TikToker Explains How Tax Brackets Actually Work In Under One-Minute
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Most people have heard of tax brackets, but do you really understand how tax brackets actually work? It’s an important part of one’s personal financial literacy to understand tax brackets, especially when calculating one’s post-tax income.
Even so… Few things in life are more certain – and confusing – as taxes.
Scott McLaine at BrightWealth® Financial Services put together a helpful TikTok video breaking down the fundamentals of tax brackets work. His thesis is simple: Understanding the tax bracket system is not only important for calculating the amount you owe in federal income taxes, but also figuring out how to reduce your income taxes with a meaningful strategy in the future.
“People have the misconception that taxes are calculated based on what you make as a whole, when in fact taxes are based on a tier system (bracket system). In this video. I will explain how that works…”
How do tax brackets work?
Tax brackets show you the tax rate that you have to pay on each portion of your income. The key word here is each portion – As TurboTax explains, If you are single in the United States, the lowest tax rate of 10% is applied to the first $9,875 of your income in 2020. From there, another chunk of your income is then taxed at 12%, and so on, up to the top of your taxable income.
The goal of tax brackets is to ensure a level playing field for all taxpayers, regardless of income. This is why people with higher incomes pay higher taxes.
It’s not as simple as a percent associated with your gross taxable income, as BrightWealth explains.
Here’s his easy-to-understand video:
Of course, there are a myriad of factors that come into consideration with taxes (IE: short and long term capital gains and losses), so remember to consult a professional in assessing a your own situation.