What can you do to avoid paying rates 'higher tax when you have a year with more revenue?
If your income level fluctuates from year to year, you may find yourself paying more than you expect at tax time.
Indeed, when you have a higher income, your income may be. bumped into another tax bracket, requiring you to pay higher tax rates at higher income levels
tax rate jumps to 5% from one level to the the other - a significant amount when planning your tax year.
The following table shows the tax rate on income that you pay at different levels of income, depending on your filing status.
tax brackets Federal Tax Year 2014 Revenue (Source: IRS Publication 505)
| tax rate | single filers | Married filing jointly or qualifying widow (er) | Married filing separately | household head |
|---|---|---|---|---|
| 10% | Until 075 | Up to $ 18,150 | [1945017$] until 075Up to $ 12,950 | |
| 15% | $ 076 - $ 36.00 $ | $ 18,151 - $ 73.800 | $ 076 - $ 36.00 | $ 12,951 - $ 49,400 |
| 25% | $ 36,01 - $ 89,350 | $ 73,801 - $ 148,850 | $ 36,01 - $ 74,425 | $ 49.401 - $ 127.550 |
| 28% | $ 89.351 - $ 186.350 | $ 148,851 - $ 226.850 | $ 74.426 - $ 113.425 | $ 127,551 - $ 206,0 |
| 33% | $ 186,351 - $ 405,100 | $ 226,851 - $ 405.100 | 113.426 $ - $ 202.550 | $ 206,601 - $ 405,100 |
| 35% | $ 405,101 - $ 406,750 | $ 405,101 - $ 457.0 | $ 202.551 - $ 228.800 | $ 405,101 - $ 432,0 |
| 39.6% | $ 406,751 or more | $ 457,601 or more | $ 228,801 or more | $ 432,201 or more |
you can not always fight going into a higher tax bracket. - Nor would you
the only way to stay constantly in the bottom 10% tax bracket as a single person, for example, is to have $ 9,075 or less in taxable income (after deductions and exemptions).
It is preferable to make more money, even if it means paying a little more taxes.
If your taxable income is much higher in a few years, however, you can pay more income tax than you would if your income were more evenly distributed over the years.
These years with a peak of income can cost you a lot in higher income taxes.
most strategies to prevent the upper brackets of the income tax are based on the movement of income and deductions to equalize your taxable income over a period of several years, or to avoid paying the tax on certain income until you retire.
do not forget to consider the tax to the state, if you live or work in a state tax on income.
consider these five ways to avoid doping in a higher tax bracket this year
1. To contribute to the pension plans
putting money into your traditional IRA, 401 (k) plan or other retirement plan reduces your income now, when you can be in a higher tax bracket.
Of course, you pay tax on the money when you go out in retirement. If you are in a lower tax bracket after you retire, however, you'll pay a lot less tax income this way.
For example, say you're in the tax bracket of 28% now, while you work.
you contribute to a traditional pension plan, which reduces your taxable income this year by the amount of the deductible.
When you withdraw money after retirement, you could be in a 15% or 25% tax bracket -. a significant improvement on the tax
2. Avoid too sale of assets in a year
Say you have a stock that has gone in a short time. You want to sell and cash in on those gains.
Consider selling some of the shares in a year, and some the next, if the share sale would put you in a higher tax bracket.
If you have held an asset as stock, more than a year, you may be eligible for capital gains in the long term rates, which are even lower.
3. Plan the revenue schedule and business expenses
If you are self employed, you have some control over when you get paid and when you are spending.
Using the method of cash accounting, for example, you claim income in the year you receive it, even if you have done the work of the previous year.
If you have a record year and need to buy equipment for your business, for example, you may want to purchase by the end of the year.
on the other hand, if you had a slow year and you expect to be in a higher tax bracket next year, you can put off doing business expenses until January 1st or later.
you have some latitude when you invoice customers and get paid when you are self-employed as well.
4. Pay deductible expenses or contributions over the years to high-income
Planning to make a significant contribution to a charity?
Make sure you write that check or put it on your credit card in the year you 're in the highest tax bracket.
$ 100 contribution will save $ 33 in federal income taxes when you're in the tax bracket of 33% and exposing already selected.
If you do the same $ 100 contribution from one year when you're in the tax bracket of 25%, it will save you $ 25 in federal income tax.
you can also make sure that you make your mortgage payment in January Dec. 31 if your income is. this year
Your mortgage payment January in December covers interest expense, so you might as well pay in December and take the mortgage interest deduction.
5. If you are a farmer or fisherman, average use of income
Some taxpayers are allowed to smooth income over a period of three years, using a process called "income averaging ".
This can help keep the income peaks grow in the higher tax brackets.
Prior to 1987, all taxpayers could use income averaging. Now, you must be a farm or work as fisherman profit.
What if you can not avoid bumping into the next tax bracket when your income increases?
All things being equal, you are always better to make more money and pay a slightly higher tax that you would be doing less
remember -. the top tax bracket applies to your income over the last limit tax bracket.
To better understand how tax brackets work read this article.
do you have a level of regular income that allows you to stay in the same year of the tax bracket on income after year, or does your income levels vary considerably?
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