subject: Are Your New 2011 Federal Tax Brackets Confusing You [print this page] Adding to the perplexity is the subject of 2011 Federal Tax Brackets. So a lot of taxpayers utterly get it wrong. Tax lawyer Anthony Parent explains what the myths are, in addition to how to steer clear of common problems.
The idea of tax bracekts comes from the "Progressive" inspiration that the more one's capacity to contribute to government, the more you should donate. Many people believe this.
The Progresives, through witty campaigning finally influenced a cynical public that the 16th Amendment was indispensable for the nation to prosper. Most people thought the income tax would be small and only affect a a small number of taxpayers. And not them.
Since the first peacetime income tax was legally imposed in 1913, we have seen 2011 Federal Tax Brackets go up and recede. Still, one thing is true: the tacit pledge of only taxing the rich has been rapidly abandoned. The IRS not only impose an income tax which about half of all taxpayers pay, but there are other taxes as well.
Congress also gave marching instructions to the IRS to collect and impose taxes known as employment and self employment taxes. 50% of what the IRS collects is employment taxes. Tax brackets are totally silent to these employment and self employment taxes.
For individual taxpayers, the current tax bracket rates are 10, 15, 25, 28, 33 and 35%. The tax bracket one falls into is dependent on tax filing status and as well as income.
Yet these tax brackets will not apply to some types of income earnings. And on certain kinds of income earnings, employment taxes are not imposed either. Individuals receive preferable treatment for income earnings obtained from long-term capital gains. Tax-free muni-bonds are tax-free. And dividends are taxed at a much better tax rate.
Also, numerous top income earners are subject to the Alternative Minimum Tax. To further confuse issues, the Alternative Mimimum tax brackets could apply. And there are entirely different tax brackets for the Alternative Minimum Tax. Those tax rates are 26 or 28%. The Alternative Minimum Tax brackets are either 26 or 28%. Even though those tax rates are lower than the normal tax brackets, the effective tax rates can be higher as because with the AMT, the IRS disallows several write-offs. Important deductions like local and state tax write-offs.
The truth is that 2011 Federal Tax Brackets are incredibly ambiguous. There is limited correlation between income and the tax rate really paid. It is foolish to believe tax brackets a valuable tax planning resource.
