Federal Tax Brackets 2012

Tax Guide

Federal Tax Brackets 2012

Tax rates, in other words the percentage of income you pay in taxes, vary depending on the sources of your income and the total amount of income you earn. The system was originally designed to be regressive, ensuring that the very rich would pay a higher percentage of their income in taxes than the very poor. The second reason was to encourage certain types of economic activity such as investment and home ownership.

Key concepts underlying federal tax brackets 2012 are “taxable income” and “tax bracket”.

Taxable Income

Your taxable income is based on your net income, that is your gross income minus deductions and exemptions. Gross income includes your salary, tips, gambling profits, profits from sale of goods or property, interest, and any other activity that brings in money that is not defined by the Internal Revenue Service as exempt. Once you have calculated your gross income, you subtract exemptions, such as those for dependents, and deductions, such as foreign taxes paid, charitable contributions, mortgage interest payments, business expenses, and any of the innumerable other special deductions found in the 6,000 page tax code.  Now you’re ready to determine where you fall in the federal tax brackets 2012.

Tax Bracket

The Federal tax brackets 2012, or the percentage of income you pay as taxes, varies from 10% to 35% depending on your taxable income and marital and household status. So, for example, a single person earning $8,351 – $33,950 would be in the 15% bracket, but if you earned over $372,951 in income, you would be in the 35% bracket.

Unearned Income -Capital Gains

Because profits from certain sources, including buying and selling houses or stocks, are considered capital gains rather than income, they are taxed at a 15% rate no matter how much money you make from them.

Like other years, federal tax brackets 2012 are complicated.  If you’d like to learn more, contact one of our tax professionals today.

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