How To Get Into a Lower Tax Bracket
Navigate into a lower tax bracket while paying a reduced federal income tax rate. It’s simpler than you think!
1. Leverage Tax Deductions
One of the most impactful ways to lower your taxable income is by taking advantage of tax deductions. You can effectively shift your income into a lower tax bracket by utilizing deductions like charitable donations, property taxes, and mortgage interest write-offs.
Imagine the satisfaction of contributing to your company’s 401(k) plan while reducing your tax burden simultaneously. And if you own rental property and are depreciating it against your rental income, you’ve hit the jackpot—a legitimate win within the tax code.
2. Don’t forget Tax credits
Unlike deductions that only reduce your taxable income, tax credits provide a dollar-for-dollar reduction in the taxes you owe—directly impacting your final tax amount. The federal government offers credits like the earned income tax credit and child tax credit, allowing you to optimize your tax situation based on your circumstances. You’ll be amazed by how much you can save! In 2023, the earned income credit has increased, ranging from $600 to $7,430, depending on your filing status and the number of children you have.
2022-2023 Tax Brackets and Federal Income Tax Rates [Updated]
Are you tired of feeling clueless about tax brackets and rates? Let’s face it, most of us don’t keep up with the nitty-gritty details. However, what if we told you that your hard-earned money and spending power could be influenced by the very same thing that impacts the ever-changing tax landscape? That’s right; we’re talking about inflation!
We all know about the seven U.S. federal tax rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%. The tax rates are here to stay until 2025, thanks to the Tax Cuts and Jobs Act of 2017.
However, the income thresholds used to determine which tax bracket you fall into have experienced significant adjustments to account for inflation, which has caused the most substantial price increases in decades.
The Internal Revenue Service (IRS) makes these adjustments to avoid the dreaded “bracket creep.” Imagine being pushed into a higher income tax bracket or losing out on credits and deductions due to inflation. The IRS helps prevent such situations by ensuring that your tax bracket doesn’t skyrocket as your cost of living rises.
So, paying attention to tax brackets might just save you some money! In fact, the tax brackets for the 2023 tax year have already been released, and they show a significant increase of over 7% compared to last year’s modest 3% uptick.
Now that we’ve piqued your interest, let’s delve deeper. The tax brackets for the 2022-2023 season —the return you either filed by April 2023 or must now file by October 2023—as well as for the 2023 tax year—the return you’ll file in 2024— can be found on this blog post along with all the essential details to help you make informed financial decisions and maximize your tax efficiency!