Understanding Tax Brackets

There is a lot of talk lately about tax brackets and who falls into which bracket. All of this talk can be confusing and overwhelming, especially if you don’t really understand what tax brackets are all about.

The first thing to understand is that tax brackets exist because America has what is referred to as a progressive tax system. That means that people who earn more are typically taxed more. The IRS determines how much people are taxed by placing them into different tax brackets based on their incomes.

Right now, there are seven tax brackets in existence. Those who fall into the lowest tax bracket are taxed at a 10% rate while those who fall in the highest tax bracket are taxed at a 39.6% rate. These figures do change each year; they typically get higher since they are adjusted for inflation.

A lot of people feel that it is unfair to be taxed more simply because they earn more. Even those who don’t mind the system, however, often find ways to try and pay less in taxes, such as through exemptions, deductions, and adjustments. How valuable different tax-lowering measures such as these will be to you all depends on the tax bracket that you fall into, so knowing that information is the first step toward making a “plan of attack” for how to pay less in taxes.

Of course, if you still find all of this complicated, you can also choose to visit with your accountant for more information. This person can first let you know what tax bracket you’re in, the various ways in which your bracket affects you based on the specifics of your situation, and what you can do to lower your taxes as much as possible. Even if you do understand brackets, a little help lowering your taxes definitely can’t hurt!