You can work more hours, but you'll share more with Uncle Sam
I have an opportunity to work a lot of overtime this year, which will generate more money for me. If I shoot into a new tax bracket (over $50,000 in income), should I go ahead and work the overtime and get more money, or would I get taxed so much that it wouldn't be worth my while?
Isn't it wonderful that we live in a society in which the harder you work, the more the government penalizes you? The more of your own time you give up to try to earn a living and better your own life, seeking that elusive American dream, the bigger percentage of your livelihood the government takes away from you. The very people we vote for and elect tell us that this philosophy is fair and reasonable, and we continue to vote for them, so fair and reasonable it must be.
I do hope we never reach a point when we truly feel it isn't worth our time to work harder, to endeavor to get ahead, to attempt to earn a better living, because the government we hold so dear will simply take our added wealth away, in the name of fairness.
In your case, as your income climbs above $50,000, 28 cents of each dollar is headed for the federal government in the form of income tax. Another 7.65 cents goes toward Social Security and Medicare, 3.4 cents goes to the Indiana Department of Revenue, and Marion County takes .7 cents. The total tax bite is 39.75 cents for each dollar you earn, leaving you with 60.25 cents per dollar.
If your overtime pay is $20 per hour, you actually receive $12.05 per hour. At overtime of $30 per hour, you take home $18.08 per hour. The choice, apparently, is yours. Do you want to give up your free time for $12-$18 per hour?
This raises another interesting issue. Say your overtime rate is $30 per hour, which you are working by choice. By choice you are giving your time to generate $8.40 per hour in federal income tax ($30 times 28%). If you were to make a donation to the government of $8.40 for each hour of overtime you work (in addition to the tax being withheld), this donation would be considered a tax-deductible charitable contribution. So why isn't the $8.40 withholding tax deductible too? For that matter, why isn't all of our income tax withholding tax deductible as a contribution? (Just a thought, Uncle Sam )
This Spring I settled a lawsuit (I was hospitalized after being hit head-on by a drunk driver), and I received money for lost wages, medical bills, and pain and suffering. Is this money taxable as earned income?
The money you received from your lawsuit is not taxable. You are, however, welcome to make a tax-deductible contribution to the government if you feel guilty keeping all of the money
Should I be keeping track of expenses for over-the-counter medicine such as aspirin and cold remedies? What about medicine that I used to get by prescription but that is now available without a prescription?
Unfortunately, the days of deducting anything that seemed remotely related to a medical condition are gone. No more deductions for band-aids and toothpaste. Medicine you obtain with a prescription qualifies for a medical deduction, other medicine does not.
Medicine you used to obtain with a prescription but that is now available over-the-counter no longer qualifies for the medical expense deduction. That of course makes a lot of sense. The pills you took last week, that were recommended by your doctor, were deductible because you had to ask a pharmacist for them. This week, no more deduction, because you can find them on the shelf yourself. It doesn't matter that you're just as sick this week as you were last week. It's just one of the many ways in which our tax laws work for the greater good.
Deductions for medical expenses are tough to claim anyway, due to the generous rules that allow you to only deduct those medical expenses that exceed 7.5% of your adjusted gross income. You have to be really sick, or have really low income (in which case you probably won't itemize your deductions anyway) to claim the medical deduction.