How to calculate your tax brackets

Tax brackets are important for those who earn more money than they have to. They are income levels at which tax rates change. These brackets define the income threshold at which you are subject to higher tax rates. The tax rate will be higher if the income is higher. This is important for anyone who plans to make a financial plan. These are some helpful tips to help you determine your tax brackets.
Dividends

Partly, taxable income determines the tax rate for dividends. Qualified dividends for instance are subject to lower taxes than ordinary dividends which are subjected to the ordinary income tax rate of the investor. Nontaxable distributions, by contrast, are not subject to any tax. You may be eligible for lower tax rates on certain types of dividends if you invest in tax-deferred accounts.
Social Security

Some people can tax their Social Security benefits depending on how much income they have. Social security benefits are subject to different income tax brackets. However, those who have an adjusted gross annual income below $25,000 will not be subject to any tax. However, people earning between $25kk and $34k will have to pay up to 50% tax on their benefits. They may have to pay up 85% of benefits if they earn more than $44,000
Pensions

A lot of thought goes into taxing retirement income when choosing the best retirement plan. You should consider the state tax rates as well as itemized deductions. These factors can help you calculate how much money you need to put aside for taxes each tax year. Also, consider the tax implications when you move to another state. The federal government taxes pension income in most states in the same manner as it does in other states. These states often require tax withholding as well as quarterly estimated tax payments.
IRAs

Your marginal tax rate will affect your decision on whether to contribute to an IRA, 401(k), or both. If your income is substantially higher than the standard deduction you should consider how the current tax rate compares to your retirement marginal tax rate. You may be able to convert your IRA to a taxable one if you earn a high income. But, this is not a guarantee. As time goes by, tax rates will increase.
Bottom of the tax bracket: Untaxed Area

Your tax bill will be reduced if you increase your untaxed income. Contributions to deductible retirement funds, mortgage interest and charitable contributions are just a few of the options you have. With the exception of couples who earn over $450K in 2013, all tax rates will be unchanged from 2003 to 2012. Here are some tips to maximize this tax advantage. For more information, see our guide on maximising untaxed assets.
Marginal tax rate

The difference between the marginal and effective tax rates is something you may have heard. What is the difference in these two numbers? The marginal tax rates tell you about your financial status, while the effect tax rate allows a tax planner to calculate the after-tax implications of investments. Let’s take a closer look at these two terms. Understanding their purpose is important if you want to know what they mean.