04 Feb Preparing to Pay Your 2019 Taxes? First, Determine Your Tax Bracket
The deadline for filing 2019 tax returns is April 15, 2020. If you’re still working as an employee or independent contractor, you can expect to receive any Form W-2s and Form 1099-MISCs from your employers or clients by January 31. If you’re due Form 1099-INTs (for interest income), Form 1099-DIV (for dividend income), Form 1099-R (for taxable retirement plan distributions), and Form 1098 (for mortgage interest and fees), they should also be arriving by the end of the month. Form 1099-Bs (for sales of investments in brokerage accounts) can be expected by February 15.
Once you’ve received all these important documents, you can prepare your 2019 returns. However, you may benefit from determining your federal income tax bracket in the meantime. You can use this calculation to help you identify strategies for reducing your federal tax bill. Because the IRS adjusts the standard deduction and tax brackets every year, you may need to pay a different tax rate for 2019 than you did in years prior—even if your income has not changed.
2019 Federal Income Tax Brackets
There are seven federal tax brackets for 2019. The bracket you fit into is dependent on your taxable income and filing status.
|Income Tax Rate||Filing Singly||Married Filing Jointly||Married Filing Separately|
|10%||$0 – $9,700||$0 – $19,400||$0 – $13,850|
|12%||$9,700 – $39,475||$19,400 – $78,950||$13,850 – $52,850|
|22%||$39,475 – $84,200||$78,950 – $168,400||$52,850 – $84,200|
|24%||$84,200 – $160,725||$168,400 – $321,450||$84,200 – $160,700|
|32%||$160,725 -$204,100||$321,450 – $048,200||$160,700 – $204,100|
|35%||$204,100 – $510,300||$408,200 – $612,350||$204,100 – $306,175|
|37%||More than $510,300||More than $612,350||More than $306,176|
If filing as Head of Household, the brackets are the same as Filing Singly
Determining Your Taxable Income
You’ll start with your gross income. It is the sum of your earnings from employers (if you work for a company or companies), clients or customers (if you also work as an independent contractor or earn money from a side hustle or hobby), rental properties, taxable retirement distributions, and taxable income from other savings and investments.
To get your adjusted gross income, you’ll subtract any eligible adjustments, which may include student loan interest and retirement plan contributions.
Finally, you’ll subtract the tax deductions you qualify for. The Tax Cuts and Jobs Act of 2017 increased the standard deduction, effectively reducing the number of taxpayers who will benefit from itemizing their deductions. Unless you qualify for sizable deductions such as mortgage interest and charitable contributions, you’re likely to be among them.
The standard deduction for 2019’s earnings is $12,200 for taxpayers who file singly or are married filing separately. It’s $24,400 for those married and filing jointly, and $18,350 for those filing as head of household. It’s also $1,300 higher for taxpayers over 65 years of age or blind, and $1,650 higher if you’re unmarried and not a surviving spouse.
But There’s More…
If that wasn’t complicated enough for you, the federal government uses a graduated system, which means you don’t necessarily pay the same income tax rate on every dollar you earn.
For example, let’s say you’re married and filing jointly with $100,000 in taxable income. When we look at this taxable income up in the tax bracket table, it shows you fall into the 22% tax bracket. This is known as your marginal rate, but you’re not actually paying 22% on the entire $100,000. Instead, you’re paying 10% on the first $19,400 (or $1,940 in tax), 12% on the next $59,550 (or $7,146 in tax), and 22% on only the final $1,650 (or $363 in tax).
Your total tax liability is the sum of those amounts, which in this example is $9,449.
Lowering Your Tax Rate
If you want to lower your tax rate, and your subsequent tax bill, before it’s time to pay taxes on your 2020 income, you may benefit from working with a financial advisor. We can consider strategies such as delaying income, increasing your contributions to retirement and heal savings accounts, donations to charity, and other options.