Income Splitting
Categories: Tax, Accounting
Sharing is caring, like income splitting.
Er, okay...income splitting is really a way to reduce how much you pay in taxes.
Income splitting is when some income from one spouse is said to have been earned by the other spouse in order for the couple stay in a lower tax bracket.
For instance, if one spouse makes a tiny bit of money Ubering and dog walking, and the other spouse is a successful Wall Street investor, the income from the Wall Street investor can be “split” with the spouse, putting the Wall Street investor in a lower tax bracket than they would be in without splitting the income.
In many Western countries income splitting is an option for couples, which is often more advantageous than not.
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Finance: What is a Tax Bracket?24 Views
finance a la shmoop what is a tax bracket alright taxes maxes who needs
them right well in this country we live under what is called a quote progressive [Map of USA appears]
tax system unquote and yes it is a politically charged name like
progressive sounds like it can't possibly be a bad thing but can it well [Progressive in the fire]
in the taxes sense progressive means that the more money you make the more
you get taxed which can be viewed as a punishment for being financially
successful where's Ayn Rand anyway to help us celebrate mediocrity sloth and [Ayn Rand appears]
socialism hmm okay okay we're just framing tax brackets here don't get all
in a tizzy it's the brackets that set the
incremental rates at which the financially more successful are taxed
and those tax brackets change all the time so we won't even bother with the [Tax bracket transforms into cocoon]
real numbers of today as we're sure they'll be totally different in a few
years but the basic idea is that as in the following completely made-up example
you'll pay federal income taxes of zero tax in bracket one here on the first and
a seven grand that you earn move over to bracket two and from seven grand to 20
grand you'll pay 10 percent tax or ten percent on that incremental 13 grand or
1,300 bucks move to bracket three and from 20 to 50 grand you'll pay 20 [Income tax bracket table appears]
percent or six grand tax on that 30 grand spread from 20 to 50 right here
move to the next bracket which will cleverly named 4 and you pay 30 percent
tax from 50 grand to 120 grand or 0.3 times at 70 grand spread or 21 in
taxes at bracket 5 in this very made-up example you'll pay 40 percent tax from a
hundred 20 grand to infinity so if you made half a million dollars last year
chasing corporate ambulances as a sewer you know a lawyer who sues corporations [Lawyer chasing ambulance in a car]
when their stocks go down then you'll pay 40 percent tax on the last three
hundred 80 grand you earned or point four times three eighty or a hundred
fifty two grand so why do the brackets matter like why do some people whine on
and on about how making that extra 112 dollars
will put them into the next tax bracket and well then they're really screwed why [Man crying in office chair]
oh why because they're idiots or at least they didn't watch this video
because the next tax bracket on its own doesn't mean anything other than the
fact that on the incremental dollars you earned you'll pay taxes at that higher [Earnings bracket highlighted]
rate so in the immortal words of Iran well okay yeah she isn't saying much
these days never mind [Ayn Rand grave appears]