Should you invest your hard earned money in taxable or tax-free investments in 2006? This year, Political Calculations decided to get ahead of the game and post our tool to help you decide early while your completing your 2005 Income Tax returns instead of much later in the year, giving you the opportunity to earn more from your investment choices.
The tool below is based upon math outlined by columnist Bruce Bartlett in his March 2005 column Tax Rates. Since the input data uses information that you'll have to record in your 2005 Form 1040 U.S. Individual Income Tax Return (available as a 200KB PDF document), I'll give you a few minutes to complete your return, if you haven't already, to have it ready to use with the tool below....
Okay, now that you've finished your return, let's put it to good use. We're going to calculate your average tax rate (the amount of taxes you paid relative to your income) and your marginal tax rate for 2005, or rather, the tax rate you paid on the highest dollar of your earnings last year. As noted in Bruce Bartlett's column, this latter information is really useful if you are planning to choose between a taxable versus a tax-exempt investment, since your marginal tax rate will determine which is more beneficial to you. Start by entering the indicated information from your 1040 form in the data input fields below, followed by your potential investment data:
This tool provides, at best, a good first approximation of your marginal tax rate, since other factors, such as the phase out of tax credits with higher income, may significantly affect the tax rate you pay on your income. Also, if you expect that your income will be significantly different this year, as compared to last year, you should re-run the calculator with new values to account for the expected difference since it may make a world of difference in your choice of investments!
Labels: investing, taxes, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
Thanks in advance!
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