Free 2018 Tax Planning2019-01-05T15:05:52+00:00

Free 2018 Tax Planning

Tax

Tax is the amount taxed on the taxable income Your tax can be defined in 2 ways:

  1. Effective tax rate
  2. Marginal tax rate

 

Marginal tax rate

Marginal tax rate is based on your tax bracket. For example: a single person making  $38,000 will pay:

  • 10% of the first $9,325 of income
  • 15% on income over $9325 and under $37,950
  • 25% on income over $37,950
Lower range  Higher range Tax rate
 $                –  $     9,325.00 10%
 $     9,325.00  $   37,950.00 15%
 $   37,950.00  $   91,900.00 25%
 $   91,900.00 $ 191,650.00 28%
 $ 191,650.00  $ 416,700.00 33%
 $ 416,700.00  $ 418,400.00 35%
 $ 418,400.00 40%

Because of the marginal tax is based on marginal income (income over limits in tax brackets), the effective tax rate is a more effective way of determining your tax rate.

 

Effective tax rate

Your effective tax rate is your tax divided by your taxable income. So if your tax is $100 and your taxable income is $1000, your effective tax rate will be 100/1000 = 10%