wildbill (11/30/82)
Basically, you want to take it in the year in which the marginal tax rate on the income will be less. If you believe the third year of the Reagan tax cut program will make it through Congress (you probably believe in Santa Claus, too), that would be next year. BUT: If your income is going up substantially next year, take it this year. If you think the Democrats are going to push through a tax increase, take it this year. Consider income averaging. The IRS has a deal by which sudden increases in income can have their tax burden spread out over a number of years (=4). There is a form and a publication which you can order from your regional office or obtain from a local office (but probably not a bank or library) which tells about it. An interesting paradox: If income averaging works for you, and you anticipate your income will rise substantially in a few years (such as being 2 years away from a Ph.D.), take it \\this year//. Average the income out, then average again when you strike it rich. Since income averaging is based on the last 4 years of adjusted gross income, it is useful to get as many years of low income between the spike represented by the extraordinary income and the pending increase. Income averaging probably won't work unless the income is at least 25% or so of your last 3 years' average adjusted gross income. Further I cannot go. Consult your local tax accountant.
halle1 (12/02/82)
In general, the advice about averaging is correct, but the specific example is dead (read audit) wrong. A full time student cannot average unless he fulfills some strict tests. It's even worse after he graduates. Then he must either wait 3 or 4 years, or be married and supported by his spouse to be able to average. (No sexism intended by pronoun choice. I hate h/s & heesh.) The publication referred to explains this in detail. There are tax publications in your library which should also explain. If you do fulfill these support tests, then you can average if your income for the present year is $3k more than 30% of the sum of the incomes of the last 4 years.(120% of the average.) Even then, it probably does not pay too much unless the difference is far greater. Unless you can lower the marginal rate by about two steps, I probably wouldn't bother. \\\\\\If you don't have 4 years to average over, you can't average, even if you won $1million.///// (Since marital status plays a potential part, should this be in net.singles?)
woods@sri-unix (12/07/82)
One word of warning to those about to get degrees and planning to use
income averaging: I just got my M.S. about 2 years ago, and was all excited
to use income averaging and save money after my income tripled. However,
Uncle Sam has a catch 22 here--if you were a full time student during
any part of the last 4 years, you can't use income averaging! Therefore
I (and anyone else in the same boat) just have to pay through the nose.
GREG
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