My Highest Effective Tax Rate Ever

Well, you can see by the title this isn’t going to be a happy post.  I am happy to have finished and submitted my taxes.  I managed to do the taxes for my side Project X on my own, and I used TurboTax for state and federal returns.  All in it cost me less than $90 which isn’t bad.  The bad part is my effective tax rate went up.   What’s an effective tax rate? It’s the the actual rate at which you are paying taxes on your total income. Effective tax rate is calculated by taking your total tax paid and dividing by your total taxable income. My effective tax rate over time looks like this:

2012 11.36%

2011 9.46%

2010 9.95%

2009 9.29%

2008 11.2%

2007 6.79%

2006 9.75%

We’re still getting refunds on both the state and federal returns so at least there’s no need to tap into our Uncertainty Fund, but I wish I had a better idea why our effective tax rate was creeping up.  I’m hypothesizing that the increase in profitability of DW’s business played into this which in the end is a good problem to have.

What about you?  Do you track your effective tax?  How does it measure up to mine?

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  • Dan

    I recently went through my tax returns for a similar exercise over
    pretty much the same time span. My effective rate was its highest in the
    last few years I was a renter, through 2009, at about 14.5%. When I
    bought a house in 2010, effective tax rate dropped like a rock to under
    8%. In 2012, I contributed less to my workplace retirement account to
    focus on paying down my mortgage and saving for a wedding, and effective
    rate shot up to about 10%.

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