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. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  5. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  6. After-Tax Income

    The amount of money that an individual or company has left over ...
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. Investing

    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 rate increases, the taxpayer ends up with less money per dollar earned ...
  5. Economics

    EU Probes Tax Laws To Catch Corporate Cheaters

    Recently, the EU has launched an investigation into tax deals between Amazon and the country of Luxembourg.
  6. Taxes

    How To Deduct All Of Your Charitable Donations?

    Donations made to charitable organizations can reduce your taxable income, thus your overall tax bill. But not all donations qualify to be deductable.
  7. Professionals

    How are an employee's fringe benefits taxed?

    Discover how receiving fringe benefits can increase total compensation for employees and how it is important to understand how these benefits are taxed.
  8. Taxes

    What is Value-Added Tax (VAT) and who pays it?

    Learn about the definition of value-added tax, the necessary circumstances that require a business to pay it and when a business is exempt.
  9. Taxes

    What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual tax returns each year.
  10. Taxes

    What are the differences among gross income, adjusted gross income and modified adjusted gross income?

    Discover how calculating total taxable income is easier when gross income, adjusted gross income and modified adjusted gross income are fully understood.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center