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There is nothing more perplexing than the IRS tax code. And further complicating concerns is the idea of tax rates. So a lot of taxpayers completely get it wrong. Tax attorney Anthony Parent explains what the myths are, and how to stay away from common problems.

The design of tax bracekts arrives from the “Progressive” idea that the larger one’s capacity to contribute to government, the more one should contribute. Scores of people believe this.

The Progresives, through clever campaigning eventually influenced a skeptical public that the 16th Amendment was indispensable for the nation to succeed. Most americans at the time thought the income tax would be minor and only affect a a small amount of taxpayers. And not themselves.

The Revenue Act of 1913 was accepted. Rapidly, Congress went to apply tax tables to more people than promised. FDR was succesful in manufacturing an totally novel kind of tax imposed on income: the employment taxes.

Congress also gave marching instructions to the IRS to collect and assess taxes known as employment and self employment taxes. Employment and self employment taxes comprise over 50% of all taxes the IRS collects from individuals. Tax brackets are totally silent to these employment and self employment taxes.

Under present tax law, there are six tax brackets for individual taxpayers: 10%, 15%, 25%, 28%, 33%, and 35%. Which tax bracket one will fall into depends on whether you are single, filing married together, married filing separate or if you are the head of the household. But these tax brackets rates do not talk about the “employment taxes” that are going to be assessed and need to be handed over.

And for some types of income, the tax bracket rates do not apply at all. Income resulting from passive income, long-term capital gains and dividends are taxed at rates totally different than the tax bracket rate. And for these sorts of income, the supplementary employment and self employment taxes are not assessed either.

Also, many higher income earners are subject to the AMT. To further confuse things, the Alternative Mimimum tax brackets could be relevant. The Alternative Minimum Tax has entirely different tax brackets. Those tax rates are 26 or 28%. The Alternative Minimum Tax brackets are either 26 or 28%. Yet despite the lower rate of AMT, the effective tax rate may end up higher as the AMT disallows many many important deductions. Important deductions like local and state tax deductions.

tax rates determine incredibly little. What is more important is the effective taxable rate. Relying on the tax brackets to prepare what you will be in debt can lead to giantblunders.

Source: http://www.articlesbase.com/finance-articles/what-you-should-know-about-tax-brackets-5662736.html

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