Tax Brackets Explained So Easy

There is nothing more confusing than the IRS tax law. And additionally complicating concerns is the idea of Tax Brackets. Many taxpayers make a number of mistakes.Tax lawyer Anthony Parent explains what the myths are, in addition to how to avoid frequent entanglements.

What is surprising to a large amount Americans to discover is that Federal Income Tax is less than 100 years old. When the Constitution was first ratified, it forbade Congress from imposing an income tax. But the obstacle was removed in 1913 by the confirmation of the sixteenth Amendment. Congress imposed the first income tax brackets however it was found to be illegal. From manufacturing trade and industry activity, to generating a benovolent welfare state.

Progressives eventually won over the nation to accept the 16th Amendment which would give congress the ability to impose a tax on income from whatever source derived. Most of the public assumed the income tax would only affect two percent of the nation's citizens and would never be forced on the vast majority.

Since the first income tax was officially imposed in 1913, we have seen Tax Brackets go up and down.Yet one thing remains true: The Progressives' tacit pledge that the code would only affect the rich has proven to be a fraud. The IRS not only assesses an income tax which about 50% of all taxpayers pay, but there are other taxes as well.

So the IRS just does not get to go after "income" taxes. Congress also assesses "employment taxes" that are also dependent on income earnings.

Under present tax law, there are six tax brackets for individual taxpayers: 10%, 15%, 25%, 28%, 33%, and 35%. The level of taxable income for every tax bracket differs in accordance to tax filing status (such as married filing joint, single, or heads of household) and is revised slightly each year. But none of these tax rates take into account for the unseen "employment taxes."

But some types of income earnings aren't taxed at the tax bracket rate. Nor do these employment taxes apply. Individuals receive preferable treatment for income earnings received from long-term capital gains. Tax-free muni-bonds are tax-free, of course. And dividends are taxed at a much lower tax rate.

Also, a lot of top income earners are subject to the Alternative Minimum Tax. To further complicate things, the Alternative Mimimum tax brackets may apply. And there are completely different tax brackets for the Alternative Minimum Tax. Those tax rates are 26 or 28%. The Alternative Minimum Tax brackets are either 26 or 28%. Even though those tax rates are lesser than the standard tax brackets, the actual tax rates can be higher as because with the AMT, the IRS disallows several deductions. Important deductions like local and state tax deductions. Tax Brackets are poor planning resources. Taxes may be much larger or much lower than what the tax brackets profess. It is foolish to consider tax brackets a valuable tax planning tool.

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