Breaking Down Taxes For Different Income Brackets

By Andre McNeil | March 05, 2012 AAA

Something that should always be at the forefront of a taxpayers mind is the income tax bracket in which they fall. Tax brackets are the rate at which an individual is taxed, the higher your tax bracket, the more you are taxed. This article will explain the different tax brackets, how they work and ways to help get you into a lower tax bracket.
2012 Income Tax Brackets
Every year around mid-October, the IRS looks at the inflation rates in order to determine what the tax brackets for the following year will look like. Below are the income tax brackets for 2012:

Tax Rate Single Head of Household Married, Filing Jointly Or Surviving Spouse Married, Filing Separately
10% Up to $8,700 Up to $12,400 Up to $17,400 Up to $8,700
15% $8,701 to $35,350 $12,401 to $47,350 $17,401 to $70,700 $8,701 to $35,350
25% $35,351 to $85,650 $47,351 to $122,300 $70,701 to $142,700 $35,351 to $71,350
28% $85,651 to $178,650 $122,301 to $198,050 $142,701 to $217,450 $71,351 to $108,725
33% $178,651 to $388,350 $198,051 to $388,350 $217,451 to $388,350 $108,726 to $194,175
35% $388,351 or more $388,351 or more $388,351 or more $194,176 or more
Source: This information can be found in Publication 15 which is provided by the IRS.

Your tax bracket is the rate you pay on the taxable income that you earn, but as a whole it is usually less than the rate shown in the table. This is because the United States uses a progressive tax rate as opposed to a flat tax rate. As a result, as the amount of money you earn increases so does the rate at which you are taxed. For example, if an individual earned $10,000 during the year and filed as single, then $8,700 would be taxed at 10% and the remaining $1,300 would be taxed at 15%. This works out to be a total of $1,065, which is less than it would be if the $10,000 was taxed at a flat rate of 15%, which would yield a total of $1,500 in income taxes.

Moving Down to a Lower Tax Bracket
Despite this progressive rate, many taxpayers who are in the higher tax brackets still pay a lot more than they would like to in income tax. If you are one of these individuals, there are several ways in which you can lower your taxable income in order to save yourself money. The following are just a few:



Making Charitable Donations
Making deductible donations to charity, which includes but is not limited to money, clothing and food, helps lower your taxable income. The amount by which your income is lowered is equal to the amount that you donate, so don't hesitate to give as much as you are able to. Be sure get receipts for your donations in the event of an IRS audit.

Funding a Retirement Account
When you make contributions to a retirement account such as a traditional IRA, the amount that you invest could be tax deductible if you meet certain requirements. For example, if you are in the 28% tax bracket and contribute $5,000 to your account, then you receive a $1,400 reduction of your taxable income. This can mean the difference between being taxed at 25% or 28% for people who are close to the margins for the different tax rates. You are also allowed to reduce your gross income by up to $17,000 by making 401(k) and/or 403(b) contributions.

Changing Your Tax Filing Status
Changing your filing status can help to move you to a lower tax bracket in some cases. For example, if you are married and file separately, it could cause you to pay more income than if you had filed jointly. But, before you decide, have your tax professional run the numbers, as there could be benefits to filing separately. If you are single and have eligible dependents, you could file as 'head of household' which allows a larger amount to be taxed at the lower rate.

The Bottom Line
Keep in mind that just because your overall income falls into a certain tax bracket, that doesn't meant that you will end up paying taxes on all of your income at that rate. Consider too that sometimes the amount that you would spend trying to get yourself in a lower tax threshold is more than what the actual income tax that you would save, so be sure to do your research beforehand in order to make educated choices.

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