TAX BRACKET, TAX RATE, WHAT’S THE DIFFERENCE?
For example, say you’re single and in the 25% bracket for 2016. That means your taxable income is between $37,650 and $91,150.
Yet the tax you pay is less than 25% of your income.
Why? Because the 25% tax rate only applies to the amount of taxable income within the 25% bracket. The tax on income below $37,650 is calculated using the rate that applies to income in the 10% and 15% brackets.
So, if your 2016 taxable income is $40,000, only $2,350 is taxed at 25%. The remainder is taxed at 10% and 15%, leading to a “blended” overall rate. The result: a tax bracket of 25%, and an effective tax rate of less than that.
Good tax advice can affect both your bracket and your rate. Want to know how? Contact us at (303) 447-1626 and we’ll help to ensure that you are meeting all the record keeping requirements in these areas.