7 Different Tax Brackets Explained

Tax brackets are determined by your taxable income and civil tax status. Inflation can cause your income to increase, but this doesn't necessarily mean you'll be paying higher taxes. Most Americans opt for the standard deduction on their federal tax return instead of itemizing deductions. The Earned Income Tax Credit (EITC) is a refundable tax credit designed to help low-income working families.

Tax credits, such as the EITC or the Child Tax Credit, can also place you in a lower tax bracket. You can calculate your taxes by dividing your income into the parts that will be taxed in each applicable tranche. If you hold an equity asset for one year or less, any gain from the sale is considered a short-term capital gain and is taxed at the ordinary income rates listed above. You can reduce your income to another tax bracket through tax deductions, such as charitable donations, property taxes, and mortgage interest.

The United States uses a progressive tax system, which means that different parts of its income are taxed at different rates. The capital gains tax rate that applies to a capital gain depends on the type of asset, its taxable income, and the length of time it held the property sold. There are seven tranches of individual federal income taxes; the federal corporate tax system is flat. Tax credits are more valuable than deductions since they are subtracted dollar for dollar from your tax bill.

The rate you must pay for the last dollar you earn is usually much higher than your effective tax rate. Starting in 2026, tax rates are expected to return to previous rates, which were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.TurboTax can help you make sure that your taxes are done correctly, no matter what your situation is. Erica York, a senior economist and research director at the Tax Foundation's Center for Federal Tax Policy, explains that as with ordinary rates and tax brackets, the specific long-term capital gains tax rate that applies depends on your income.

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