Everyone knows just how complicated the tax laws have become. Yet as you start preparing your returns, it's crucial to keep one thing in mind: Even though it's 2014, you're filing your tax return for 2013, and so you have to use the 2013 tax brackets in order to calculate your taxes right. You'll find a table with those 2013 tax brackets at the bottom of this article, but first let's look at why the issue can be so confusing.
In the past, it was almost impossible to make a mistake about which tax brackets to use, because the paper instruction booklet you received included only the correct set of tax brackets. But nowadays, the Internet has made it easy to get information on 2014 tax brackets, and that will inevitably lead many taxpayers to make the mistake of not using the correct 2013 tax brackets for their 2013 returns.
Why it matters
The reason why using the right year's tax brackets is so important is that it can lead to a much different result. Every year, the tax brackets get adjusted to reflect the level of inflation over the previous year. Although 2014's inflation adjustment of about 1.7% was relatively modest, it still led to fairly sizable changes in many of the brackets.
For instance, looking at the 2013 tax brackets, the 25% bracket begins at $72,500 of taxable income. But in 2014, that threshold will rise to $73,800. That means $1,300 more income will be eligible for the lower 15% bracket, saving you $130 in taxes if you earn more than that amount in 2014 compared to your 2013 bill.
The bracket amounts go up even more for higher brackets, making it even more important that you use the 2013 tax brackets to file your 2013 tax return. Otherwise, you'll pay too little tax and get yourself in trouble with the IRS, owing interest and penalties for failing to file your entire tax bill.
Your look at the 2013 tax brackets
So, as you're preparing your tax return in the coming months, be sure to use the following brackets:
So long as you're using the 2013 tax brackets to prepare your 2013 tax return, you should come out with the correct result.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.