Reply To: Tax Brackets

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#143334
SherrieL
Participant

The IRS has these tax brackets online, for this year. For simplicity, let’s assume the tax brackets are 10% to $10,000, 25% to $50,000, 50% to $100,000 (obviously, made up) This year you make $60,000 gross income. This is not your taxable income, because there are standard deductions for yourself and your kids, or if you itemize you can deduct mortgage interest, sales tax, some part of your medical expenses if they get high enough, heck, there’s whole libraries on the DEDUCTIONS, which affect your gross income, lowering it to get to your Adjusted Gross Income. Let’s assume it’s just you, no dependents, and you take the “standard deduction”, which you look up and find out it’s $5,000. (Also, made up) So, your Adjusted Gross Income is $55,000 ($60,000 – $5,000). Using the tax brackets mentioned above, the first $10,000 is taxed at 10%, for a tax of $1,000. The next $40,000 is taxed at 25%, for a tax of $10,000. The last $5,000 is the only part that gets taxed at 50%, ($10,000+40,000+5,000=55,000) for a tax of $2,500. Add them all together, $1,000+$10,000+$2,500 = $13,500, which is the tax you pay in this scenario, EXCEPT if you get any TAX CREDITS. These might happen if you buy a hybrid car, for example. These credits get deducted directly from the taxes owed, not from your income, so tax credits are way more valuable than tax deductions. Sorry for the long post, but you can see that the question is not an easy one to answer.
If I goofed up any part of this answer, please somebody else jump in and set me (and the OP) straight.