Your taxes are officially due in just over two weeks, on April 15. Many of you are likely done with the lamentable task, but for those of you who aren't, here's how the 2013 tax brackets break down:
|
Tax Rate |
Single |
Married Filing Jointly |
Married Filing separately |
Head of Household |
|---|---|---|---|---|
|
10% |
Up to $8,925 |
Up to $17,850 |
Up to $8,925 |
Up to $12,750 |
|
15% |
$8,926 to $36,250 |
$17,851 to $72,500 |
$8,926 to $36,250 |
$12,751 to $48,600 |
|
25% |
$36,251 to $87,850 |
$72,501 to $146,400 |
$36,251 to $73,200 |
$48,601 to $125,450 |
|
28% |
$87,851 to $183,250 |
$146,401 to $223,050 |
$73,201 to $111,525 |
$125,451 to $203,150 |
|
33% |
$183,251 to $398,350 |
$223,051 to $398,350 |
$111,526 to $199,175 |
$203,151 to $398,350 |
|
35% |
$398,351 to $400,000 |
$398,351 to $450,000 |
$199,176 to $225,000 |
$398,351 to $425,000 |
|
39.6% |
$400,001 or more |
$450,001 or more |
$225,001 or more |
$425,001 or more |
Source: IRS.
As my colleague Dan Dzombak pointed out last week, one thing to keep in mind is that the 2013 tax brackets are marginal in nature.
For instance, let's assume that you're married filing jointly and that you and your spouse earned a combined $100,000 in taxable income last year -- that is, after all of your deductions are subtracted from gross income.
Here's how your taxes would break down:
|
Tax Bracket |
Amount Owed |
|---|---|
|
10% |
$1,785 |
|
15% |
$8,197 |
|
25% |
$6,874 |
|
Total |
$16,856 |
Source: Author's calculations.
The total tax liability in this case would be $16,856, with the lions' share coming from the 15% tax bracket. All things considered, in turn, even though the top marginal rate is 25%, the actual tax liability is 16.9% -- little consolation, I know, but it's a consolation nonetheless.
Among other things, this example demonstrates the importance of maximizing your deductions. And none is more powerful than the deduction allowed for IRA contributions -- the only contender for this crown is perhaps the mortgage interest deduction.
As I illustrated last week, a married couple with $95,000 in combined taxable income could potentially cut their annual tax liability by as much as $2,750 simply by maxing out their annual IRA contribution -- this assumes they qualify for the maximum contribution.
If you have the cash, that's a great deal that shouldn't be passed up.
Either way, however, there's no getting around the fact that tax time is unpleasant. Just keep in mind that it'll be over, one way or another, in a little over two weeks.
