- Bargaineering - http://www.bargaineering.com/articles -
What’s My Tax Bracket?
Posted By Jim On 03/16/2010 @ 7:40 am In Taxes | 10 Comments
In personal finance, you have to make a lot of decisions with imperfect information. You contribute to a Roth IRA because you like the tax free growth and you believe that you will be taxed at a greater rate in retirement (otherwise it may be better to contribute to a Traditional IRA). You buy a house because you want to hedge against inflation  by fixing your housing costs, both of which you assume will go up in the future. You take on a new job with more responsibility and more pay because, well, it’s better to have more of both, right?
At the core of many of these decisions, as sad as it may be, are taxes. It’s obvious in the case of the Roth IRA and Traditional IRA and less obvious in the housing (interest, property taxes, and such are tax deductible), but it’s present in many money decisions. Do I take that new job? Well, how much do I really get to take home? That will, in part, depend on taxes.
In the same way that it’s important for you to know the value of your time , it’s important for you to know your tax bracket.
You can see your federal income tax brackets  here but you’ll have to go to your state’s Department of Taxation (or similarly named department) website to find your state income tax rate.
With the federal tax brackets, you have to do more than find the range your salary falls in. You need to also take into account deductions you may be taking, because that will give you a more accurate marginal tax rate, which you can use to help make decisions. For example, if John earns $35,000 a year, he appears to be in the 25% tax bracket. However, he can take the standard deduction of $5,700, putting him in the 15% tax bracket.
It’s important to know which tax bracket your in because you can use that information to help make decisions. For example, if you were planning on selling a stock you own, knowing your bracket will help you understand what you will pay on the gains. For long term capital gains, you pay 0% if you’re in the 10%/15% brackets and 15% in the higher brackets. You might want to sell a long term holding if you’re in the 15% bracket to lock in tax free gains.
I wouldn’t spend too much time calculating your exact effective tax rate, you won’t need that much detail unless you are making a very large decision and the decision hinges on knowing your exact rate. Usually a ballpark figure is good enough to help you make decisions.
Article printed from Bargaineering: http://www.bargaineering.com/articles
URL to article: http://www.bargaineering.com/articles/whats-my-tax-bracket.html
URLs in this post:
 Tweet: http://twitter.com/share
 Email: mailto:?subject=http://www.bargaineering.com/articles/whats-my-tax-bracket.html
 hedge against inflation: http://www.bargaineering.com/articles/how-to-protect-yourself-from-inflation.html
 value of your time: http://www.bargaineering.com/articles/how-to-quickly-calculate-the-value-of-your-time.html
 federal income tax brackets: http://www.bargaineering.com/articles/federal-income-irs-tax-brackets.html
Thank you for reading!