The fiscal cliff at the turn of the year didn’t just affect possible job losses, payroll taxes, and the stock market, it also affected tax brackets. When the American Taxpayer Relief Act of 2012 was passed, six income tax brackets which had been created more than 10 years ago and which were scheduled to expire on the last day of 2012 were made permanent. In addition to these now permanent tax brackets, a new tax rate was added as a new top tax rate.
For the taxes that will be due on April 15, 2013, the six tax rates are all that will apply to tax payers. The tax rates break down as follows:
|Tax Rate||Single Filers||Married Filing Jointly or Widow/Widower||Married Filing Separately||Head of Household|
|10%||Up to $8,700||Up to $17,400||Up to $8,700||Up to $12,400|
|15%||$8,701-$35,350||$17,401 – $70,700||$8,701 – $35,350||$12,401 – $47,350|
|25%||$35,351 – $85,650||$70,701 – $142,700||$35,351 – $71,350||$47,351 – $122,300|
|28%||$85,651 – $178,650||$142,701 – $217,450||$71,351 – $108,725||$122,301 – $198,050|
|33%||$178,651 – $388,350||$217,451 – $388,350||$108,726 – $194,175||$198,051 – $388,350|
|35%||$388,351 or more||$388,351 or more||$194,176 or more||$388,351 or more|
Table Source: http://www.bankrate.com/finance/taxes/tax-brackets.aspx
Taxes for 2013 income, that is, taxes that will be paid in April 2014 will have a top bracket of 39.6% on income of $400,001 or more for single filers, $450,001 or more for married filing jointly or qualifying widows or widowers, $225,001 or more for married filing separately, and $425,001 or more for those who qualify for head of household taxes. The minimum and maximum amounts for the other tax brackets will also be adjusted upward during for taxes to be paid on income earned during 2013.
Standard deduction rates for the 2012 tax year include $12,200 for married people who file their taxes jointly; $8,950 for those who file as head of household, $6,100 for individual taxpayers, and $6,100 for married taxpayers who choose to file separately. The child tax credit is $3,000 per child. Itemized deductions will not be applicable until married taxpayers filing their taxes jointly reach $300,000, head of household taxpayers reach $275,000, married taxpayers who choose to file separately can have deductions up to $150,000, and single taxpayers can have $250,000.
When preparing for any tax season, taxpayers need to keep in mind that they are taxed on taxable income, not gross income. This can make a difference in the move of at least one complete and lower, tax bracket. If a person makes $40,000 in gross income, but contributes $5,000 of that money to an IRA, then the taxable income becomes $35,000.
Fixing taxes isn’t easy, that is why politicians have been arguing about ways to close loopholes and generally make fixing taxes simpler. In the meantime, taxpayers need to be organized and conscious of the kinds of decisions they can make that can affect the amount of taxes that they owe and the potential for a rebate at the end of the year.
About the Author: This article was provided to you by Steven Klitzner of Florida Tax Solvers located in Miami, Florida. Steve has been offering income tax and IRS solutions to people for over 20 years.