Incremental Tax

AAA

DEFINITION of 'Incremental Tax'

A tax that increases in increments based on income levels. Incremental taxes must be considered when evaluating new investment opportunities, especially for individuals or companies in the upper end of their current tax brackets.

INVESTOPEDIA EXPLAINS 'Incremental Tax'

Incremental taxes may turn a seemingly profitable investment into a bad decision. For example, let's say an investor earns just below the maximum earnings allowable in his or her current tax bracket. A new investment opportunity is offered, which promises to earn a significant return. The investor must weigh the additional revenues against the incremental taxes associated with moving into the higher tax bracket. He or she may find that paying the higher tax rate on all or part of his or her income does not warrant investing in the profitable project.

RELATED TERMS
  1. Industrial Park

    A portion of a city that is zoned for industrial use (as opposed ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Regressive Tax

    A tax that takes a larger percentage from low-income people than ...
  4. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  5. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  6. After-Tax Income

    The amount of money that an individual or company has left over ...
RELATED FAQS
  1. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>
  2. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  3. In what instances does overhead qualify for certain tax allowances?

    Businesses are just as keen as anyone else to keep their tax burdens low by any means possible. Overhead expenses often qualify ... Read Full Answer >>
  4. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>
  5. How are write-offs recorded on my tax return?

    The way your write-offs are recorded on your tax return varies depending on whether you are filing a personal or business ... Read Full Answer >>
  6. How do alimony and child support factor into my taxable income?

    The Internal Revenue Service, or IRS, applies a different tax treatment to alimony than child support. Most forms of alimony ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Savings

    Tax-Saving Tips For Canadian Taxpayers

    Find out how to get a bigger return.
  3. Taxes

    How To Cut Your Alternative Minimum Tax

    Save yourself money by lowering the amount of tax you owe.
  4. Taxes

    Are You Paying Too Much in Taxes?

    Overpaying taxes amounts to an interest-free loan to the government. Here are some ways to avoid that scenario.
  5. Taxes

    What's a Tax Shield?

    A tax shield is a deduction, credit or other means used to reduce the amount of taxes an individual or business owes to the government.
  6. Taxes

    What's an Indirect Tax?

    An indirect tax is levied on goods or services rather than on an individual or a company.
  7. Mutual Funds & ETFs

    How Private Equity and Hedge Funds are Taxed

    Private equity and hedge funds offer an appealing tax structure for those who can afford to invest in them. Here's why.
  8. Retirement

    401(k) Rollovers: The Tax Implications

    The tax rules for 401(k) rollovers can be simple or more complex, depending on which path you take.
  9. Home & Auto

    Reverse Mortgages and Your Taxes

    It pays to know the tax benefits from getting a reverse mortgage. Two major considerations: Are the proceeds taxable and is the interest tax deductible?
  10. Retirement

    401(k) vs. Picking Stocks: What's Best?

    The pros and cons of two different ways to invest your retirement savings

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!