Tax brackets are fundamental but often misunderstood components of the American income tax system. While they might seem straightforward, the tax brackets change every year and have some unique features that can make them confusing to many taxpayers. Below is an overview of how tax brackets work and how they determine your liability.

About Tax Brackets

The American progressive income tax system consists of seven brackets that determine how much income tax a filer owes. For instance, those with an income of less than $40,000 would be taxed at 12%, while individuals making more than $500,000 per year are subject to a 35% tax.

However, those tax rates don’t apply to your total income for the year. Under the US tax bracket system, everyone pays the same amount for incomes within a certain range. For example, if you and your spouse made $50,000 in 2019, the first $19,400 would be taxed at 10%, and only the remaining $30,600 would be subject to the 12% tax of the next bracket.

2020 Income Tax Brackets

Every year, the IRS updates the tax brackets to account for inflation and other economic factors. In most cases, this usually results in brackets that include slightly higher amounts of income. For instance, an individual making $40,000 in 2019 would fall into the 22% bracket, but based on the 2020 tax brackets, they would only have to pay 12%. Knowing how bracket adjustments affect your exposure in advance can help you develop a long-term strategy to maximize deductions and minimize your bill at the end of the year.

Income tax laws can be complex and confusing, which is why business owners and investors throughout Cincinnati, OH, rely on Lance S. Cox, Attorney at Law, for sound advice and effective guidance. Drawing on their 45 years of experience, their attorneys will help protect your assets with personalized strategies designed to ensure you get every deduction and credit to which you’re entitled. Visit their website for more on their tax law services, get more tips and advice on Facebook, and call (513) 528-6000 to schedule a consultation.