7 minute read
It’s never too soon to plan ahead, especially when it comes to taxes. One key piece of information that is helpful, although not set in stone, are the proposed tax brackets. They’ll give you some idea as to what rate you’ll be taxed.
Tax brackets are adjusted every year so inflation is taken into account. This can affect you in two ways: you could fall into a different tax bracket or your income could be subject to a different tax rate from year to year depending on your income, the income limits in the tax brackets, and the tax rate. The tax bracket range also depends on your filing status.
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The IRS makes an inflation adjustment to prevent “bracket creep,” which is when taxpayers are forced into higher brackets or end up with a reduction offrom deductions and credits because of inflation versus an increase in income. Due to the Tax Cuts and Jobs Act of 2017, the IRS follows the Chained Consumer Price Index when adjusting for credits, deductions, and income thresholds.
| Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) |
|---|---|---|
| 10% | Up to $10,275 | Up to $20,550 |
| 12% | $10,276 – $41,775 | $20,551 to $83,550 |
| 22% | $41,776 – $89,075 | $83,551 to $178,150 |
| 24% | $89,076 – $170,050 | $178,151 to $340,100 |
| 32% | $170,051 – $215,950 | $340,101 to $431,900 |
| 35% | $215,951 – $539,900 | $431,901 to $647,850 |
| 37% | Over $539,900 | Over $647,850 |
There are seven tax brackets for income ranges. These ranges are taxed at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If you’re single, have $95,000 in taxable income, and are using the 2022 Income Tax Bracket, then your income is affected by four brackets.
Bracket 1 is taxed at 10% up to $10,275 = $1,027.50 in taxes owed.
Bracket 2 is taxed at 12% for ($41,775-10,276) $31,499 = $3,779.88 in taxes owed.
Bracket 3 is taxed at 22% for ($89,075-41,776) $47,299 = $10,405.78 in taxes owed.
Bracket 4 is taxed at 24% for ($95,000-89,076) $5,924 = $1,421.76 in taxes owed.
Total taxes owed = $16,634.92
So, all of the income is not taxed at 24%. Your tax bracket is part of a tiered tax calculation. If all of your income was taxed at 24%, you would owe ,800. Therefore, you are saving $6,165.08 with the tiered tax method.
If you are planning ahead for your 2022 taxes, Corvee Tax Planning Software can help to find strategies to fit your circumstances and maximize your tax savings based on your taxable income and federal tax bracket. Get a demo today and reduce your taxes with Corvee!
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