Understanding Tax Rates

Understanding personal income taxes and how they work can be a bit harrowing. However, with a little help from a financial professional and some research into the processes of the IRS, it doesn’t have to be all that difficult.   

Basically, all personal income taxes are taxed on a graduated scale. This means that your tax rate might be:

l  10%

l  15%

l  25%

l  28%

l  33%

l  35%

l  39.6%

The tax percentage that you will fall into, referred to as a “tax bracket” is dependent on your income and your filing status. Your type of income also matters. Most people just face ordinary tax rates like those described above, though some will face a separate, specialized tax rate due to income related to qualified dividends or long-term capital gains.

There are also, outside of these, specialized tax rates to consider, such as:

l  Social security tax rates

l  Alternative minimum tax rates

l  Medicare tax rates

l  Additional Medicare tax rates

l  Net investment income tax rates

Whether or not these and other specialized tax rates will apply to you and to what degree will be dependent upon several factors.

Hopefully, all of this makes you see just how complex understanding your tax rate can be. And, while doing research on your own is vital and helpful, never underestimate the importance of hiring a financial professional to help walk you through it all and to guide you into making the best possible decisions for your needs, goals, and circumstances.