The 2022 federal tax brackets have been announced which includes annual inflation adjustments. How important is it to know your tax bracket? It’s important to know so you can plan accordingly and strategize your financial goals. Are you paying too much in taxes? Are you paying too little? Or are you paying just enough? Here’s a breakdown of the 2022 federal tax brackets.
For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).
The other rates are:
35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
32% for incomes over $170,050 ($340,100 for married couples filing jointly);
24% for incomes over $89,075 ($178,150 for married couples filing jointly);
22% for incomes over $41,775 ($83,550 for married couples filing jointly);
12% for incomes over $10,275 ($20,550 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
How do I use this type of information? I look at where I believe my income bracket is going to be this coming year based on the previous year. If there hasn’t been any drastic changes you’ll probably be close to what you made last year. Account for any bonuses, extra dividends, capital gains, interests, and so on.
What I key on are the income limits. How close am I to the next tax bracket. What I try to avoid is going into the next higher tax bracket. Let’s say you’re married filing jointly and you’re combined income is $178,000 so you’re in the 22% tax bracket. That means if you accrue anymore income it could put in you that would take you past $178,150, any income over this will be taxed at 24% up to $340,100.
You might be saying 2% isn’t huge. I would agree with that but for me every penny counts. If you’re in one of the other tax brackets, you’ll see that there’s a huge jump from 12% to 22% and from 24% to 32%. A 10% and a 8% difference is significant. So it is important to monitor where you land.
If you are on the border, how can you ensure you don’t pass into the next tax bracket? Deductions, deductions, deductions! You would need to lower your taxable income and you would do this through deductions (at least this is my way of doing it). You can donate to Goodwill, Salvation Army, or any other non-profit organization. You can donate to a charity or to your church. And you need to do it in the current year you’re in.
There are 4 things my accountant told me to do. Buy a house, get married, having children, and start a business. I know why she said this. All these things help you to lower your taxable income. Now, actually doing these, I can’t help you with that.
The 2022 tax brackets are out. Knowing your tax bracket is important. Keeping up with the latest IRS changes will help you financially plan and strategize your future. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
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