Income Tax Rates

Income Tax Rates Determine Investments to Put In Your IRA

Because IRS taxes different investments at different rates and for different holding periods, it makes a difference which investments you place in your IRA. Understanding income tax rates and taking advantage of these different rates can save you a boatload of cash. Since everything that comes out of a traditional IRA is taxed at ordinary income rates, up to 35% in 2012, it makes little sense to place tax-saving investments in an IRA since they will lose their tax saving benefit upon withdrawal. Most obviously, one would never place a tax-free bond in an IRA because it will be taxable when removed. The difference of income tax rates in this case, 0% for the municipal bond and as high as 35% for anything taken from an IRA, is huge. A more subtle choice is which stocks or mutual funds to place in an IRA and the choice can make a difference of thousands or tens of thousands of dollars over a lifetime. Knowing how income tax rates apply to stock holding periods determine which stocks to own in or out of an IRA. If you have stocks that you will hold for many years, then it is very foolish to [...]

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Posted by bobrichards - February 29, 2012 at 2:31 am

Categories: ira tax Tags: capital gains rates, ordinary income rates, qualifying dividends

Income Tax Rates 2011

For those fling taxes for 2011, here are the income tax rates 2011. 2011 Income Tax Rates Single People If taxable income is: The tax is: of the But not amount Over — over— over— $0 $8,500 -----------10% $0 8,500 34,500 $850.00 + 15% 8,500 34,500 83,600 4,750.00 + 25% 34,500 83,600 174,400 17,025.00 + 28% 83,600 174,400 379,150 42449.00 + 33% 174,400 379,150 ------------ 110,016.50 + 35% 379,150 Married Filing Jointly If the taxable income is: The tax is: of the But not amount Over over— over— $0 $17,000 -----------10% $0 17,000 69,000 $1,700.00 + 15% 17,000 69,000 139,350 9,500 + 25% 69,000 139,350 212,300 27,087.50 + 28% 139,350 212,300 379,150 47513.50 + 33% 212,300 379,150 ----------- 102,574.00 + 35% 379,150

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Posted by bobrichards - February 20, 2012 at 12:17 am

Categories: income tax rate tables Tags: 2011 income tax rate tables, income tax rates 2011

Income Tax Rates 2012

For purposes of tax planning and paying estimated taxes, here are the income tax rates for 2012 income. 2012 Income Tax Rates Single People If taxable income is: The tax is: of the But not amount Over — over— over— $0 $8,700 -----------10% $0 8,700 35,350 $870.00 + 15% 8,700 35,350 85,650 4,867.50 + 25% 35,350 85,650 178,650 17,442.50 + 28% 85,650 178,650 388,350 43,482.50 + 33% 178,650 388,350 ------------ 112,683.50 + 35% 388,350 Married Filing Jointly If the taxable income is: The tax is: of the But not amount Over over— over— $0 $17,400 -----------10% $0 17,400 70,700 $1,740.00 + 15% 17,400 70,700 142,700 9,735.00 + 25% 70,700 142,700 217,450 27,735.00 + 28% 142,700 217,450 388,350 48,665.00 + 33% 217,450 388,350 ----------- 105,062.00 + 35% 388,350 The tax rates are down slightly from 2011 as the brackets are indexed upward for inflation. For example in 2011, the 10% bracket for a single taxpayer went up to $8500. This year, that bracket extends further to $8,700 (meaning that such a taxpayer can earn $200 more this year and not jump into the higher tax bracket). Similarly, at the top end, the 33% tax bracket for married couples stopped at [...]

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Posted by bobrichards - February 19, 2012 at 10:20 pm

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Knowledge of Income Tax Rates Reduce IRA tax

In this post, we present a simple example showing how a rudimentary knowledge of income tax rates will help you to pay less IRA tax when you take money out of your IRA. The key concept here is that you are charged income tax in tiers or levels. The higher your income, the higher the tax rate. Therefore, it's important to know how close you are to the next level because often, you will want to take advantage of any room left in the lower level that you're currently in. Let's take the example of Bill and Linda who are both retired, have large IRAs, and are age 60. Their taxable income will be $40,000 this year (2012). Current income tax rates extend the 15% tax bracket up to $70,700 for couples filing jointly (see income tax rate tables below). Thus, Bill and Linda could convert $30,700 worth of their IRAs to Roth IRAs this year and fully use up their 15% tax bracket ($40,000 current taxable income plus $30,700 IRA withdrawal = $70,700, the maximum amount of income still taxed at 15%). In other words, they have room left in your 15% bracket which would make sense to use [...]

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Posted by bobrichards - February 17, 2012 at 12:44 am

Categories: ira tax Tags: ira distributions, ira tax, roth ira, tax bracket

Increasing Income Tax Rates Negate Benefit of Traditional IRAs and 401(k)s

If Income Tax Rates May Increase, Change Your Retirement Savings Plan One would need to be foolish to think that income tax rates will not increase over the next three years. With the government outspending its income by over $1 trillion a year, the obvious way to close the budget gap is to collect more taxes from the population. So you should fully expect that whatever income tax rate you pay today, it will be five percentage points higher in the not-too-distant future. For example, if your marginal tax bracket is now 25% it could very well be 30% in the foreseeable future and if you live in a state that collects state income taxes, expect the state income tax rates to rise in a similar fashion. When income tax rates are rising, traditional IRAs and 401(k)s become much less valuable and possibly detrimental to your wealth. Here's why. Let's say today your marginal income tax rate is 25%. So you put money into a traditional IRA or 401(k) and you get a tax deduction. The tax deduction is at today's rate 25%. But in a few years, if your income tax rate rises to 30% and you start taking [...]

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Posted by bobrichards - February 14, 2012 at 12:18 am

Categories: income tax rates rising Tags: income tax rates, roth ira, roth401(k)

Understanding Income Tax Rates Leads to Better Financial Decisions

Once you finish this post, you'll have a better understanding of income tax rates, how you are taxed, and you will be able to make better financial decisions to save taxes. Income tax rates are very similar to how you are charged for your electricity or water. For example, your electricity company will charge you in levels or tiers or brackets so that you pay more per kilowatt hour as you use more electrical power. Specifically they might charge you $.10 per kilowatt hour for up to 1000 kWh per month. But for the next 1000 kWh you use that month, they charge you $.15 per kilowatt hour. And for the next 1000 kWh they charge you $.20 per kilowatt hour and so on. The reason that utilities charge this way is to give you an incentive to use less by charging you more when you overuse the commodity. IRS charges you in the same way. On your first tier of income you pay one percentage, say 15%. But then as you earn more, you are charged 20% for the next tier of income and so on as you earn more and more. Yes, believe it or not, our government [...]

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Posted by bobrichards - February 9, 2012 at 7:00 pm

Categories: income tax rate tables Tags: income tax rate, income tax rate tables for 2012, income tax rates

Income Tax Rates Determine Investments to Put In Your IRA

Income Tax Rates 2011

Income Tax Rates 2012

Knowledge of Income Tax Rates Reduce IRA tax

Increasing Income Tax Rates Negate Benefit of Traditional IRAs and 401(k)s

Understanding Income Tax Rates Leads to Better Financial Decisions

Save Money This Tax Season!