Tax brackets are an essential thing to learn about before tax season hits. These brackets can determine how much money you get back or how much money you owe, and there’s nothing you can do once it’s time to contact local tax services. These income guidelines were developed years ago when federal income tax was implemented. According to the National Constitution Center, in 1981, Abraham Lincoln signed the Revenue Act, which created the first federal income tax for the nation. This article will review everything you need about taxes and tax brackets.

The Basics

Tax brackets are similar to categories. Everyone falls into one of these categories depending on how much taxable income they make. The tax bracket you fall into will determine several things, such as how much you can get for a refund and how much you are taxed. Generally, the more taxable your income, the higher your taxes. For example, a person with a lower income may only be taxed at 10%, while someone in the highest tax bracket may be taxed at 37%.

Taxable Income

Your total income does not determine which tax group you fall into. Instead, only the income is considered taxable -- your taxable income is your total income after certain exemptions and deductions. For example, your allowed deductions will be taken from your income if you own a business. Then, the remaining income may be your taxable income. People often get deductions for other things, such as childcare costs, medical expenses, retirement plans, and children. Professional tax services can help you figure out how to maximize your deductions.

Cost of Living

The tax brackets we have now are not set in stone. They usually change yearly. The IRS releases new tax brackets in the months leading up to tax season. The tax brackets are determined based on changes in the cost of living. Several factors contribute to the changes made, such as inflation, the state of the economy, and whether it costs more to live this year than last year. The IRS uses specific calculations to determine tax brackets before it’s time to file your taxes.

Tax brackets are like little buckets. If you make a certain amount, you go in a particular bucket. Your tax rate and other tax breaks depend on which category you belong to. Professional tax services can help you learn more about tax brackets, such as what qualifies as a deduction to lower your taxable income. If you are looking for professional tax services, contact Top Tax Pros today to schedule an appointment.