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Every year, millions of people put off dealing with their taxes until the last minute, on April 15th. The thing is, a little bit of effort a few months before the end of the year, versus three and a half months after the fact, could save you a lot of stress and time.
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Here's a breakdown of the IRS tax brackets for 2015, as well as a closer look at the difference between yourmarginalandeffective tax rate. Let's take a closer look.
Marginal tax rates for 2015Here's a breakdown of the seven tax brackets by filing status for 2015:
Single filing status:
Head of household:
Married filing jointly, or qualifying widow(er):
Married filing separately:
Big fat caveat about these numbersIt's important to note that the tax rates are based on yourtaxable income, not your gross income. In other words, if you have common deductions such as mortgage interest, charitable donations, and pre-tax contributions to a retirement plan, you'll need to factor those out of your total income before the rate schedules above do you any good.
Food for thought: Marginal versus effective tax ratesThe U.S. income tax system is based on a progressive marginal tax rate, which increases the percentage of income taxed as income increases, as you can see in the tables above. This can result in two individuals who fall in the same bracket being taxed different "effective" tax rates.
For example, a married joint filer earning $74,901 would pay $10,312.50, which works out to a 13.8% tax rate. A filer in that same bracket with $100,000 taxable income would pay $16,578.50, for a 16.6% effective tax rate, since they are paying the same 13.8% on their first $72,901, and 25% on the $25,099 above that amount.
Tax brackets are just a starting point: Know your deductions and credits, and find your effective rateKnowing which of the seven tax brackets you'll fall into is just a starting point, but it's an important step toward being sure you pay the proper amount of tax, and not a penny too much. It's most useful as a tool for effective tax planning, so long as you factor in the deductions and credits you'll be able to take advantage of, so you're figuring your taxes on your taxable income for the year.
If you put those things to work early enough, you're more likely to be able to find some way to lower your taxes, like funding a retirement account or some other taxable income-reducing method.
The article IRS Tax Brackets 2015: What You Need to Know originally appeared on Fool.com.
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