How to lower my tax bracket

how to lower my tax bracket

Other People Are Reading

How Tax Brackets Work

The federal income tax imposes progressively higher rates as your income increases. However, as the rates go up, the higher rates only apply to the amount of income that actually falls within the higher tax bracket. For example, pretend the tax brackets are 10 percent for up to $10,000 of income, 20 percent for income between $10,000 and $40,000 and 30 percent on income for $40,000 up. If you make $40,000, your first $10,000 is taxed at 10 percent and the next $30,000 is taxed at 20 percent. If your boss gives you a $1,000 bonus, pushing your income to $41,000, you fall in the 30 percent tax bracket, but only that last $1,000 is taxed at 30 percent.

Adjustments to Income

Adjustments to income refer to deductions you can claim without giving up the standard deduction; if you're eligible, there's no reason not to claim them. Adjustments to income include contributions to traditional individual retirement accounts, alimony you pay, moving expenses, student loan interest, educator expenses and the tuition and fees deduction. For example, if you work

as a teacher, you can claim up to $250 for supplies you bought for your classroom as an educator expense.

Itemized Deductions

Itemized deductions are only available if you forgo the standard deduction. These deductions include mortgage interest, contributions to charity, medical expenses and state and local income or sales taxes. If your itemized deductions total less than the standard deduction, you can lower your taxable income more by claiming the standard deduction instead. As of the 2014 tax year, the standard deduction is $6,200 for singles, $12,400 for joint filers and $9,100 for heads of household.

Personal Exemptions

Personal exemptions reduce your income for each person you support, which in turn lowers your taxes. As of 2014, each exemption reduces your taxable income by $3,950. You can claim an exemption for yourself if no one else claims you as a dependent, your spouse if you file jointly and any dependents -- such as your kids. For example, if you're married with two kids, that's four exemptions -- enough to lower your taxable income by $15,800 and potentially move you into a lower tax bracket.


Category: Taxes

Similar articles: