Do you know your income tax bracket 2012?  Often in an estate planning or financial planning session, you will be asked your current income tax bracket.

For 2012, if you are married filing jointly or surviving spouse:
Taxable income between $0 – $17,400  - 10% tax bracket
Taxable income between $17,400 - $70,700    – 15% tax bracket
Taxable income between $70,700 – $142,700   – 25% tax bracket
Taxable income between $142,700 – $217,450   -28% tax bracket
Taxable income between $217,450 – $388,350 – 33% tax tracket
Taxable income $388,350 and above – 35% tax bracket

This does not mean that all of your income is taxed at that level.  For example if your taxable income is $150,000, only the amount over $142,700 is actually taxed at the 28% rate.  (The amount between $70,700 and $142,700 would be taxed at the 25% tax rate, and so on.)  But your “tax bracket” is 28%  (the highest percentage of federal income tax you are paying on any dollar of income.)  It is helpful to know your tax bracket in making investment decisions about taxable versus tax-free returns.  It also helps you decide whether to take advantage of opportunities to defer income.  Your estate planner and financial planner will work with you to help maximize your overall lifetime tax savings.

How do you determine your taxable income?  If your income and deductions for 2012 will be similar to 2011, you can look at your 2011 federal income tax return form 1040, line 43, for an estimate.

The line 43 number will include your income such as from wages, interest, dividends, alimony, business or rental property, capital gains, pensions and IRA distributions, unemployment, the taxable amount of your social security (all added together as “total income” at line 22); then certain deductions for things like alimony paid, self-employed reductions for health insurance and retirement plans, student loan interest deduction, to reach your “adjusted gross income” (line 37).  From your “adjusted gross income” will be deducted your itemized deductions or standard deduction, and your exemptions at $3,700 apiece.  The end result is your taxable income, line 43.

If you are married filing separately, the 2012 tax rates are higher:
Taxable income between $0 – $8,700 – 10% tax bracket
Taxable income between $8,700 – $35,350 – 15% tax bracket
Taxable income between $35,350 – $71,350 – 25% tax bracket
Taxable income between $71,350 – $108,725 – 28% tax bracket
Taxable income between $108,725 – $194,175 – 33 % tax bracket
Taxable income of $14,175 and above – 35% tax bracket

If you are single, the 2012 tax rates are:
Taxable income between $0 – $8,700 – 10% tax bracket
Taxable income between $8,700 – $35,350 – 15% tax bracket
Taxable income between $35,350 – $85,650 – 25% tax bracket
Taxable income between $85,650 – 178,650 – 28% tax bracket
Taxable income between $178,650 – $388,350 – 33% tax bracket
Taxable income $388,350 and above – 35% tax bracket

If you qualify for head of household, your 2012 tax rates are:
Taxable income between $0 – $12,400 – 10% tax bracket
Taxable income between $12,400 – $47,350 – 15% tax bracket
Taxable income between $47,350 – $122,300 – 25% tax bracket
Taxable income between $122,300 – $198,050 – 28% tax bracket
Taxable income between $198,050 – $388,350 – 33% tax bracket
Taxable income $388,350 and above - 35% tax bracket

For 2012, your Qualified Dividend Income will be taxed at 15% (0% for the lower tax brackets).

If you are concerned about tax savings, you should make sure your estate plan is tailored to your individual situation.  Contact Hindson & Melton LLC to help you achieve your estate planning goals.  Serving Georgia and South Carolina.
For more information about this post contact Karen Hindson.