Taxes are one of the most confusing concepts for Americans.Understand this:The total amount you make is NOT the amount you are taxed on.Here is an example of how it breaks down for Federal income taxes:
Gross Income = Every dollar you made during the year
Adjust Gross Income (AGI)= Total income MINUS adjustments like student loan interest, Pre-tax retirement account contributions (Traditional 401k, for instance), HSA contributions, etc.
Taxable Income = AGI - Deductions.Most Americans receive the “standard deduction,” which in 2024 is $29,200 for married couples ($14,600 for single/married filing separately).
For a very simple example, let’s say you are married making $120,000 in gross household wages this year, pay $2,000 in student loan interest, have $12,000 in pre-tax 401k contributions and receive the standard tax deduction of $29,200, it would break down like this: $120,000-$2,000-$12,000-$29,200 = $76,800 taxable income.Your first $23,200 would be taxed at 10% the remaining dollars would be taxed at 12%.Confused? Your CalmWater Advisors can help!
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Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth.
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