Already Planning for 2024 (Part 5) – Tax Brackets

Categories : Financial, News
October 11, 2023

The U.S. Tax Code is a behemoth, and little understood. It is enforced by a [service-oriented] Department of the Federal Government. The Internal Revenue Service, or more commonly IRS, has the ability to ruin lives, and the American people rightly fear and loathe the “Service.” It is little wonder to me, as I share most Americans’ feelings about the way IRS operates. IRS is the only department of the U.S. Government that places the burden of proof on the accused. In other words, once a charge is levied against a taxpayer, it is incumbent on that taxpayer to prove innocence.

Reducing fear (if not loathing) involves gaining an understanding of the Tax Code as it applies to your personal financial situation, yet most people tune out at the very mention of IRS, the most hated of all Washington acronyms.

We must point out that Van Wie Financial is not a tax preparer. We offer education and planning for those interested in learning how they are taxed, and we can work with your Tax Preparation professionals.

Understanding how to utilize the Tax Code for your personal best result requires an understanding of Tax Brackets. Brackets are presented in an IRS-published chart, which is updated annually to reflect inflation and Congressional modifications. Brackets are misunderstood by many Americans, so today we hope to clarify application of Tax Brackets.

Any individual’s Marginal Tax Bracket is the one his or her next dollar earned falls on the chart. But not every dollar of Taxable Income is taxed at the same rate. Everyone receives full benefit from each of the lower tax brackets up to the Bracket limits.

Due to the effects the Trump-era Tax Cuts and Jobs Act of 2017(TCJA), Brackets currently carry historically low Tax Rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%), as well as being applicable to a large share of Taxable Income. TCJA changes have encouraged taxpayers and financial planners to set targets for Taxable Income, attempting to minimize total tax each and every year.

Within reason, taxpayers get to influence their own tax rates, whether by earning more or less money, or by creating more deductions and exemptions. One favored Taxable Income reduction strategy is to make deductible contributions to Retirement Accounts. Conversely, taxable Roth IRA Conversions can increase Taxable Income within your current Tax Bracket.

For today, remember that creeping into a higher Tax Bracket does not punish your Total Taxable Income. We can help you plan.

Van Wie Financial is fee-only. For a reason.