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 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 >>
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. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  5. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  6. Taxes

    The First Thing You Should Do With Your Tax Refund

    Nobody likes to pay taxes, but everyone loves to get a tax refund. When the check arrives in the mail, it's hard to resist spending it on some indulgence.
  7. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  8. Taxes

    What is the Effective Tax Rate?

    The effective tax rate is the average rate at which an individual or corporation is taxed per year.
  9. Taxes

    Switzerland's Declining Tax Haven Appeal

    Switzerland's tax haven allure is being threatened by efforts by the US and other governments to make Swiss banks give up their much-vaunted secrecy.
  10. Taxes

    Made A Mistake On Your Tax Return? Don't Panic

    You can always file an amended return. But the sooner you do it, the better.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center