Posted by Michelle Vargas, CFP®

Tax Planning is Year Around!

It's never too early to start assessing your tax obligations for the coming tax season. The information in this article applies to the 2024 tax year, which most taxpayers will file in 2025.

Reminder: Tax Brackets Are Marginal

The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are a single filer who made $47,150 in 2024, your first $11,600 will be taxed at 10 percent. The next portion of your income will be taxed at an increased rate; from $11,601 to $47,150, your tax rate will be 12 percent.

As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income.

Why Would My Tax Bracket Be Different?

The IRS regularly adjusts tax brackets to take inflation into consideration. This is because, with inflation, people will face higher prices, meaning the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket, or credits and deductions are reduced. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries. If you recently lost a spouse, you might also be in a higher tax bracket the year after death since you will most likely file Single instead of Married Filing Jointly. As you can see in the chart below, the income tax brackets/'buckets' are less for a single person, and therefore, more tax is often due. This is sometimes called the 'widows' penalty.'

Getting Ready!

Everyone needs a quick reference guide to taxes! As a reminder, Taxable Income is found on Line 15 of your 1040.

Here are a few of my favorite guides for the 2024 tax year:

**Michelle Vargas, CFP®, is a Fee-Only Fiduciary Financial Advisor serving clients in Fort Worth, Texas, and virtually nationwide. She enjoys helping clients manage their wealth so they will have their important concerns addressed and resolved. She works in a Fiduciary capacity and receives no sales or commission-related compensation.

^{This content is developed from sources believed to be providing accurate information and is for educational purposes. It may not be used for the purpose of avoiding any federal tax penalties. Please consult your financial, legal, or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.}