How to Calculate Your Tax Brackets

It is crucial to be familiar with the tax brackets in order to make it easier for people who earn more than a set amount. These are income divisions at which tax rates can change. These brackets have certain income levels above which you will pay more tax. The tax rate is usually higher for those with higher incomes. This is essential for anyone who wishes to plan their financial future. Here are some ways to calculate your tax brackets.
Dividends

Dividend tax rates are partly determined by taxable income. Qualified dividends are, for example, subject to a lower tax rate than ordinary dividends. Ordinary dividends are subject to the investor’s normal income tax rate. Nontaxable distributions are, however, not subject to tax. You may also be eligible to receive lower rates of tax for certain types dividends by investing tax-deferred funds.
Social Security

Depending on their income, some Social Security benefits may be taxed. There are many income tax brackets that Social Security benefits fall under, but those with an adjusted gross income less than $25,000 won’t have to pay taxes. People with incomes between $25k-$34,000 will be required to pay tax on 50% of their benefits. People earning over $44,000 may be required to pay up to 15% of their benefits.
Pensions

Taxing retirement income is a major consideration when deciding on the best retirement plan. Consider the tax rates in your state and any itemized deductions. These two factors will help you determine how much tax you should be setting aside each year. It is important to consider the tax consequences of moving to another country. Pension income is taxed in the same way as federal income. These states usually require tax withholding and quarterly estimated taxes payments.
IRAs

Your marginal tax rate will determine whether you should contribute to an IRA (or 401(k). You will need to compare your marginal tax rate for retirement with the income you have now if you earn a significantly higher income than the standard deduction. To save money, you might convert your IRA into a taxable account if you have a high-income income. This is not an easy decision. Over time, the tax rates will rise.
Area not taxed at the bottom of the tax bracket

You can reduce your tax bill by increasing the area that is not subject to tax. You can also make adjustments to your deductible retirement account, mortgage interest, or charitable contributions. Except for married couples with incomes over $450K, the tax rates for 2003-2012 will continue to apply in 2013. Below are more tips on how to maximize this tax benefit. Check out our guide on maximising your untaxed areas.
Marginal tax rate

You might have heard of the difference between marginal tax rate (or effective tax rate)? What is the difference between these figures? The marginal tax rate gives you information about your financial situation, while the effective rate is what a tax planner uses in order to evaluate the tax consequences of investments. Let’s talk more about these terms. It’s important that you understand the purpose of these terms if you are unsure.