Do You Know How Income Taxes Are Calculated

Do you​ Know How Income Taxes Are Calculated?
This is​ the​ first of​ a​ series of​ 2018 Tax reference sheets that I'll be sharing with you​ over the​ next month or​ so .​
This one focuses on​ some of​ the​ major federal income tax key numbers .​
I'll do future ones for estate planning,​ retirement planning and business planning in​ the​ not too distant future so stay tuned.
Since federal income taxes are such a​ large part of​ most peoples life or​ expenditures,​ I​ thought that you​ might like a​ summary or​ reference sheet for some of​ the​ important figures for 2018.
Many people believe that if​ someone is​ in​ the​ 28% tax bracket,​ they pay all taxes due at​ the​ rate of​ 28% of​ taxable income .​
This is​ not correct .​
a​ couple having a​ taxable income of​ $125,​000 does not pay 25% federal income tax on​ ALL of​ the​ taxable income.. .​
but only on​ everything over $63,​700 .​
The first $15,​650 is​ only taxed at​ 10%,​ the​ taxable income from $15,​560-$63,​700 would be taxed at​ 15% and so on​ .​
The figures below is​ taxable income (after deductions and exemptions).
I'll start out with the​ tax brackets for the​ 2018 tax year.
The figures below show the​ various steps on​ how the
marginal income brackets are progressively taxed higher.
Married,​ Filing Jointly:
$zero - $15,​650 is​ taxed at​ 10%
$15,​650 - $63,​700 is​ taxed at​ 15%
$63,​700 - $128,​500 is​ taxed at​ 25%
$128,​500 - $195,​850 is​ taxed at​ 28%
$195,​850 - $349,​700 is​ taxed at​ 33%
over $349,​700 is​ taxed at​ 35%
Married,​ Filing Separately:
Note: Often times it​ make more sense for a​ married couple to​ file taxes separately for either tax reduction strategies or​ for non-tax reasons .​
Your tax advisor should help you​ decide if​ there are important reasons for you​ to​ take advantage of​ this filing status.
Tax brackets for Married Filing Separately: Simply cut the​ above taxable figures in​ half for those six tax brackets
$zero - $7,​825 is​ taxed at​ 10%
$7,​825 - $31,​850 is​ taxed at​ 15%
$31,​850 - $77,​100 is​ taxed at​ 25%
$77,​100 - $160,​850 is​ taxed at​ 28%
$160,​850 - $349,​700 is​ taxed at​ 33%
over $349,​700 is​ taxed at​ 35%
Single,​ Head of​ Household:
$zero - $11,​200 is​ taxed at​ 10%
$11,​200 - $42,​650 is​ taxed at​ 15%
$42,​650 - $110,​100 is​ taxed at​ 25%
$110,​100 - $178,​350 is​ taxed at​ 28%
$178,​350 - $349,​700 is​ taxed at​ 33%
over $349,​700 is​ taxed at​ 35%
Standard Deduction:
Standard Deduction is​ ONLY for those who do NOT itemize expenses like mortgage interest,​ charitable contributions,​ etc.
Married,​ Filing Jointly: $10,​700
Married,​ Filing Separately: $ 5,​350
Single: $ 5,​350
Single,​ Head of​ Household: $ 7,​850
Those who are blind or​ over age 65 can ADD $1,​050 (if married) or​ $1,​300 (if single or​ head of​ household) to​ the​ above Standard Deductions
Personal Exemptions:
Personal Exemptions are set at​ $3,​400 per allowed person subject to​ Phaseouts (which are reductions in​ the​ Exemptions) based on​ taxable income .​
This is​ not an​ issue unless your taxable income is​ at​ least $117,​300 (depending on​ filing status).
Maximum taxable EARNED income subject to​ FICA tax: $97,​500
The Social Security and Medicare combined tax rate is​ 15.3% on​ income up to​ that figure .​
W-2 employees pay half of​ the​ 15.3% and employers pay the​ other half .​
Self-employed pay the​ whole amount.
Long-term Capital Gains and Qualified Dividend Rates:
For those in​ the​ 10% and 15% Income tax brackets only: 5%
For taxpayers in​ the​ higher tax backets: 15%
Capital gains on​ collectibles (coins,​ stamps,​ etc.) 28%
One of​ the​ important functions of​ a​ financial advisor is​ to​ help reduce taxes to​ your legal minimum due by using all appropriate deductions,​ methods and strategies .​
a​ good tax advisor is​ worth their weight in​ gold! So go find a​ pro-active tax advisor,​ not someone who just files tax returns.
And now,​ hopefully you​ will have a​ better idea of​ what that person is​ talking about.

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