08 Oct Federal Income Tax Brackets, Rates, Deductions, and Credits for Taxes Due in April 2020
The complexity of tax brackets and tax rates can cause some people anxiety, yet it’s imperative that you know how taxes work. Knowledge about brackets, rates, deductions, and credits will help save you money come tax time.
There are seven federal tax brackets created by the Tax Cuts and Jobs Act of 2017. They are:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
Paying taxes means you’re making money. There is nothing wrong with doing what you can within the law to minimize your tax liability. What is refreshing is that the tax brackets listed above are marginal tax rates, which means that a portion of your income is taxed at 10 percent, with the next portion taxed at 12 percent, and so on and so forth. In other words, the federal tax system is progressive, so you pay more on buckets of your taxable income as you earn more.
What Tax Bracket Am I In?
It’s a common question: “What tax bracket are you in?” The answer is the bracket where your top level of income lies. For example, let’s say you earned $100,000 in 2019. You would be in the 24 percent tax bracket because the last bucket of your income falls there.
- $9,700 of your income will be taxed at 10%
- $29,775 of your income will be taxed at 12%
- $44,725 of your income will be taxed at 22%
- $15,800 of your income will be taxed at 24%
There are some other factors that come into play. One is your filing status with the IRS. Another pertains to your deductions. Another involves tax credits. Lastly, depending on where you live, there may be state and local taxes (known as SALT). I am not an accountant nor a tax attorney, so please consult your tax advisor to learn about your particular situation.
Tax Deductions and Tax Credits
The 2017 Tax Cuts and Jobs Act increased the standard deduction that everyone can take if they choose not to itemize deductions.
The standard deduction for 2019 is:
- $12,200 for individuals and married filers who file separately
- $24,400 for married couples filing jointly
- $18,350 for heads of household
If you wish to itemize your deductions, below are some common ones:
- Home mortgage interest
- Business expenses if you are self-employed or a business owner
- Charitable contributions
- State and local taxes (The Act limited this deduction to $10,000 or $5,000 if married and filing separately)
Tax Credits
Dollar for dollar, tax credits are even better than deductions because they lower your taxes by the entire amount of the credit.
Typical tax credits are:
- Earned income tax credit
- Child tax credit
- Adoption tax credit
- Renter’s tax credit
- Residential energy tax credit
As mentioned, consult with your tax advisor regarding your specific situation.
Federal Income Tax Brackets for Tax Year 2019
Individuals
Tax Rate Taxable Income Bracket Tax Owed
10% $0 to $9,700 10% of income
12% $9,701 to $39,475 $970 + 12% of the amount over $9,700
22% $39,476 to $84,200 $4,543 + 22% of the amount over $39,475
24% $84,201 to $160,725 $14,382.50 + 24% of the amount over $84,200
32% $160,726 to $204,100 $32,748.50 + 32% of the amount over $160,725
35% $204,101 to $510,300 $46,628.50 + 35% of the amount over $204,100
37% $510,301 and up $153,798.50 + 37% of the amount over $510,300
Married, Filing Jointly
Tax Rate Taxable Income Bracket Tax Owed
10% $0 to $19,400 10% of income
12% $19,401 to $78,950 $1,940 + 12% of the amount over $19,400
22% $78,951 to $168,400 $9,086 + 22% of the amount over $78,950
24% $168,401 to $321,450 $28,675 + 24% of the amount over $168,400
32% $321,451 to $408,200 $65,497 + 32% of the amount over $321,450
35% $408,201 to $612,350 $93,257 + 35% of the amount over $408,200
37% $612,351 and up $164,709.50 + 37% of the amount over $612,350
Married, Filing Separately
Tax Rate Taxable Income Bracket Tax Owed
10% $0 to $9,700 10% of income
12% $9,701 to $39,475 $970 + 12% of the amount over $9,700
22% $39,476 to $84,200 $4,543 + 22% of the amount over $39,475
24% $84,201 to $160,725 $14,382.50 + 24% of the amount over $84,200
32% $160,726 to $204,100 $32,748.50 + 32% of the amount over $160,725
35% $204,101 to $306,175 $46,628.50 + 35% of the amount over $204,100
37% $306,175 and up $82,354.75 + 37% of the amount over $306,175
Head of Household
Tax Rate Taxable Income Bracket Tax Owed
10% $0 to $13,850 10% of income
12% $13,851 to $52,850 $970 + 12% of the amount over $13,850
22% $52,851 to $84,200 $6,065 + 22% of the amount over $52,850
24% $84,201 to $160,700 $12,962 + 24% of the amount over $84,200
32% $160,701 to $204,100 $31,322 + 32% of the amount over $160,700
35% $204,101 to $510,300 $45,210 + 35% of the amount over $204,100
37% $510,301 and up $152,380 + 37% of the amount over $510,300
If you are a house flipper who sells an investment property in less than one year after you bought it, your profit is taxed at a short term capital gains tax rate, which is equivalent to the tax rate on your ordinary income.
Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania. He became a full-time real estate investor in 2004 after serving in the U.S. Navy. Tai has made colossal mistakes in investing (and learned some things along the way). He has owned over 200 properties with various investment partners, and he has been involved in over 200 more transactions as a real estate broker in both Pennsylvania and Tennessee. Tai and his wife Amira enjoy hunting for investment properties. Contact Tai if you need some consultation on real estate investing. Tai may be available for coaching and speaking engagements on a variety of real estate topics. Send an email to tai@investandtransform.com. Tai is passionate about helping investors make money and avoid mistakes.
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