Por Charlestien Harris, asesor financiero jubilado de Southern Bancorp
March Madness is in full swing, and almost everyone is glued to their TV set! What an exciting time, especially if your team is still in the game and advancing within the bracket they were chosen for, or earned by winning. The bracket keeps the games organized and on track as each team moves up or out.
As you can tell, I love to research origins, and I learned that the U.S. tax bracket system originated with the 16th Amendment in 1913. It was designed to create a progressive system in which higher earners pay higher rates, primarily to fund government operations.
Tax time can be stressful for some taxpayers, much like basketball teams waiting to see who their opponent will be in the next level of the bracket system. Here are a few suggestions to help you prepare for your next “tax bracket level,” just in case you find yourself moving up or down depending on where your income falls.
1. Accurate Tax Projections
Tax projections allow taxpayers to estimate their liability on additional income, such as bonuses, investment gains, or gig work. They also help individuals and businesses avoid underpayment penalties, optimize retirement contributions, manage cash flow, and adjust withholdings or quarterly payments to avoid surprises.
Accurate tax projections are especially beneficial during major income changes (higher or lower), life changes (marriage, divorce, or buying a home), or when making year‑end tax‑saving decisions.
2. Optimal Financial Planning
A financial plan is a roadmap for pursuing your financial goals. It should include strategies and specific recommendations for managing debt, saving, investing, and reducing risks to your financial well‑being. A strong plan should be flexible enough to update as your circumstances and goals evolve.
Knowing your top marginal tax rate is also helpful when deciding how much to contribute to tax‑deferred retirement accounts such as a 401(k), traditional IRA, or Roth IRA.
3. Tax Optimization Strategies
A tax strategy is a proactive, year‑round planning approach designed to legally minimize tax liability and maximize after‑tax wealth. With careful planning, you can time deductions or income events – such as selling investments or making charitable donations – to lower your overall tax burden. Examples include:
4. Utilize Your W‑4 Withholding Effectively
Form W‑4 tells your employer how much federal income tax to withhold from your paycheck. Adjusting your withholding helps you avoid a large tax bill – or a large refund – at the end of the year. You can update your W‑4 anytime, which is helpful if you owed taxes the previous year. Your HR department can provide the form.
Understanding the difference between your marginal tax rate (the rate on your last dollar earned) and your effective tax rate (the percentage of total income you actually pay) is key to evaluating your overall tax responsibility. You can find the new tax bracket tables on the IRS website at www.irs.gov.
Southern Bancorp is a certified VITA tax site and will be preparing tax returns for free until April 9th. Call your local branch or pulse aquí to find the nearest location offering tax preparation services.
For more information on this and other financial topics, you can email me at [email protected], or write to me at P.O. Box 1825, Clarksdale, MS 38614.
Hasta la semana que viene: ¡manténgase en forma desde el punto de vista financiero!
