Do You Know How Income Taxes Are Calculated?

This is the first of a series of 2007 Tax reference$160,850 - $349,700 is taxed at 33%over $349,700 is
sheets that I'll be sharing with you over the next monthtaxed at 35%
or so. This one focuses on some of the major federalSingle, Head of Household:
income tax key numbers. I'll do future ones for estate$zero - $11,200 is taxed at 10%
planning, retirement planning and business planning in$11,200 - $42,650 is taxed at 15%
the not too distant future so stay tuned.$42,650 - $110,100 is taxed at 25%
Since federal income taxes are such a large part of$110,100 - $178,350 is taxed at 28%
most peoples life or expenditures, I thought that you$178,350 - $349,700 is taxed at 33%over $349,700 is
might like a summary or reference sheet for some oftaxed at 35%
the important figures for 2007.Standard Deduction:
Many people believe that if someone is in the 28% taxStandard Deduction is ONLY for those who do NOT
bracket, they pay all taxes due at the rate of 28% ofitemize expenses like mortgage interest, charitable
taxable income. This is not correct. A couple having acontributions, etc.
taxable income of $125,000 does not pay 25% federalMarried, Filing Jointly: $10,700
income tax on ALL of the taxable income... but only onMarried, Filing Separately: $ 5,350
everything over $63,700. The first $15,650 is onlySingle: $ 5,350
taxed at 10%, the taxable income fromSingle, Head of Household: $ 7,850
$15,560-$63,700 would be taxed at 15% and so on.Those who are blind or over age 65 can ADD $1,050
The figures below is taxable income (after deductions(if married) or $1,300 (if single or head of household) to
and exemptions).the above Standard Deductions
I'll start out with the tax brackets for the 2007 taxPersonal Exemptions:
year.Personal Exemptions are set at $3,400 per allowed
The figures below show the various "steps" on howperson subject to Phaseouts (which are reductions in
themarginal income brackets are progressively taxedthe Exemptions) based on taxable income. This is not
higher.an issue unless your taxable income is at least
Married, Filing Jointly:$117,300 (depending on filing status).
$zero - $15,650 is taxed at 10%Maximum taxable EARNED income subject to FICA
$15,650 - $63,700 is taxed at 15%tax: $97,500
$63,700 - $128,500 is taxed at 25%The Social Security and Medicare combined tax rate is
$128,500 - $195,850 is taxed at 28%15.3% on income up to that figure. W-2 employees pay
$195,850 - $349,700 is taxed at 33%over $349,700 ishalf of the 15.3% and employers pay the other half.
taxed at 35%Self-employed pay the whole amount.
Married, Filing Separately:Long-term Capital Gains and Qualified Dividend Rates:
Note: Often times it make more sense for a marriedFor those in the 10% and 15% Income tax brackets
couple to file taxes separately for either tax reductiononly: 5%
strategies or for non-tax reasons. Your tax advisorFor taxpayers in the higher tax backets: 15%
should help you decide if there are important reasonsCapital gains on collectibles (coins, stamps, etc.) 28%
for YOU to take advantage of this filing status.One of the important functions of a financial advisor is
Tax brackets for Married Filing Separately: Simply cutto help reduce taxes to your legal minimum due by
the above taxable figures in half for those six taxusing all appropriate deductions, methods and
bracketsstrategies. A good tax advisor is worth their weight in
Single:gold! So go find a pro-active tax advisor, not someone
$zero - $7,825 is taxed at 10%who just files tax returns.
$7,825 - $31,850 is taxed at 15%And now, hopefully you will have a better idea of what
$31,850 - $77,100 is taxed at 25%that person is talking about.
$77,100 - $160,850 is taxed at 28%