How to reach lower tax bracket down from ~$46,000 using “telecommuter” exemptions?
Question by bc23432: How to reach lower tax bracket down from ~,000 using “telecommuter” exemptions?
My gross pay for 2009 is going to end up right about $ 50K which would put me into the 25% federal tax bracket. Once you back out 401K and medical, my taxable wages are around $ 46,000. However, I am a “legitimate” telecommuting worker that works out of a home office for a company that is based in a different state. Here are the exemptions that I plan to use:
-portion of rent/utilities for home office
-portion of vehicle payment for work use
-portion of auto insurance
-50% of cellular phone bills
-student loan debt interest
I’m guessing these will effectively reduce my taxable income by around $ 8-10K. This leaves me with two questions…
1) Are there any exemptions that I am leaving out? I have not included anything that my work already reimburses me for (meals, etc).
2) I think I read somewhere that by having your taxable income below something like $ 34K it drops you from a 25% tax bracket to a 15% tax bracket and would save me thousands of dollars. If I am just shy of the next lowest tax bracket, is there anything that I can do within the next 3 days to reduce my taxable income? I considered doing a 100% 401K contribution for my paycheck on the 30th but it had already been processed for payment.
Thank you for any suggestions! And by the way, I am not trying to do ANYTHING ILLEGAL! I just want to make the best use of my LEGITIMATE exemptions to save as much money as possible on taxes.
Thanks for the clarification on how the brackets work, I was obviously way off on that. As far as what I mean by a telecommuter, I am a sales rep for a company that is headquartered elsewhere in the country. I work from a home office to cover a large region of the northeastern United States. I will review the document you provided to make sure I’m counting everything, and it’s obvious that I need to pay a professional to sit down with me, I just want to have my ducks in a row going into this. Thanks again!
Best answer:
Answer by rtfm
You need a refresher course on how tax brackets work.
If you are “just shy” of the next lowest bracket, then only those few extra dollars of your income are the ones that will be taxed at the highest percentage. All the dollars below that bracket level are taxed at the lower percentage, as they always have been.
For example, say anything below $ 40,000 is the 15 percent bracket, and above that is the 25 percent bracket. Say you make $ 42,000. ONLY THE EXTRA $ 2000 will be taxed at 25 percent. The rest of your income is taxed exactly as it would be if you made $ 39,999.
So there’s no way you’re going to make a difference of “thousands of dollars” by adding a few more deductions.
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