Income Threshold To File Taxes – The 2022 income tax brackets and standard deductions are out! Although the actual tax brackets have not changed, the range of taxable income by tax bracket has adjusted slightly upward to account for inflation. That’s nice of the IRS, but at the end of the day, the government still wants our money!

Here are four tables I created for the 2022 income tax brackets for singles and married couples. In these charts, I also include long-term capital gains tax rates. The short-term capital gains tax rate is equal to the federal income tax rate.

Income Threshold To File Taxes

Income Threshold To File Taxes

As you can see from the chart, the largest increase in the income tax rate goes from 24% to 32% when your income is between $170,051 and $215,950. Additionally, the largest gap between the income tax rate and the long-term capital gains tax rate is income between $215,951 and $459,750. The difference is 20% (35% – 15%).

Understand The Kiddie Tax

Please note that discussions are still ongoing with Joe Biden and most Democrats regarding increasing income tax rates and capital gains tax rates for 2022.

If successful, the top marginal income tax rate would increase from 37% to 39.6%. The rate would apply to single filers with income over $400,000, heads of household over $425,000, married joint filers over $450,000 and married separate filers over $225,000. In other words, income thresholds would be lowered. for the highest marginal income tax rate for all household formations.

The additional standard deduction for individuals who have reached age 65 (or are legally blind) is $1,400 for each married taxpayer or $1,750 for single taxpayers.

In other words, standard deduction amounts reduce your taxable income by the amount per filing status. You can also offset 2022 standard deduction amounts and pay no income tax. This is ideal for students and other low-wage workers who want to contribute to a Roth IRA.

The Expanded Child Tax Credit Looks Like The Earned Income Tax Credit—that’s Great News

For all parents, encourage your children to earn money and contribute the maximum $6,000 to a Roth IRA. You are expected to contribute after-tax money to a Roth IRA. It is then compounded tax-free and can be withdrawn tax-free. However, for children and adults whose income is below the standard deduction amount, they can also contribute tax-free!

If you have a small business, opening a custodial Roth IRA for your child is a no-brainer. In 10 years, your children are guaranteed to thank you or be reimbursed.

You will see these qualified capital gains and dividend tax rates conveniently included in the tables above in the rightmost column.

Income Threshold To File Taxes

For 2022, the annual exclusion for gifts to individuals increased from $15,000 to $16,000. You can now give $16,000 per person in 2022 tax-free. Each $16,000 gift essentially reduces the value of your estate by $16,000.

Irs Sets Minimum Income Threshold For 2023 Tax Filers

If you have an estate valued at an amount above the inheritance tax threshold, it is your responsibility to give more money. Otherwise, any money over the inheritance tax threshold will be taxed at 40%.

The per-person estate tax threshold for 2022 is now $12,060,000, up from $11,700,000 per person. But again, the inheritance tax threshold could fall under the Biden administration. President Biden has proposed cutting the estate tax threshold in half.

Another benefit of increasing the annual gift tax exclusion is that you can now superfund a 529 plan with $80,000 in 2022, up from $75,000 per person. A married couple can superfund a beneficiary’s 529 plan in a single payment of $160,000. But remember, your IRS Form 709 must reflect your five-year election option.

Now that you know the 2022 income tax brackets, long-term capital gains tax rates, standard deduction amounts, and AMT thresholds, we can now calculate the ideal income for up to happiness while paying a reasonable amount of tax.

The Ultimate Guide To Filing Your Taxes For Free

Yes, it is true that most American workers do not pay federal income tax. 60.6% of Americans didn’t pay income tax in 2020 and about 57% of American workers still won’t pay income tax in 2021. But someone has to pay income taxes to help support this great nation, so we might as well do it. We.

The above income levels face a marginal income tax rate of 24%. Any excess dollars are taxed at an even more egregious rate of 32%, a jump of 8 percentage points. Why there is such a large increase in the tax rate compared to just a 2 percentage point increase from 22% to 24%, I have no idea.

But if you look at a detailed budget, as I did with a household income of $300,000, you’ll see that earning $170,050 for singles and $340,100 for married couples is an ideal balance. Income is high enough to save for retirement, own a home, vacation, and raise children. But the income is also low enough that you still pay a reasonable income tax rate. The effective tax rate is actually much lower.

Income Threshold To File Taxes

Another reason I aim to consistently generate $300,000 in passive investment income is that qualified dividends and capital gains are taxed at a reasonable 15%. There are obviously good arguments as to why investment income and gains should not be taxed at a higher rate, since we already pay taxes on invested capital.

How Much Do You Have To Make To File Taxes In 2023?

After a closer look at long-term capital gains tax rates, the ideal amount of passive income can be as high as $517,200. However, achieving this level of passive investment income simply isn’t feasible for most of us.

If you can’t make $170,050 as a single person or $340,100 as a married couple, there is a second ideal income amount to be ultimately happy and pay reasonable taxes. They are:

At these income levels, you only pay a marginal income tax rate of 12%. Every dollar above these levels is subject to a marginal income tax rate of 22 percent, up to $89,075 for singles and up to $178,150 for married couples filing jointly. A jump of 10 percentage points is pretty steep.

Given that some researchers reported in 2010 that more money above $75,000 doesn’t bring happiness, married couples may have found their sweet spot at $83,551. If you use an inflation rate of 2% since 2010, $75,000 equals $93,253. Therefore, adjusted for inflation, the ideal second income for singles is closer to $48,000 per year, or $4,000 per month.

Earned Income Tax Credit

The only problem with earning less income is that you have less absolute amount to save and invest. Therefore, if you are planning to earn the second ideal amount of income, you better enjoy your job or are already close to or retired. With these income levels, it will be very difficult to retire early and do something else.

We have a government that continues to give! The Biden administration announced the income threshold for student loan forgiveness of $125,000 per person and $250,000 per household.

The ideal income for maximum happiness is therefore around $125,000 per person. You can live a great middle class lifestyle AND benefit from all the government subsidies. Not bad!

Income Threshold To File Taxes

The middle class is the best class in the world because they are always flattered by the government. Nobody looks down on the middle class, only the rich and the poor!

Why Is Tax Day In April?

I have argued that the best time to retire may be when tax rates rise and the social safety net expands. I left work in 2012 mainly because I was burned out. But the possibility of also facing a marginal income tax rate of 39.6% just didn’t seem appealing. I didn’t like money that much. If I had, I would have continued grinding.

Today, I mainly focus on the work I love. The resulting income is a secondary consideration. However, I remain cautious when attempting to accurately forecast my future investment income because it plays a significant role in the overall tax rate I will pay.

Paying a full effective tax rate (federal, state, FICA) up to 25% is ideal in my opinion. At 25%, you contribute to the greater good while keeping most of your hard-earned money. You can live a good life with an income high enough to pay an effective tax rate of 25%.

Paying a total effective tax rate above 30% doesn’t seem worth it at this point in my life. Therefore, if I am lucky enough to pay an effective tax rate above 25%, I will limit my work in order to enjoy life more. The only problem is that I almost always love what I do. Any surplus must therefore be returned.

The 2023 Roam Index: How State Tax Codes Affect Remote And Mobile Workers

Tell me what your ideal income is and why! The 2022 income tax bracket is an original article from FS. I wrote a new article on the 2023 income tax bracket with the same theme.

For more great content, join over 55,000 others and sign up for my free weekly newsletter. I’ve been writing about helping people achieve financial independence since 2009.

Sam started Financial Samurai in 2009, in the depths of the financial crisis, to make sense of the chaos. After 13 years on Wall Street and obtaining his MBA, Sam

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