If you are an investor, know your tax category to reduce tax obligations and make a number of opportunities to make a plan that can increase your investment. Investing based on the tax payment division is that a good certified public accountant or financial advisor, including Betterment, for customers.
IRS is taxed in different ways in different tax -subjects (such as dividends, capital gains, withdrawal money drawers), so knowing the taxation category is important in optimizing investment strategies.
This article explains how to estimate the tax range and make a more strategic decision on the income tax.
First, what is the tax amount?
In the United States, the federal income tax is followed by policy experts in the “progress” tax system. This generally means that people with high income have a higher tax rate than those with low income.
2025 tax system
| tax rate | Taxable income for a single declared applicant | Taxable income when co -declaring by a couple |
|---|---|---|
| 10% | $ 0 to $ 11,600 | $ 0 to $ 23,200 |
| 12% | $ 11,601 ~ $ 47,150 | $ 23,201 ~ $ 94,300 |
| twenty two% | $ 47,151 ~ $ 100,525 | $ 94,301 ~ $ 201,050 |
| twenty four% | $ 100,526 ~ $ 191,150 | $ 383,900 from 201,051 |
| 32% | $ 191,951 ~ $ 243,725 | $ 383,901 to $ 487,450 |
| 35% | $ 243,726 to $ 609,350 | $ 487,451 to $ 731,200 |
| 37% | $ 609,351 or more | 731,201 or more |
Source: Director Revenge Agency
Rather than considering only a single tax district you However, it is useful for multiple tax categories. Each dollar of your taxable income It may fall into it. That's because tax is applied to specific parts of income.
For example, simplify the story and assume that a single filer has only two tax categories.
- If the taxable income is up to $ 10,000, the tax rate is 10%
- If the taxable income is $ 10,001 or more, the tax rate is 20%
If you are a bachelor and your taxable income is $ 15,000 this year, you are the second taxable layer. This is usually called the “limit” tax rate. However, some of the income falls into both tax zones, and those parts are taxed accordingly. The first $ 10,000 of the income is taxed, and the remaining $ 5,000 is 20%.
How difficult is it to estimate your tax category?
Fortunately, the US tax zone is quite wide, and it is often much easier than actually calculating the accurate tax, as it costs tens of thousands of dollars. It is a large error range to estimate.
With a wide range of tax categories, you can estimate the tax zone quite accurately, even in the beginning of the year when you do not know the amount of bonuses and donations to charitable organizations. Of course, the more you calculate the tax category, the more accurate the estimate. Also, if it is close to a cut -off between a bracket and the next bracket, it must be as accurate as possible.
How do I estimate the tax amount?
Estimating tax categories requires two main information:
- Your estimated annual income
- Tax deduction to be filed
These are the same as the information that you or your accountant pays for tax every year. Usually, if your personal situation hasn't changed much since last year, the easiest way to estimate the tax payment is to check last year's tax return. In 2017 tax cuts and employment laws, many rules and parentheses have been changed. Parentheses may be adjusted every year in consideration of inflation. Therefore, it may be reasonable for most people to calculate new numbers and estimate their brackets.
Use the tax return of last year to estimate the tax amount
If the situation is expected to be almost the same as last year, open a tax return last year. If you check the form 1040, the taxable income will be displayed on the 15th “taxable income” on page 15.
Unless you have a major change in this year's income and personal situations, you can use the numbers as an estimate to find appropriate tax categories.
Predict income, deduction, exemption and estimate the tax amount
If your personal situation has changed since last year, you need a little more work to estimate the bracket. For example, if you get married, change jobs, if you have a child, or if you buy a house, all or many other factors may affect tax categories.
It is important to point out that the income subject to tax, that is, the numbers required to estimate the tax amount are not the same as total income. IRS usually allows to reduce total income through various deductions before the taxable income is reached.
When Betterment calculates the estimated tax range, calculate the estimated tax income using the above two elements. You can use the same process.
- The total income from all the source of income expected in that year. This includes salary, bonuses, interest, business income, pensions, dividends, etc. If you are married and declare jointly, be sure to fill in the spouse's source of income.
- Submit the deduction. Tax deduction reduces taxable income. General examples include mortgage interest, property tax, charitable activity, etc., but complete lists can be found by schedule A -item deduction. If you do not know the deduction amount, or if the deduction is not so large, substitute the standard deduction amount. By default, BETTERMENT assumes that it will receive a standard deduction. If you know that the actual deduction amount is significantly higher than the standard deduction, do not use this assumption when estimating the bracket. The default estimated amount can be incorrect.
A number in which total income is subtracted by deduction or deduction is called taxable income. This is the estimated value of the number 15 lines of 1040, and this number determines the tax district. Check this number in the corresponding tax zone and check where to land.
Again, this is just an estimate. There are countless factors that can affect the limit tax, such as exclusion, step abolition, and alternative tax. However, this estimate is enough for most investors in planning. If you think that more detailed calculations are needed to make an annual funding plan, consult a tax specialist.
How can you use the tax slot to optimize your investment option?
With a tax estimate, you can use that information in various aspects of financial planning. Here are some ways to provide more appropriate and more personalized advice using the tax quote.
- Collection of tax loss: This is a powerful strategy that uses the ups and downs of investment to save taxes. However, since the taxation method for capital gain is different, it does not normally make sense if it falls under lower tax categories.
- Tax Adjustment: This strategy aims to re -adjust which account to hold which investment and increase the profit after tax. For the same reason as above, the advantage of this strategy is greatly reduced if the tax range is lower.
- Comparison between conventional contributions and ROTH contributions: Selecting an appropriate retirement allowance as a destination can save taxes over time and throughout your life. In general, a ROTH account is best if it is expected to be more expensive in the future. If it is expected to belong to a lower tax classification in the future, a conventional account is the best. For this reason, our automatic retirement allowance advice estimates the current tax category and future forecasts, and use that information to recommend the most rational retirement allowance for customers.
In addition to these strategies, Betterment's financial expert teams support more complex strategies, such as ROTH conversion, tax estimates for moving external investments to Betterment, and construction of a high tax -saving drawer at the time of retirement. Masu.
Tax optimization is an important part for overall economic success, and knowing the tax range is a basic step to optimize investment decisions. That's why Betterment recommends a strategy that matches you using the estimated values of your bracket. This is only one of the way we tie up with customers to maximize our funds.
