Understanding Tax BracketsNews
Posted in on April 30, 2018
When you are in the 25 percent tax bracket, this does not mean that you have to pay taxes on 25 percent of your total income that you earned.
Many people are confused exactly what tax brackets mean or confused about how to determine what their taxes will be. It is important to understand tax brackets in the United States and to get help from a Virginia tax lawyer in order to ensure that you are taking advantage of deductions so you can be in the lowest tax bracket possible.
How Do Tax Brackets Work?
Tax brackets are ranges of income that are taxed at a specific rate. For example, there are seven different tax brackets under both the old tax rules and the new tax rules ushered in by the Tax Cuts and Jobs Act that was signed into law in December 2017.
The old tax brackets were a 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% bracket. The new tax brackets after tax reform went into effect are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. When you file taxes in 2017, you will be taxed under the old brackets and when you file in 2018, you will be taxed under the new brackets.
The government sets different ranges of income that are taxed at each of these levels. For example, in 2018, income from $0 to $9,525 is in the 10 percent tax bracket. That means that all of the income you earn within this range is taxed at 10 percent. If you make $10, you pay $1. If you make $9,525, you pay $952.50. The 12 percent tax bracket, on the other hand, covers all of your income between $9,526 and $38,700.
If you make $9,535 you don't suddenly have to pay 12 percent instead of 10 percent on all of your income. You will still pay 10 percent on the income up to $9,525 – so you'll still owe the $952.50. However, on the additional $10 dollars you earned that fell within the higher tax bracket, you'll pay tax at 12 percent. This would mean you'd pay $1.20 in extra taxes on the extra $10 you earned.
When you make more money, you move up into a higher tax bracket and you keep less of the additional money that you make. That's because the U.S. is a progressive tax system so people who make more pay a bigger percentage of earnings.
However, if you are able to take tax deductions, then you can reduce your taxable income and can thus reduce your tax rate. If you earned $10,000 but were able to take $5,000 in tax deductions, all of your income would be taxed at the 10 percent rate instead of you having to pay 12 percent tax on almost $500 in income.
A Virginia tax lawyer can help you to understand what tax bracket you will fall within and can provide assistance in making sure you are taking full advantage of all tax deductions that are available. You should contact an experienced attorney like Kevin Thorn to find out what options you have for reducing your taxes and keeping your income within the lowest tax bracket possible.Share This Post