You'll use the table to determine that you fall into the 22% tax bracket, which is known as your "marginal rate." But that doesn't mean you pay 22% of every taxable dollar to Uncle Sam. Say you're a single filer who earned $50,000 in 2020 in taxable income. So, keep that in mind as you do this exercise. To complicate things, certain investment income is taxed at a capital gains rate and not at the ordinary income rate. That involves deciding whether to take the standard deduction ($12,400 for single filers $24,800 for married filing jointly) or itemize, which you do by manually subtracting below-the-line deductions, such as charitable contributions and mortgage interest.įinally, you'll have reached your taxable income and can determine your tax bracket using this number. Next, you'll subtract certain tax adjustments, such as student loan interest and contributions to an individual retirement account, or IRA, to figure out your adjusted gross income.Īfter determining adjusted gross income, you'll need to subtract tax deductions. "Gross income is pretty much everything, and it's defined in the law as income from all sources unless there's an exception in the tax code," says Chris Raulston, a Memphis, Tennessee-based wealth strategist at Raymond James. That calculation will yield your gross income. Many married couples file taxes jointly, but some may choose to file separately to reduce their student loan payments or because they're in the process of divorcing.įull disclosure: This is difficult to do by hand, but it can be a worthwhile exercise.įirst, calculate earnings from your work, side hustles, rental properties and other sources, then subtract any income that is considered an exclusion by the tax code, such as proceeds from a life insurance policy. The status you'll use will depend on whether you're single or married, have qualifying dependents and other aspects of your specific tax situation. ![]() ![]() Before you know which tax bracket your income falls into, you have to know your tax-filing status.
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