time. Ive work for companies that wanted me to take my "overtime" in Comp Time.

My thoughts....If I worked 48 hours in one weekly pay period then that would be 8 hours at 1.5 times payrate. So, if I am going to take that in Comp time....that 8 hours OT equals 12 hours off.

The companies would never agree to that, but I've seen guys take the 8 hours in comp time. Once I explain to them how they just screwed themselves out of the earned OT, they don't take the time off again. So, I told them to just pay me the 1.5 OT.

jeremy in NE · Aug 31, 2017

Never on the farming side but I battled my old employer many times on overtime. The tipping point for me was anything over 54 hours in a week would lower my net pay.

TomH in PA · Aug 31, 2017

I've never considered that. A one time deal that has no chance of being repeated might be worth considering, but turning down a job is stupid: Do you expect to stay at the same income level for the rest of your life?

At some point you need to cross into the next bracket, may as well be as soon as possible.

Dean · Aug 31, 2017

Your question is a policy rather than a tax question.

Pay attention to what is about to happen in Congress.

Dean

rrlund · Aug 31, 2017

Not necessarily higher tax bracket,but tax credits and such,yes,I'm darned careful about my income.

Bill VA · Aug 31, 2017

Here is an article on how our progressive tax brackets work. Very good article and an easy read.
Tax Brackets Explained

Russ from MN · Aug 31, 2017

Not true! That's not the way it works.

Hay hay hay · Aug 31, 2017

No...my question is about the actions people take based on their understanding of taxes. It has nothing to do with policy.

However, the new policies being discussed are based on assumptions of how people, and companies react to tax policy changes. If people do not act in accordance with these assumptions....why make flawed changes?

Hay hay hay · Sep 1, 2017

Good read, easy to understand. too bad all tax payers do not understand the simple math.

dhermesc · Sep 1, 2017

Basic human nature. For most people and businesses earning more money requires more effort and in our business it means taking more risk. With higher tax rates at higher levels of income you are essentially working harder and risking more for less return on that effort and risk.

Our construction business has net income of 200K currently and after tax about $151,000 or about 25% effective tax rate. We want to double our net income so now everyone is working overtime, we bid jobs aggressively trying to ad to the volume, we have to hire new hourlies and supervisors. Some don't work out, some actually cost many times what they are worth - typical new hire problems. After doing all that we achieve the goal of $400,000 net income. For all that extra effort and risk taken I get to keep $132,000. You worked harder, took al sorts of risks and got paid less for that effort.

Tax Defined:
1. Compulsory contribution to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.

2. a strain or heavy demand.

3. make heavy demands on (someone's powers or resources).

Basic economics. If you want more of something you subsidize it, if you want less of something you tax it. Current government policy is to tax work and subsidize sloth.

Hay hay hay · Sep 1, 2017

Let me understand....$283,000 is more than $151,000. So if you are satisfied with only $151,000 why try to grow the business? Or you think the next dollar should only take the same effort as the first?
Growing a business is always a hard and stressful effort.

Nobody wants to pay taxes,...... but everyone wants to live in a safe, secure and peaceful place.

Ozlander · Sep 1, 2017

Don't work harder.
Work smarter.

Bret4207 · Sep 2, 2017

(quoted from post at 13:02:59 08/31/17) Who has turned down a higher paying job, or a profitable business deal, or a profitable crop venture because the
marginal taxes on the increase would be a few percentage points higher?

I've seen a lot of people on forms of public assistance quit or turn down a job because they'd lose their food stamps, etc. Never saw anyone that is a real worker turn down something like you outline.

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