Not Made Of Money

With all of the emphasis on the economy lately, you’ve probably heard plenty of talk about income taxes lately. Although the IRS updates their tax brackets and allowances every year to take inflation into account, the subject of income taxes seems to have gotten more attention this year than they have ever gotten before. Suddenly, people everywhere are interested in knowing which tax bracket they fall into and how much they will owe on their incomes tax returns.

Finding your tax bracket is relatively simple. You just need to look at the tax tables (they’re available at the IRS website) and find your taxable income. Be sure to look at the tax table for your filing situation whether you’re filing as a single person, a head of household, or another status. Once you’ve found your income and its corresponding tax rate, you’ll know you’re looking at your tax bracket.

One important thing to point out is that the use of these tax tables requires that you have an idea what your taxable income is. Bear in mind that your taxable income is not necessarily your gross income. Taxable income is your (or your family’s) income after certain adjustments have been made, including deducting the standard or itemized deduction amount or your 401(k) contributions.

The division of these brackets changes from year to year, so it’s important to make sure that you’re looking at the appropriate year’s tax table. This year, a single person has to earn more than $8,350 before he moves out of the 10% tax bracket. However, in 2008 a single person only had to exceed $8, 025 to move into the next bracket.

The IRS also updates many of its allowances each year. For instance, the personal exemption changed from $3,500 to $3,650. The standard deduction for a married couple has increased $500 to reach $11,400.

Even the amounts of tax-deferred account contributions taxpayers are allowed to make are subject to adjustment for the new tax year. Contributions to 401(k) plans are now allowed to be as high as $16,500. Individuals can now contribute as much as $3,000 to their health savings accounts. With so many important amounts changing, you should take a few minutes to make sure that you’ve adjusted all of your contributions before we’re too far into the new year.

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