How To Calculate Tax In Your Income

Precisely calculate your income tax liability with our advanced tool that accounts for all deductions, credits, and 2024 tax brackets.

Comprehensive Guide: How to Calculate Tax in Your Income

Module A: Introduction & Importance of Income Tax Calculation

Understanding how to calculate tax in your income is fundamental to personal financial management. Income tax represents one of the largest annual expenses for most Americans, often exceeding housing, transportation, and healthcare costs combined. According to the IRS, the average American pays approximately 14% of their income in federal taxes alone, with higher earners paying significantly more.

Accurate tax calculation enables you to:

• Plan your budget effectively by knowing your net income
• Maximize tax savings through strategic deductions and credits
• Avoid underpayment penalties (currently 0.5% per month)
• Make informed decisions about retirement contributions and investments
• Compare job offers with different compensation structures

The U.S. tax system operates on a progressive structure, meaning higher portions of your income are taxed at higher rates. For 2024, there are seven federal tax brackets ranging from 10% to 37%. State taxes add another layer of complexity, with rates varying from 0% (in states like Texas and Florida) to over 13% (in California for top earners).

⚠️ Critical Note: The Tax Cuts and Jobs Act of 2017 significantly altered tax calculations by nearly doubling the standard deduction and eliminating personal exemptions. These changes remain in effect for 2024.

Module B: How to Use This Income Tax Calculator

Our advanced calculator incorporates all 2024 tax law changes to provide precise results. Follow these steps for accurate calculations:

1. Enter Your Gross Income

   Input your total annual income before any deductions. This includes:

   • W-2 wages and salaries
   • 1099 freelance/self-employment income
   • Investment income (dividends, capital gains)
   • Rental income
   • Alimony received (for divorces finalized before 2019)
2. Select Filing Status

   Choose from five options that significantly impact your tax calculation:

   • Single: Unmarried individuals
   • Married Filing Jointly: Married couples filing together (most advantageous)
   • Married Filing Separately: Married couples filing individual returns
   • Head of Household: Unmarried individuals supporting dependents

   Note: Married filing separately often results in higher taxes due to reduced deductions and credits.

3. Specify Your State

   State income taxes vary dramatically. Nine states have no income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY), while others like California and New York have progressive systems with rates exceeding 10% for high earners.

4. Enter Deductions

   You can choose between:

   • Standard Deduction: Fixed amount based on filing status ($14,600 for single filers in 2024)
   • Itemized Deductions: Actual expenses like mortgage interest, medical expenses (over 7.5% of AGI), charitable donations, and state/local taxes (capped at $10,000)

   The calculator automatically selects the more advantageous option.

5. Input Retirement Contributions

   Contributions to qualified accounts reduce your taxable income:

   • 401(k)/403(b): Up to $23,000 in 2024 ($30,500 if age 50+)
   • IRA: Up to $7,000 in 2024 ($8,000 if age 50+)
   • HSA: Up to $4,150 (individual) or $8,300 (family) in 2024
6. Add Tax Credits

   Credits directly reduce your tax liability dollar-for-dollar. Common credits include:

   • Child Tax Credit: Up to $2,000 per child under 17
   • Earned Income Tax Credit: Up to $7,430 for low-to-moderate earners
   • Education Credits: American Opportunity (up to $2,500) and Lifetime Learning
   • Saver’s Credit: Up to $1,000 ($2,000 for couples) for retirement contributions
7. Review Results

   The calculator provides:

   • Taxable income after all adjustments
   • Federal and state tax liability
   • FICA taxes (7.65% for Social Security and Medicare)
   • Total tax burden and effective tax rate
   • Estimated take-home pay
   • Visual breakdown of where your taxes go

Module C: Income Tax Calculation Formula & Methodology

Our calculator uses the following precise methodology aligned with IRS Publication 17 and state tax codes:

Step 1: Calculate Adjusted Gross Income (AGI)

AGI = Gross Income – Above-the-Line Deductions

Above-the-line deductions include:

• Retirement account contributions (401k, IRA, HSA)
• Student loan interest (up to $2,500)
• Self-employment taxes (50% deduction)
• Health insurance premiums for self-employed
• Alimony paid (for divorces before 2019)

Step 2: Determine Taxable Income

Taxable Income = AGI – (Greater of Standard or Itemized Deductions) – Qualified Business Income Deduction (if applicable)

The 2024 standard deduction amounts are:

• Single: $14,600
• Married Filing Jointly: $29,200
• Head of Household: $21,900
• Married Filing Separately: $14,600

Step 3: Apply Tax Brackets

Federal income tax is calculated using progressive brackets:

Filing Status	10%	12%	22%	24%	32%	35%	37%
Single	$0 – $11,600	$11,601 – $47,150	$47,151 – $100,525	$100,526 – $191,950	$191,951 – $243,725	$243,726 – $609,350	$609,351+
Married Filing Jointly	$0 – $23,200	$23,201 – $94,300	$94,301 – $201,050	$201,051 – $383,900	$383,901 – $487,450	$487,451 – $731,200	$731,201+
Head of Household	$0 – $16,550	$16,551 – $63,100	$63,101 – $100,500	$100,501 – $191,950	$191,951 – $243,700	$243,701 – $609,350	$609,351+

Example calculation for a single filer with $75,000 taxable income:

• 10% on first $11,600 = $1,160
• 12% on next $35,549 = $4,265.88
• 22% on remaining $27,851 = $6,127.22
• Total federal tax = $11,553.10

Step 4: Calculate State Taxes

State tax calculations vary by jurisdiction. For example:

• California: 1% to 13.3% progressive rates
• New York: 4% to 10.9% progressive rates
• Texas: 0% (no state income tax)

Step 5: Apply Tax Credits

Credits reduce your tax liability directly. The calculation follows:

Final Tax Liability = (Federal Tax + State Tax + FICA) – Tax Credits

FICA taxes are calculated as:

• Social Security: 6.2% on first $168,600 of income (2024 limit)
• Medicare: 1.45% on all income + 0.9% additional on income over $200,000

Step 6: Determine Effective Tax Rate

Effective Tax Rate = (Total Tax Paid / Gross Income) × 100

This metric provides the most accurate representation of your overall tax burden.

Module D: Real-World Income Tax Calculation Examples

These case studies demonstrate how different financial situations affect tax liability:

Case Study 1: Single Professional in Texas

• Gross Income: $85,000
• Filing Status: Single
• State: Texas (no state income tax)
• 401k Contributions: $6,000
• Standard Deduction: $14,600
• Tax Credits: $0

Calculation:

• AGI = $85,000 – $6,000 = $79,000
• Taxable Income = $79,000 – $14,600 = $64,400
• Federal Tax = $7,180 (using 2024 brackets)
• FICA = $6,514.50 ($85,000 × 7.65%)
• State Tax = $0
• Total Tax = $13,694.50
• Take-Home Pay = $71,305.50
• Effective Rate = 16.11%

Case Study 2: Married Couple in California with Children

• Gross Income: $150,000 (combined)
• Filing Status: Married Filing Jointly
• State: California
• 401k Contributions: $15,000 (combined)
• IRA Contributions: $7,000
• Itemized Deductions: $25,000 (mortgage interest + property taxes)
• Tax Credits: $4,000 (2 children × $2,000 Child Tax Credit)

Calculation:

• AGI = $150,000 – $15,000 – $7,000 = $128,000
• Taxable Income = $128,000 – $25,000 = $103,000
• Federal Tax = $10,247 (using MFJ brackets)
• California Tax = $4,820 (using CA brackets)
• FICA = $11,475 ($150,000 × 7.65%)
• Total Before Credits = $26,542
• After Credits = $22,542
• Take-Home Pay = $127,458
• Effective Rate = 15.03%

Case Study 3: Self-Employed Individual in New York

• Gross Income: $220,000
• Filing Status: Single
• State: New York
• SEP IRA Contributions: $20,000
• Self-Employment Tax Deduction: $8,436 (50% of SE tax)
• Itemized Deductions: $32,000
• Tax Credits: $1,000 (Home Office Credit)

Calculation:

• AGI = $220,000 – $20,000 – $8,436 = $191,564
• Taxable Income = $191,564 – $32,000 = $159,564
• Federal Tax = $30,664 (using single brackets)
• NY State Tax = $10,450
• Self-Employment Tax = $15,012.80 (15.3% of 92.35% of $220,000)
• Total Before Credits = $56,126.80
• After Credits = $55,126.80
• Take-Home Pay = $164,873.20
• Effective Rate = 25.06%

Module E: Income Tax Data & Statistics

Understanding national tax trends helps contextualize your personal situation:

Federal Income Tax Burden by Income Percentile (2024 Estimates)

Income Percentile	Average Income	Average Federal Tax	Effective Federal Rate	Total Tax Burden (incl. state & FICA)
Bottom 20%	$15,000	-$2,500 (net refund)	-16.67%	7.65% (FICA only)
20th-40th	$35,000	$1,200	3.43%	15.2%
40th-60th	$65,000	$4,800	7.38%	20.1%
60th-80th	$100,000	$11,500	11.50%	24.8%
80th-90th	$150,000	$22,000	14.67%	28.3%
90th-95th	$220,000	$38,500	17.50%	31.2%
Top 5%	$350,000+	$80,500	23.00%	34.7%
Top 1%	$800,000+	$224,000	28.00%	37.1%

Source: Tax Policy Center

State Income Tax Comparison (2024)

State	Top Marginal Rate	Standard Deduction (Single)	Flat/Progressive	Notable Features
California	13.3%	$5,363	Progressive (10 brackets)	Highest state tax in nation; 1% mental health surcharge on income >$1M
Texas	0%	N/A	None	No state income tax; high property taxes (avg 1.69%)
New York	10.9%	$8,000	Progressive (8 brackets)	NYC adds local tax (3.876%); high property taxes
Florida	0%	N/A	None	No state income tax; sales tax 6% + local
Illinois	4.95%	$2,425	Flat	Proposed progressive tax failed; high property taxes
Washington	0%	N/A	None	No income tax; 7% capital gains tax on >$250k
Pennsylvania	3.07%	$0	Flat	No standard deduction; local income taxes common
Massachusetts	5.0%	$4,400	Flat (with 4% surtax on >$1M)	“Millionaires tax” passed in 2023

Source: Federation of Tax Administrators

Historical Federal Tax Rate Trends

The top federal income tax rate has fluctuated significantly:

• 1913-1917: 7% (when income tax began)
• 1944-1945: 94% (WWII financing)
• 1981: 70% (pre-Reagan cuts)
• 1988-1990: 28% (post-Tax Reform Act)
• 2003-2012: 35% (Bush tax cuts)
• 2018-Present: 37% (Tax Cuts and Jobs Act)

Corporate tax rates have followed a similar downward trend, from 52% in 1952 to 21% today.

Module F: Expert Tips to Optimize Your Tax Calculation

Implement these strategies to legally minimize your tax burden:

Deduction Optimization Strategies

• Bunching Deductions: Alternate between standard and itemized deductions by timing expenses. For example, pay January’s mortgage payment in December to bunch interest deductions.
• Donor-Advised Funds: Contribute multiple years’ worth of charitable donations in one year to exceed the standard deduction threshold.
• Home Office Deduction: If self-employed, claim $5/sq ft up to 300 sq ft (simplified method) or actual expenses (more complex but potentially larger).
• State Tax Payments: Prepay estimated state taxes in December to claim the deduction in the current year (subject to $10k SALT cap).

Retirement Account Strategies

1. Maximize 401k Contributions: $23,000 limit in 2024 ($30,500 if 50+). Every $1,000 contributed saves $220-$370 in federal taxes depending on your bracket.
2. Backdoor Roth IRA: For high earners (>$161k single/$240k married) who can’t contribute directly to Roth IRAs:
   1. Contribute $7,000 to traditional IRA (non-deductible)
   2. Convert to Roth IRA (tax-free growth)
3. Mega Backdoor Roth: If your 401k allows after-tax contributions, you can contribute up to $45,000 additional ($69,000 total limit) and convert to Roth.
4. HSA Triple Tax Advantage: Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. Max contribution: $4,150 (individual) or $8,300 (family).

Tax Credit Maximization

• Child Tax Credit: Phaseout begins at $200k single/$400k married. Consider deferring income if near threshold.
• Earned Income Tax Credit: For low-to-moderate earners. 2024 max credit: $7,430 (3+ children).
• Education Credits:
  • American Opportunity Credit: $2,500 per student (first 4 years)
  • Lifetime Learning Credit: $2,000 per tax return (no year limit)
• Electric Vehicle Credit: Up to $7,500 for new EVs meeting MSRP and income requirements ($150k single/$300k married).

Income Timing Strategies

• Defer Income: If you expect to be in a lower tax bracket next year, defer bonuses or freelance income to January.
• Accelerate Deductions: Pay medical expenses, property taxes, or make charitable contributions before year-end.
• Capital Gains Planning:
  • Long-term capital gains (assets held >1 year) taxed at 0%, 15%, or 20% vs. ordinary rates.
  • Harvest losses to offset gains (up to $3,000 excess loss can offset ordinary income).
• Roth Conversions: Convert traditional IRA/401k funds to Roth in low-income years (e.g., during career breaks or early retirement).

Business Owner Strategies

• Section 179 Deduction: Expense up to $1,220,000 of equipment purchases in year acquired (2024 limit).
• QBI Deduction: 20% deduction for pass-through business income (subject to income limits).
• Home Office Deduction: Claim actual expenses or simplified $5/sq ft method.
• Retirement Plans: Solo 401k (up to $69,000 contribution) or SEP IRA (up to $69,000 or 25% of compensation).

State-Specific Strategies

• High-Tax States: Consider establishing residency in no-income-tax states while maintaining ties to high-tax states (requires careful planning).
• 529 Plans: Some states offer tax deductions for contributions (e.g., NY allows $10,000 deduction for married couples).
• Property Tax Appeals: Challenge assessed values to reduce property tax bills (especially valuable in states with high property taxes like NJ, IL, CT).

⚠️ IRS Audit Red Flags: Avoid these common triggers:

• Claiming 100% business use of a vehicle
• Reporting substantially lower income than industry averages
• Taking large charitable deductions relative to income
• Claiming the home office deduction with no clear business purpose
• Filing Schedule C with consistent losses (hobby loss rules)

Module G: Interactive Income Tax FAQ

How do I know if I should itemize deductions or take the standard deduction?

You should itemize if your eligible deductions exceed the standard deduction for your filing status. Common itemized deductions include:

• Mortgage interest (on up to $750,000 of debt)
• State and local taxes (capped at $10,000)
• Charitable contributions
• Medical expenses exceeding 7.5% of AGI
• Casualty and theft losses (from federally declared disasters)

The 2024 standard deductions are:

• Single: $14,600
• Married Filing Jointly: $29,200
• Head of Household: $21,900

Our calculator automatically compares both methods and selects the more advantageous option.

What’s the difference between a tax deduction and a tax credit?

Tax Deductions reduce your taxable income, while tax credits directly reduce your tax liability. Here’s how they differ:

Feature	Tax Deduction	Tax Credit
How it works	Reduces income subject to tax	Directly reduces tax owed
Value	Equal to your marginal tax rate × deduction amount	Full dollar-for-dollar reduction
Example (24% bracket)	$1,000 deduction = $240 tax savings	$1,000 credit = $1,000 tax savings
Common Examples	Mortgage interest, charitable donations, 401k contributions	Child Tax Credit, Earned Income Tax Credit, education credits
Refundability	Never refundable	Some are refundable (can exceed tax liability)

Pro Tip: Focus on credits first, as they provide greater savings. For example, the $2,000 Child Tax Credit is worth more than a $10,000 deduction for someone in the 24% bracket ($2,400 savings).

How does getting married affect my taxes?

Marriage can significantly impact your taxes through:

Potential Benefits (“Marriage Bonus”)

• Lower Tax Brackets: Married filing jointly brackets are exactly double single brackets up to the 32% rate, benefiting couples with disparate incomes.
• Higher Deduction Limits: Standard deduction doubles to $29,200 in 2024.
• Expanded Credits: Higher income thresholds for credits like the Child Tax Credit ($400k vs. $200k for single).
• Gift Tax Exemption: Doubles to $34,000 per recipient (2024).

Potential Drawbacks (“Marriage Penalty”)

• Higher Brackets at Top: The 35% and 37% brackets for joint filers are less than double the single brackets.
• Phaseout Thresholds: Some deductions/credits phase out at lower joint income levels than double the single limits.
• Student Loan Payments: Marriage may increase AGI, affecting income-driven repayment plans.
• Social Security Benefits: Combined income may make more benefits taxable.

Pro Tip: Use our calculator to compare “Married Filing Jointly” vs. “Married Filing Separately” scenarios. Separate filing is rarely advantageous but may help in cases of:

• One spouse with significant medical expenses (7.5% of individual AGI vs. joint)
• Income-based student loan repayment plans
• One spouse with substantial miscellaneous deductions

What records should I keep for tax purposes?

The IRS recommends keeping tax records for 3-7 years depending on the situation. Here’s a comprehensive checklist:

Income Documentation (Keep 7 years)

• W-2 forms from employers
• 1099 forms (freelance, interest, dividends, etc.)
• K-1 forms (partnership/S-corp income)
• Records of alimony received (pre-2019 divorces)
• Jury duty pay records
• Gambling winnings

Deduction Documentation (Keep 3-7 years)

• Charitable Donations: Receipts for cash donations + acknowledgment letters for >$250. For non-cash donations, keep photos, appraisals, and donation receipts.
• Medical Expenses: Bills, insurance statements, mileage logs for medical travel.
• Home Ownership:
  • Form 1098 (mortgage interest)
  • Property tax bills
  • Closing statements (for points deduction)
  • Home improvement receipts (for capital gains basis)
• Business Expenses:
  • Mileage logs (IRS rate: 67¢/mile in 2024)
  • Receipts for supplies, equipment, meals (50% deductible)
  • Bank/credit card statements showing business expenses
  • Home office measurements and utility bills
• Education: Form 1098-T, receipts for books/supplies, student loan interest statements.

Special Situations (Keep Permanently)

• Tax returns themselves (IRS recommends indefinitely)
• Records related to property until sold (to establish cost basis)
• Retirement account contribution records (Form 5498)
• IRA basis records (for non-deductible contributions)
• Gift tax returns (Form 709)

Digital Organization Tips

• Use IRS-approved e-signatures for digital records
• Scan paper documents at 300 DPI or higher
• Name files consistently (e.g., “2024_W2_EmployerName.pdf”)
• Use cloud storage with encryption (Google Drive, Dropbox, or dedicated services like IRS Free File)

How do I calculate my self-employment tax?

Self-employment tax consists of Social Security (12.4%) and Medicare (2.9%) taxes, totaling 15.3% on 92.35% of your net earnings. Here’s how to calculate it:

Step-by-Step Calculation

1. Determine Net Earnings:

   Net Earnings = Gross Income – Ordinary and Necessary Business Expenses

   Example: $100,000 income – $30,000 expenses = $70,000 net earnings

2. Apply 92.35% Factor:

   $70,000 × 92.35% = $64,645 (this accounts for the employer portion)

3. Calculate Tax:

   $64,645 × 15.3% = $9,885.79 self-employment tax

4. Deduct Employer Portion:

   You can deduct half (7.65%) of your SE tax from your income tax:
   $9,885.79 × 50% = $4,942.89 deduction

Important Thresholds (2024)

• Social Security Wage Base: Only the first $168,600 of earnings is subject to the 12.4% Social Security portion. Earnings above this are only subject to the 2.9% Medicare tax.
• Additional Medicare Tax: 0.9% extra on earnings over $200,000 (single) or $250,000 (married).
• Quarterly Estimated Taxes: If you expect to owe $1,000+ in taxes, you must make quarterly payments (April 15, June 15, September 15, January 15).

Reduction Strategies

• S-Corp Election: Pay yourself a “reasonable salary” (subject to SE tax) and take additional profits as distributions (not subject to SE tax).
• Retirement Contributions: Solo 401k or SEP IRA contributions reduce net earnings subject to SE tax.
• Business Deductions: Maximize legitimate business expenses to reduce net earnings.
• Health Insurance Deduction: Self-employed health insurance premiums are 100% deductible.

⚠️ Common Mistake: Many self-employed individuals forget that SE tax is in addition to income tax. Always set aside 25-30% of income for taxes to avoid surprises.

What are the most common tax mistakes people make?

Avoid these costly errors that trigger IRS notices or leave money on the table:

Filing Errors

• Math Mistakes: Simple addition/subtraction errors (use tax software or our calculator).
• Incorrect Filing Status: Choosing wrong status (e.g., “Head of Household” when not qualifying).
• Missed Deadlines: April 15 for most filers (October 15 with extension). Late filing penalty: 5% per month.
• Wrong SSN/ITIN: Transposed numbers can delay refunds.
• Unsigned Returns: Both spouses must sign joint returns.

Income Reporting Errors

• Missing 1099 Income: The IRS receives copies of all 1099s – omissions trigger automated notices.
• Side Gig Income: All income is taxable, even from cash jobs or platforms like Venmo (“Friends and Family” payments for services are taxable).
• Cryptocurrency Transactions: Failure to report crypto sales/trades (Form 8949 required).
• Foreign Income: Must report worldwide income if U.S. citizen/resident (FBAR filing for foreign accounts >$10k).

Deduction/Credit Mistakes

• Overstating Charitable Deductions: Without proper documentation (especially for non-cash donations).
• Claiming Standard Deduction + Itemizing: Can’t do both.
• Home Office Deduction Errors:
  • Claiming for a space not exclusively/regularly used for business
  • Taking both simplified and actual expense methods
• Education Credit Confusion:
  • Claiming American Opportunity Credit for >4 years
  • Double-dipping with 529 plan distributions
• Earned Income Tax Credit Errors: Claiming for children who don’t meet residency tests.

Retirement Account Mistakes

• Overcontributing: 401k ($23,000 limit in 2024) or IRA ($7,000) excess contributions incur 6% penalty.
• Missed RMDs: Required Minimum Distributions start at age 73 (50% penalty for missing).
• Early Withdrawal Penalties: 10% penalty on withdrawals before 59½ (exceptions apply).
• Roth IRA Mistakes:
  • Contributing with income above limits ($161k single/$240k married in 2024)
  • Not meeting 5-year rule for tax-free withdrawals

State-Specific Errors

• Non-Resident Filing: Failing to file non-resident returns for states where you worked temporarily.
• Local Taxes: Forgetting city/local income taxes (e.g., NYC, Philadelphia).
• Property Tax Deductions: Claiming incorrect amounts (especially with escrow accounts).

💡 Pro Tip: The IRS Free File program provides free tax software for incomes under $79,000, which can help avoid many common errors.

How can I reduce my taxable income legally?

These 15 legal strategies can significantly reduce your taxable income:

1. Maximize Retirement Contributions:
   • 401k/403b: $23,000 ($30,500 if 50+)
   • IRA: $7,000 ($8,000 if 50+)
   • HSA: $4,150 (individual) or $8,300 (family)
2. Flexible Spending Accounts:
   • Healthcare FSA: $3,200 limit (2024)
   • Dependent Care FSA: $5,000 limit
3. Health Savings Account: Triple tax advantage – contributions deductible, growth tax-free, withdrawals tax-free for medical expenses.
4. Student Loan Interest: Deduct up to $2,500 (phaseout starts at $80k single/$165k married).
5. Self-Employed Health Insurance: 100% deductible premiums for self, spouse, and dependents.
6. Home Office Deduction: $5/sq ft (up to 300 sq ft) or actual expenses.
7. Rental Property Depreciation: Deduct a portion of the property’s value over 27.5 years.
8. Business Expenses:
   • Mileage: 67¢/mile in 2024
   • Meals: 50% deductible for business purposes
   • Equipment: Section 179 allows full expensing up to $1,220,000
9. Alimony Payments: Deductible if divorce finalized before 2019.
10. Moving Expenses: Deductible for military members (PCS moves).
11. Educator Expenses: $300 deduction for teachers buying classroom supplies.
12. IRA Contributions: Deductible if under income limits ($93k single/$196k married for 2024).
13. Capital Losses: Up to $3,000 can offset ordinary income; excess carries forward.
14. Qualified Business Income Deduction: 20% deduction for pass-through business income (subject to limits).
15. State and Local Taxes: Up to $10,000 deduction (SALT cap).

Advanced Strategies

• Deferred Compensation: Non-qualified deferred compensation plans for high earners.
• Cash Balance Plans: For business owners – can contribute $100k+ annually.
• Installment Sales: Spread capital gains recognition over multiple years.
• Like-Kind Exchanges (1031): Defer capital gains on investment property sales.
• Charitable Remainder Trusts: Donate appreciated assets, receive income stream, and avoid capital gains.

⚠️ Important: Always consider the time value of money when deferring taxes. A dollar saved today may be worth more than a dollar saved in the future, even with tax deferral.