subject: Tax Brackets Everything You Need To Know [print this page] Quick: What's your Tax Brackets? Even if you know it, the concept is pretty confusing. And worse, many us taxpayers do not comprehend the importance, or in certain cases, the lack of significance of tax brackets. overemphasize taxes, yet on the other hand they minimize taxes. Tax Lawyer Anthony E. Parent of Parent & Parent LLP, the IRSmedic, breaks down the confusion and shares principal information to help a taxpayer reduce taxes and avoid IRS entanglements.
The idea of tax bracekts comes from the "Progressive" idea that the larger one's capacity to give to government, the more one should contribute. A lot of people believe this.
The Progressives eventually prevailed in getting the Amendment they desired passed which would grant power to Congress to tax income. The Progressives asserted that the novel income tax would only affect the wealthy and would be used not just to raise revenue for more government expenditure, but also "even the playing field."
Once Congress had the lawful authority to assess an income Tax Brackets, rapidly the promised limited scope of the income tax was widened to drag nearly everyone down. And during the Great Depression, Congress also imposed "employment" taxes, which aren't officially income taxes, but are based upon income.
Congress also gave marching orders to the IRS to collect and assess taxes known as employment and self employment taxes. 50% of what the IRS extracts is employment taxes. Those tax rates are not reflected in the tax brackets charts.
For individual us taxpayers, the current tax brackets are 10, 15, 25, 28, 33 and 35%. Income is not the only factor of tax bracket rate. Filing status also affects tax rates of taxpayers.
But certain kinds of income aren't taxed at the tax bracket rate. Nor do these employment taxes apply. Long-term capital gains receive favored tax treatment for individual taxpayers. Dividends are also taxed at lower rates, and of course, tax free municipal bonds.
Higher wages earners may not even need to think about these tax brackets as the Alternative Minimum Tax applies. And don't allow the term trick you, even though it says minimum in the tax, the sum imposed might be larger. The differences could be titanic. The cause is that the IRS charges a lesser tax rate, but begins to eliminate helpful deductions like local and state taxes.
Tax Brackets influence incredibly little. What is more important is the effective taxable rate. Relying on the tax brackets to prepare what you will owe can lead to giganticblunders.
