When tax season comes around, you’ll probably find yourself at least somewhat consumed. What you thought was a simple “tax payment” isn’t as simple as it seems, and you’ll start hearing phrases like “income tax”, “deductibles”, “tax credits”, “gradual tax schedule”, and “tax bracket”. What do these mean and how does it affect you paying your taxes?
Pay on time
The first, and most important, thing to remember is that you have to pay on time. Taxes are serious business, and the IRS isn’t afraid to send you hefty bills in late fees. Even if there’s a very small discrepancy, they won’t let it slide. So it’s important to make sure that you have funds prepared to pay and file your tax return on time, which is to say before April 15th.
How does income tax work?
The amount of income tax that you will have to owe each year is based on your income level. So, the amount of taxable income that you bring in annually determines what tax bracket you fall into. Simply put, the more money that you make, the more money you will end up paying on your taxes. However, there are things such as tax credits, tax deductions, tax exclusions, and other tax breaks that reduce your income tax liability so you don’t end up paying more on taxes than you should.
At the end of every year, if you paid too much to your income taxes, you will receive a refund. If you didn’t pay enough over the course of the previous year, then you will owe when tax season comes around.
Marginal Tax Brackets
Your marginal tax bracket is the highest tax rate that you would have to pay for your income. There are seven marginal income tax brackets for each filing status: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. This is a gradual scale though, so the amount you pay will grow when your income also grows.
Need help with your income tax?
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