Taxes

They aren't as scary as you think, and understanding them can really pay off!

Let's explore how they work and maybe they can be used to your advantage!

For this page, we are going to be looking at the income taxes for the United States, if you do not live in the U.S. you likely already have good tax resources available to you, we don't.

How Taxes Work

Taxes in the United States are called "Marginal" meaning that your tax rate increases as your income increases. For this page we will base it off of the current tax rates for 2022 (We will try to update each year)

Federal Income Taxes 2022

Tax rate
Taxable income bracket
Taxes owed
10%
$0 to $10,275.
10% of taxable income.
12%
$10,276 to $41,775.
$1,027.50 plus 12% of the amount over $10,275.
22%
$41,776 to $89,075.
$4,807.50 plus 22% of the amount over $41,775.
24%
$89,076 to $170,050.
$15,213.50 plus 24% of the amount over $89,075.
32%
$170,051 to $215,950.
$34,647.50 plus 32% of the amount over $170,050.
35%
$215,951 to $539,900.
$49,335.50 plus 35% of the amount over $215,950.
37%
$539,901 or more.
$162,718 plus 37% of the amount over $539,900.

Tax rate	Taxable income bracket	Taxes owed
10%	$0 to $10,275.	10% of taxable income.
12%	$10,276 to $41,775.	$1,027.50 plus 12% of the amount over $10,275.
22%	$41,776 to $89,075.	$4,807.50 plus 22% of the amount over $41,775.
24%	$89,076 to $170,050.	$15,213.50 plus 24% of the amount over $89,075.
32%	$170,051 to $215,950.	$34,647.50 plus 32% of the amount over $170,050.
35%	$215,951 to $539,900.	$49,335.50 plus 35% of the amount over $215,950.
37%	$539,901 or more.	$162,718 plus 37% of the amount over $539,900.

Tax rate
Taxable income bracket
Taxes owed
10%
$0 to $20,550.
10% of taxable income.
12%
$20,551 to $83,550.
$2,055 plus 12% of the amount over $20,550.
22%
$83,551 to $178,150.
$9,615 plus 22% of the amount over $83,550.
24%
$178,151 to $340,100.
$30,427 plus 24% of the amount over $178,150.
32%
$340,101 to $431,900.
$69,295 plus 32% of the amount over $340,100.
35%
$431,901 to $647,850.
$98,671 plus 35% of the amount over $431,900.
37%
$647,851 or more.
$174,253.50 plus 37% of the amount over $647,850.

Tax rate	Taxable income bracket	Taxes owed
10%	$0 to $20,550.	10% of taxable income.
12%	$20,551 to $83,550.	$2,055 plus 12% of the amount over $20,550.
22%	$83,551 to $178,150.	$9,615 plus 22% of the amount over $83,550.
24%	$178,151 to $340,100.	$30,427 plus 24% of the amount over $178,150.
32%	$340,101 to $431,900.	$69,295 plus 32% of the amount over $340,100.
35%	$431,901 to $647,850.	$98,671 plus 35% of the amount over $431,900.
37%	$647,851 or more.	$174,253.50 plus 37% of the amount over $647,850.

Tax rate
Taxable income bracket
Taxes owed
10%
$0 to $10,275.
10% of taxable income.
12%
$10,276 to $41,775.
$1,027.50 plus 12% of the amount over $10,275.
22%
$41,776 to $89,075.
$4,807.50 plus 22% of the amount over $41,775.
24%
$89,076 to $170,050.
$15,213.50 plus 24% of the amount over $89,075.
32%
$170,051 to $215,950.
$34,647.50 plus 32% of the amount over $170,050.
35%
$215,951 to $323,925.
$49,335.50 plus 35% of the amount over $215,950.
37%
$323,926 or more.
$87,126.75 plus 37% of the amount over $323,925.

Tax rate	Taxable income bracket	Taxes owed
10%	$0 to $10,275.	10% of taxable income.
12%	$10,276 to $41,775.	$1,027.50 plus 12% of the amount over $10,275.
22%	$41,776 to $89,075.	$4,807.50 plus 22% of the amount over $41,775.
24%	$89,076 to $170,050.	$15,213.50 plus 24% of the amount over $89,075.
32%	$170,051 to $215,950.	$34,647.50 plus 32% of the amount over $170,050.
35%	$215,951 to $323,925.	$49,335.50 plus 35% of the amount over $215,950.
37%	$323,926 or more.	$87,126.75 plus 37% of the amount over $323,925.

Tax rate
Taxable income bracket
Taxes owed
10%
$0 to $14,650.
10% of taxable income.
12%
$14,651 to $55,900.
$1,465 plus 12% of the amount over $14,650.
22%
$55,901 to $89,050.
$6,415 plus 22% of the amount over $55,900.
24%
$89,051 to $170,050.
$13,708 plus 24% of the amount over $89,050.
32%
$170,051 to $215,950.
$33,148 plus 32% of the amount over $170,050.
35%
$215,951 to $539,900.
$47,836 plus 35% of the amount over $215,950.
37%
$539,901 or more.
$161,218.50 plus 37% of the amount over $539,900.

Tax rate	Taxable income bracket	Taxes owed
10%	$0 to $14,650.	10% of taxable income.
12%	$14,651 to $55,900.	$1,465 plus 12% of the amount over $14,650.
22%	$55,901 to $89,050.	$6,415 plus 22% of the amount over $55,900.
24%	$89,051 to $170,050.	$13,708 plus 24% of the amount over $89,050.
32%	$170,051 to $215,950.	$33,148 plus 32% of the amount over $170,050.
35%	$215,951 to $539,900.	$47,836 plus 35% of the amount over $215,950.
37%	$539,901 or more.	$161,218.50 plus 37% of the amount over $539,900.

How to Pay Less Taxes

Playing less taxes can be done in a legal way using certain tax codes and accounts available to you. Because taxes are based on your AGI (Adjusted Gross Income), using advantages that lower your AGI overall can lower how much you pay in taxes.

Traditional 401(k) or IRA

Contributing to a Traditional 401(k) or IRA reduces your AGI and can reduce the taxes you pay in a given year. It is important to remember that you will still pay taxes when you withdraw the money from the account in the future, but your contributions are pre-tax (or not taxed now). Let's look at some math to show how it is used.

Assuming:

Single person with a $50k Salary ($50k AGI)

You would pay $6,616.78 in taxes ($4,807.50 + ($8,225 x 22%) (looking at the 22% tax bracket above)

If you contribute the maximum $6k to a Traditional IRA, it would lower your AGI by $6k meaning:

Salary: Still $50k ($44k AGI) ($50k - $6k contribution to Traditional IRA)

You would pay $5,297 in taxes ($4,807.50 + ($2,225 x 22%) (still looking at the 22% tax bracket above)

You end up saving $1,319.78 by contributing your a tax advantaged retirement account (Traditional IRA or 401(k)).

Don't forget, you still have access to this money during retirement, it is still yours, just in a different account!

HSA

Remember that method for lowering your AGI by contributing to retirement accounts we just went over? The same thing can be done for a Health Savings Account (HSA). Contributing to an HSA can lower your AGI reducing your tax burden for the given year! Make sure to check out HSA's and other types of accounts on our "Account Types" page or by clicking the below button!

Explore Account Types

Disclaimer: I am also not a financial advisor or affiliated with any financial institutions. This is meant as a resource for learning about taxes and does not represent actual tax advice. Please consult a CPA or tax professional for your unique situation.