The federal government uses a progressive income tax, which imposes a higher tax rate on higher income levels. As of 2012, the United States individual income tax brackets range from 10 percent up to 35 percent. Knowing your tax bracket can help you determine the true cost of certain deductible expenses. For example, when considering the true cost of a mortgage, the value of the mortgage interest deduction depends on which tax bracket you fall into.
Figure your total taxable income by adding all of your sources of taxable income. For example, if you have $63,000 in wages and $4,000 in taxable interest, add $63,000 and $4,000 to find your total taxable income equals $67,000.
Subtract any deductions you plan to take from your taxable income. Do not include credits that you will claim because those affect your tax liability but not your income tax bracket. For example, if your taxable income equals $67,000 and you plan to claim $11,000 worth of deductions, subtract $11,000 from $67,000 to find your taxable income after deductions equals $56,000.
Use the income tax tables, found in the most recent version of IRS Publication 17, to find your tax bracket based on your taxable income after deductions and your filing status. In this example, if you were single you would find that your taxable income after deductions puts you in the 25 percent tax bracket.
If your state or locality has an income tax, you can find it by following the same steps. Obtain the applicable tax brackets by contacting your state or local department of revenue.
- If your state or locality has an income tax, you can find it by following the same steps. Obtain the applicable tax brackets by contacting your state or local department of revenue.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."