Understanding Tax Brackets.
Tax brackets are misunderstood. Did you know that they have little to do with how much you will pay — especially at the higher-end brackets? Did you know that tax brackets will never tell you how much you will pay in other taxes like social security and medicare? Also hidden is what your employer pays in taxes or what you will pay as self-employment tax if you are self-employed. It is easy to estimate your tax liability wrong.
With these warnings, here are the four tax rate schedules of income tax brackets.
- Tax-Bracket-Married-Joint (or qualifying widower)
Again, these tax brackets are essentially useless in determining an accurate estimate of what your tax liability will be. These tax brackets are only a rough guide, in the loosest sense of the word. The IRS gives this same warning. The only way to calculate your tax liability is by completing your personal 1040, with all schedules — especially schedule SE for those who are self-employed, or Alternative Minimum Tax (AMT) for higher income earners. It is very easy, especially for recent arrivals to the higher tax brackets to get withholding and estimated payments wrong. We understand that few taxpayers truly understand taxes – even those who have impressive credentials, or feel they should know better. Trust us, tax problems happen to a surprising array of people. That’s why we always look to educate, not berate our clients.
If you are unpleasantly surprised by line 70 of your 1040 tax return, “Amount you owe,” and are wondering what your best course of action is, contact us for a confidential consultation to advise you on the best way out of this problem. We promise we understand what you are going through.
For more information and updates on tax brackets, including AMT and Corporate tax brackets, visit the tax brackets section of our blog.