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Tip of the Day Refinance Your Mortgage if You Can Cut At Least One Point

Refinance Your Mortgage if You Can Cut At Least One Point - Refinancing a mortgage only makes good sense if you are going to save more than 1% on the...

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Income Tax Rate

The amount of income tax you pay depends on the amount of money you earned in a year. Income tax rates vary depending on your income level and your tax status. Your income tax rate can range from 10 per cent to about 36 per cent. Your tax status depends on circumstances such as marriage, or disabilities.

You have to claim all of the money you earned in the previous tax year. This includes investment income, capital gains income, wages and salaries. Business profits and dividends are also subject to tax. Some earnings are excluded from federal tax. For example, you do not have to pay tax on money your employer contributed to health insurance premiums. If you hold tax-exempt bonds, you will not have to claim the interest earned on these. You also do not have to claim interest earned through your individual retirement account or 401(k).

You can lower your tax bracket by claiming eligible deductions. These can include medical expenses, moving expenses, alimony, and business expenses. Deductions are taken off your gross pay. If you have enough deductions, you can ensure you pay the lower tax rate on your earnings. Sometimes a last minute charitable donation can be enough to lower your tax rate.

Tax credits can also lower the amount of tax you pay. Tax credits are better than deductions, because they are taken right off the amount of tax you owe. Examples include the Child Tax Credit or Earned Income Tax Credit.

You should check the IRS website to ensure you are claiming all of the deductions, credits and exclusions owed to you. A professional tax preparer can help you maximize your tax refund. There are also numerous tax preparation software programs available. These will do some of the calculations for you. Many programs feature questions, or hints to guide you as you fill in your tax return. These programs can help ensure you are paying the appropriate tax rate.

Capital gains are taxed at a different rate depending if they are long term or short-term investments. The IRS prefers long-term capital gains, and taxes these at a lower rate. Short-term gains are taxed at the same level as income. It is a good idea to hold onto investment property, stocks or collectibles for more than a year to ensure you pay a lower tax rate.

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