My income doubled in 2006, because of, essentially, a kind of deferred bonus-type payment, which all had to be paid in
2006. It was treated as wage income. This caused the net wage income for me and my wife to be 400K. Other income (interest, divident), etc., is about 10K. Deductions are just California state taxes (35K), property taxes (4K), mortgage interest (10K). Most of this income is taxes in the highest California tax bracket, 9.3%, and and the two highest federal tax brackets, 33% and 35%. And, this being wage, paid medicare taxes on the whole thing. But the kicker is the AMT and phsaeouts.At Federal level:
- First of all, my federal itemized deduction is limited.
- Next, the personal exemptions are phased out by 2/3rd.
- High California state taxes causes AMT for Federal. But the exemption amount fo AMT is phased out, meaning I have to pay the highest rate starting with the 1st dollar.
- Completely phased out of child tax credit.
- Completely phased out of traditional IRA deduction, or even a Roth contribution.
State level:
- California state itemized deduction limited.
- State equivalent of personal deduction (tax credits) completely phased out.
- Statey child tax credit completely phased out
The list just goes on an on.... it's a phaseout nightmare. I realize my incoime for 2006 is big, but I worked so hard. First the highest tax brackets, and then all these phaseouts. It's as if I should forget everything and file just a 1040 ez, with 0 deduction, and 0 exemption. Arghhh WSJ just reported that Ray Irani was paid $400 MILLION last year; a thousand times what I have. I wonder if there is anything that is not phased out for him... Why don't we have honest tax laws, higher rates reflecting true rates, no phseout gimmicks? At the very margin, my rates due to many phseouts may be well over 50%!