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022 – How Does Our Tax System Work?

Real Personal Finance

022 – How Does Our Tax System Work?

  • Progressive tax bracket
    1. Everyone pays $1,905 on first $19,050 of taxable
    2. $140k taxes at $400k?
      1. 35% tax bracket
      2. Actual taxes = $91,379 (22.8% taxes)

Tax Rate

Taxable Income Bracket

 

10%

$0 to $19,050

 

12%

$19,051 to $77,400

 

22%

$77,401 to $165,000

 

24%

$165,001 to $315,000

 

32%

$315,001 to $400,000

 

35%

$400,001 to $600,000

 

37%

$600,001 or more

 
  • Deductions 
    1. Standard deduction – $24,400
    2. Itemized – mortgage interest, state/local taxes, charitable giving, medical expenses over 7.5% of AGI
  • Other considerations
      1. States have separate tax brackets too
      2. Social Security @ 6.2% up to $132,900; Medicare @ 1.45% not capped 
      3. Different types of taxes for earned income, capital gains, dividends

LET’S CONNECT!

James

Scott

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