What are Tax Brackets?
Calculate Your Tax Rate
There are seven federal income tax brackets, each with different tax rate percentages. These range between 10% to 37% and are based on your income level for the previous year. As you bring in more money, it is taxed at a progressively higher rate. For instance, a single person who makes $8,000 in 2020 will owe 10% of their income in taxes. A single person who makes $300,000 in 2020 will be taxed at 35% for any income earned beyond $207,350. It’s important to note that the higher tax rate applies to just the income block that is above the threshold of the previous bracket. That means, the single person making $300,000 will be taxed at 10% for their first $9,875. Each level of financial gain beyond that enters into a new bracket (or tax rate).
Lower Your Tax Rate
There are tax planning strategies to help reduce the amount of money you’ll pay in taxes. Two of the most common ways to do this include using deductions and credits. Tax deductions are a way to reduce your taxable income. The standard deduction is a flat-rate that you can take off the top of your total income. If your individual deductions add up to an amount that is higher than the standard deduction, you may choose to itemize. Itemizing your deductions means that you list them individually. This requires more time and attention to record-keeping, but may be worth your while. Tax credits include the money you get back after calculating your owed taxes. You can be eligible for tax credits for a variety of circumstances, such as having a child, saving money in retirement or buying an electric car.
Know Your Filing Status
Your income threshold is adjusted based on how you choose to file your taxes. You are required to pick from one of the following: Single, Married Filing Jointly, Married Filing Separately and Head of Household. This classification system is referred to as your “filing status.” Married couples who file jointly instead of separately stand to gain certain benefits and credits. However, if you are separated from your spouse (not legally divorced) or you prefer to each prepare your own taxes, you may choose to file separately. In this case, any children that you share can only be claimed as a dependent on one person’s tax return and whichever deduction one spouse takes (standard or itemized) the other must take as well.
Get help from our Tax Professionals
Work with one of our tax professionals here at Alron Taxes, Inc., a wholly owned subsidiary of Alron Enterprises, Inc. Alron Taxes, Inc. specializes in providing taxpayers the highest quality, expert assistance with tax preparation services. We’ll make sure you receive every possible tax benefit and maximize your tax savings. Give us a call at 321-951-7626, email us at [email protected], or contact us here. We look forward to working with you!