So until last year, I was least concerned about tax brackets because I was getting money back every year. However, my wife started working this year and sounds like we do owe some money to uncle SAM this year.
Now, I started looking into different kind of tax deductions(401k, IRA, charities etc) and I was also referring to the tax bracket here:
on Married Filing Jointly table. Our house hold income last year was 185k and with 401k Contribution, I brought it down to 160k(taxable income).
Now, If I am interpreting the table correctly, if I reduce my taxable income further down by 10k(which will be below 151k tax bracket), I should see significant amount of reduction in the tax amount that I owe to government because
- Not only by Percentage of tax went down from 28% to 25%(almost 3% decrease)
- but also, my base rate would go down from almost 29k to 10k(almost 20k, which is HUGE)
So while I was on Turbo Tax, Just for fun I entered 10000 as Charity JUST TO SEE that if I see any significant decrease in amount of tax that I owe. I was expecting (3% at 150k (4500) + 20k base reduction = 24k less in taxes). However, what I saw was ONLY 3 thousands payable tax going down.
What am I missing?