As anyone who has ever filed income taxes can tell you, you have to know which tax bracket you’re in before you can make even an educated guess of what you might owe Uncle Sam. It’s pretty easy to figure out your tax bracket because it’s based on your income, but it’s trickier to calculate how much you’ll actually owe because of the way the U.S. tax system works. That’s why we tackled this episode and explain in plain English how it works. We also created an handy easy-to-understand tax reference guide!
On this episode, Dustin and I help you gain a better understanding of taxes with our easy-to-use tax reference guide! @Worthit_Podcast @DRGranger #worthitpodcast #taxes Click To Tweet
The IRS says income can be in the form of money, property or services you receive in the tax year. The two basic types of income are earned and unearned income. Earned income includes money you receive from an employer in exchange for your work or money you make working for yourself. Unearned income includes money you didn’t directly work for, such as interest and dividends, Social Security payments, alimony, etc.
Whether you’re a business owner or an employee, you probably want to keep your income tax bill as low as possible. That’s where tools like deductions come in. For the 2017 tax year, which we file in early 2018, the federal standard deduction for single filers and married folks filing separately is $12,000. It’s $24,000 if you’re a surviving spouse or you’re married filing jointly. If you’re the head of your household, it’s $18,000.
Regardless of where you stand on the financial front, there will potentially be at least one expense that you can deduct from your taxes. The difference between the standard deduction and an itemized deduction is simple. The former is a specific or standard number. But the latter requires you to manually itemize your deductions. That means you would have to sit down, review your financial documents and add up everything.
Because the U.S. tax system is progressive - meaning the more you earn, the more you’re likely to pay in taxes - it can be difficult to understand how tax brackets work...until now. @Worthit_Podcast @DRGranger #worthitpodcast #taxes Click To Tweet
Because the U.S. tax system is progressive – meaning if you fall into the “22% tax bracket” it doesn’t mean you pay 22% on all of your income. For example, if your income is $100,000, you would pay 10% on your first $19,050, 12% on $19,051-$77,400 and finally 22% on $77,401-$100,000. Confusing, right? That’s why Dustin and I created a Tax guide PDf that you can download. Check out 2018 Tax Guide to grab this resource!
There are a few basic differences between tax credits and tax deductions. Tax credits provide a dollar-for-dollar reduction of your income tax liability. This means that a $1,000 tax credit saves you $1,000 in taxes. Since a credit helps reduce the amount of money that you pay in income tax, it is essential that you are 100% accurate with this information. While tax credits are less common than tax deductions, they are available for things such as adopting a child, buying a first home, child care expenses, home office expenses and caring for an elderly parent. Additionally, there are various business tax credits that you may be able to consider.Taking control of your financial success means understanding the basics, like understanding your federal income tax rate. If this has been an uphill battle, we are here to help! @Worthit_Podcast @DRGranger #worthitpodcast #taxes Click To Tweet
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
What if you had a clear formula to help you figure out how much to save… while paying down debt and enjoying life? It is possible… when you know your numbers.
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