Tax Return Increase???

Question

If you make more every year and continue to keep the same number of deductions will your income tax return increase or will it go down??

Answer 1

Each year the standard deduction amount, the personal exemption amount, and the tax tables are revised to account for inflation. It is possible that your tax would not change if the increase in your income was balanced out by the changes in these amounts.

Example:
Assume you earned $46,425 in 2005 and filed married filing jointly. The standard deduction was $10,000 and you had 2 personal exemptions of $3,200 each for a taxable income of $30,025. The Federal Tax was $3,774

Assume your income increased to $47,075 in 2006 - an increase of $650 (1.4%). The standard deduction for 2006 was $10,300 and the two personal exemptions were $3,300 each, yielding a taxable income of $30,175. The 2006 Federal Tax on a taxable income of $30,175 was $3,771 or $4 less than in you paid in 2005.

Answer 2

The more $$$ you make, the more you owe taxes $$$. Whether you paid taxes through your W-2 or quarterly tax estimates, if not enough paid in, you will still owe. I'm not sure about what you exactly meant by "keep the same number of deductions". Anyhow, your income tax will never go down if your income $$$ is continuing to go up. This is unless you have big itemized deductions to help lower your taxable income (mortgage interest, property taxes, etc.)

Many of these past answers received here are great though.

Answer 3

Everything else equal, yes, of course you would have a larger tax liability! More taxable income, more tax. You need to look for legit tax deductions. Buy a house when you can, if you don't own one already, because the interest you pay will likely be enough to get you on a Schedule A (Itemized deductions) and that should be very helpful (then you can write off charitable contributions, property taxes, auto fees, a percentage of any unreimbursed employee expenses and so on).

Answer 4

Everybody missed the mark here, shame on you all (especially Judy and Missy L)! Only RONALD E B got it right. The taxes you owe might increase or decrease depending on how much your income changed and by how much the government adjusted the tax brackets and other deductions and credits that you qualify for.

Answer 5

The number of deductions does not matter as much as the total amount of them. (For example, two $20,000 deductions is better than two $1 deductions, but ten $0.01 deductions is not.) If the amount you make increases faster than the total amount of the exemptions and deductions, your taxable income will increase. Whether your income tax also increases depends on whether the government changes the tax rates.

Answer 6

You'll make more, so they'll take out more and you'll owe more. If you keep your W-4 the same, your refund probably won't change a lot unless you are getting EIC and get above the limit to get that.

Answer 7

your tax will increase, but so will your take home pay