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Tax-filing season is well underway, and for 2018's taxes, there are new brackets in place as part of 2017's Tax Cuts and Jobs Act. Tax brackets are used to determine the rate of taxes you should pay according to your income. Although it sounds easy enough, using brackets isn't as simple as looking at where your income lies. You first have to calculate any adjustments such as deductions and credits, and then calculate what portion of your remaining taxable income falls into each bracket. One big change for 2018 taxes is that personal exemptions have been eliminated, which could be a big hit for anyone with dependents. To help offset this a bit, the standard deduction has been almost doubled, so for many, there won't be a need to itemize a long list of deductions if the total is less than the standard deduction. Here's how the brackets break down for your 2018 taxes: [table id=82 /] The tax overhaul not only lowered most of the brackets, but it also changed the taxable interest ranges. In 2017, if you were married filing jointly and your taxable income was $76,000, you would be in the 25% tax bracket. For 2018, you'd be in the 12% bracket, a considerable savings. The shifting brackets will save some people money, but certainly not all.
How Tax Brackets Work
Tax brackets can be confusing, and many people are unsure of how they work. If your taxable income is $80,000, you fall into the 22% tax bracket, but you don't pay 22% of your total taxable income. If you're married filing jointly, the first $9,700 is taxed at 10%, $9,701-$78,950 is taxed at 12%, and only $78,950-$80,000 is taxed at 22%. This means you're not paying more for the same amount that lower income earners pay. In other words, if your taxable income is $80,000 and Joe Shmoe makes $35,000, you're paying the same rate as Mr. Shmoe (12%) for your first $35,000. These are the brackets for your federal taxes; state taxes vary greatly in their bracket values. Some states have a flat tax while others don't collect any state income tax at all.
Tips to Save on Your Taxes
From organizing everything that you'll need to visiting a professional to have your taxes done, a defined plan with put you well on your ways to a smooth tax season. Have your taxes prepared by a professional While it's still a good idea to understand the new tax laws and changes, a tax professional will know the ins and outs of the new code and should be consulted with before making any financial decisions as we are not tax professionals. The fee could pay for itself in tax savings, and it may reduce your chances of being audited. Get organized Make sure that before you sit down to do your taxes yourself or with a professional, you have everything you need. That means W-2s, 1099s, mortgage interest statements (if you might itemize), tuition payments, receipts, sold stock details, etc. Print your tax forms All forms are available at IRS.gov, saving you from tracking them down at your library or post office. Even if you use software to do your taxes, it's a good idea to get the forms and go through the process yourself before you input it into the software. It's your money; you should know where it's all going. Get ready for next year now Depending on how the new tax changes affect your refund/taxes owed, you may want to adjust your withholdings through your employer. If your employer offers a 401k, make sure you're contributing as much as possible. Many employers offer to match your contribution up to a specified amount, so at the very least, you should be contributing that amount to avoid losing out on free money. Any contributions you make to your 401k aren't taxed, so they won't be counted in your taxable income.