This is the first of a series of 2007 Tax Reference Sheets that I'll send you over the next month or so. This one is about some of the most important key numbers for the federal income tax. I'll do more in the near future about planning your estate, your retirement, and your business, so stay tuned.
Since federal income taxes are such a big part of most people's lives and spending, I thought you might like a summary or reference sheet with some of the most important numbers for 2007.
Many people think that if someone is in the 28 percent tax bracket, they pay all of their taxes at the rate of 28 percent of their taxable income. That's not right. A couple with taxable income of $125,000 does not pay 25 percent federal income tax on ALL of that taxable income, but only on what is over $63,700. The first $15,650 of taxable income is only taxed at 10%. The next $15,560-$63,700 is taxed at 15%, and so on. Taxable income is shown below (after deductions and exemptions).
First, I'll talk about the tax brackets for 2007.
The images below show the different "steps" of
The top tax brackets get higher as people make more money.
Married, joint filing:
10 percent of everything from $0 to $15,650 is taxed.
15% of income between $15,650 and $63,700 is taxed.
25% of income between $63,700 and $128,500 is taxed.
Between $128,500 and $195,850, the tax rate is 28%.
33 percent of income from $195,850 to $349,700 is taxed.
taxed at 35% on amounts over $349,700
Filing separately, but married:
Note: Sometimes it's better for a married couple to file their taxes separately, either to save money on taxes or for reasons that have nothing to do with taxes. Your tax advisor should help you figure out if you have important reasons to use this filing status.
For married people who file taxes separately: Just cut in half the tax amounts listed above for those six tax brackets.
Single:
10 percent of everything from $0 to $7,825 is taxed.
15% of income between $7,825 and $31,850 is taxed.
25% of income between $31,850 and $77,100 is taxed.
Between $77,100 and $160,850, the tax rate is 28%.
33 percent of income from $160,850 to $349,700 is taxed.
taxed at 35% on amounts over $349,700
Single and in charge of the house:
10 percent of everything from $0 to $11,200 is taxed.
15% of income between $11,200 and $42,650 is taxed.
25% of the amount between $42,650 and $110,100 is taxed.
The tax rate is 28% from $110,100 to $178,350.
33 percent of income from $178,350 to $349,700 is taxed.
taxed at 35% on amounts over $349,700
Normal deduction:
The standard deduction is only for people who don't break down expenses like mortgage interest, donations to charities, etc. into separate categories.
Paid together as a couple: $10,700
Filing separately, but married: $5,350
Single: $ 5,350
Head of Household, Single: $7,850
Add $1,050 (if married) or $1,300 (if single or head of household) to the above Standard Deductions if you are blind or over 65.
Personal Exemptions:
Personal Exemptions are set at $3,400 per allowed person, but they can be reduced based on taxable income through "Phaseouts." Unless your taxable income is at least $117,300, this is not a problem (depending on filing status).
The most EARNED income that is subject to FICA tax is $97,500.
On income up to that amount, the tax rate for both Social Security and Medicare is 15.3%. The 15.3 percent is split between the employee and the employer. Self-employed people pay all of it.
Long-term gains and qualified dividend rates:
Only for people in the 10 percent and 15 percent income tax brackets:
15 percent for those in the higher tax brackets
Capital gains on collectibles (coins, stamps, etc.) 28 percent
One of the most important things a financial advisor does is help you pay the least amount of taxes possible by using all the right deductions, strategies, and methods. A good tax advisor is as valuable as gold. So go find a tax advisor who is proactive and not just someone who files tax returns.
Now, you should have a better idea of what that person is talking about.
