It’s never too early to start thinking about taxes on your income. Even though one tax season just ended, in just a few months, you’re going to be back in the same position, working to get all of your paperwork in order so you can go about filing your taxes correctly.
Most people don’t know this, but the US income tax brackets change every year. Therefore, it’s helpful for you to know what the brackets are and approximately where you are going to fall in the upcoming year.
Not only that, but the US income tax brackets also change depending on your marital status and your position in the house. These are all extremely important things to know and in this article, we are going to be breaking down the US income tax brackets as well as giving you tips on how to approach tax season.
All of this should help to give you the information that you need regarding US income tax brackets and the know-how to save as much money as possible and make your life that much easier. Let’s talk about the US income tax brackets, shall we?
Now if you’ve had experience looking at a US income tax bracket chart before, all of this should be fairly common for you to see. However, if you have never looked at this before, we are going to explain it to you so you can understand exactly where you fit in the graph and how much taxes you are going to owe.
How To Read US Income Tax Bracket Charts
The first thing that you are going to want to do is find out which demographic you fit into. Are you the head of a household, are you single, or are you a married individual filing a joint return?
Once you have identified that, you are going to want to identify your income. Let’s say for example a single individual who is making $100,000 a year.
Looking at the US income tax bracket chart, you’ll see that you fall into the 24% rate. Does that mean you have to pay $24,000 in taxes? Most people don’t realize this, but no, your income is staggered and broken up between the US income tax brackets.
Your first $9,950 that you make is going to be taxed at a rate of 10%. The next $30,574 that you make (the amount between $40,525 and $9,951) is going to be taxed at 12%.
The next chunk of money is going to be taxed at 22%, and finally, the remaining amount of your income is going to be taxed at 24%.
Lowering Your Tax Rates
Now that we understand the US income tax bracket, are there any tips or tricks that you can use to help pay fewer taxes?
There are a few things that you can do to help knock your income down, and in the right circumstances, it could knock you a notch lower on the US income tax bracket as well. How can you do this?
The first thing that we want to state is that you need to make sure that you are reporting all of your taxable income to the IRS.
Under no circumstances should you ever be hiding income or underreporting to lower your tax rates. This is a federal crime and you will be punished for it. At AverageCash, we do not condone any illegal activity.
The main way to lower yourself on the US income tax bracket would be to expense out your income. This can be done in a variety of ways and is not only easy to do but is encouraged. There is a maximum amount of expenses that you can claim, however, so don’t think you can drop your US income tax bracket too far.
The first thing that we would advise doing is expensing anything work-related. Have you had to travel and stay in a hotel because of work? That can be expensed and will result in your overall income being lowered. Did you have to purchase products for yourself for work? Once again, that can be expensed.
There is a catch to expensing these things, however, you have to have a receipt to show proof. If you have lost your receipts and have no way of proving these payments, you are going to be out of luck.
There is a reason why many financial institutions advise that you keep track of all your receipts and store them right away. By doing this, you can keep everything nice and orderly and make it so you don’t have to be scrambling around come tax season.
Charitable donations are another thing that falls under expensable income. If you have made any donations to non-profit organizations or religious institutions, they should be able to give you a tax receipt that you can use to help lower your income.
The final method that we are going to talk about today for lowering your US income tax bracket is to contribute to your 401k. This is by far the best way to lower your tax rates as you are putting money aside for yourself in the future.
Money contributed to your 401k is not taxable, even when you pull it out in the future. There is a max contribution you can make each year, however, so once again, don’t think you can throw a large chunk of your income into it.
Will This Automatically Lower My US Income Tax Bracket Level?
Expensing your income might lower your level in the US income tax bracket, however, it might not. This all depends on what your income is and how far away you are from your tax brackets floor.
Simply speaking, you might not be able to expense enough things to drop your US income tax bracket level.
While you could potentially donate money or contribute more to your 401k, you might not have the money to do so. Therefore, careful planning is needed if you want to maximize the amount of money that you save.
You should be able to use all of this information to get a rough estimate of how much taxes you are going to be paying in 2021, along with how you can go about lowering your US income tax bracket level.
If you start working at it right away, you can make tax season that much easier for you. A little planning and preparation goes a long way.