With just over a month left in 2009, it’s time to start thinking about your finances in 2010. Back in late October, the IRS released details regarding income tax changes for 2010, including (very slightly) modified income tax brackets. Here’s a quick rundown.
Federal Income Tax Brackets 2010
Here’s a quick rundown of Federal income tax brackets for 2010. If you compare to the 2009 income tax brackets, you’ll see that they’ve hardly changed at all:
| Tax Bracket | Married Filing Jointly | Single |
|---|---|---|
| 10% Bracket | $0 – $16, 750 | $0 – $8, 375 |
| 15% Bracket | $16, 750 – $68, 000 | $8, 375 – $34, 000 |
| 25% Bracket | $68, 000 – $137, 300 | $34, 000 – $82, 400 |
| 28% Bracket | $137, 300 – $209, 250 | $82, 400 – $171, 850 |
| 33% Bracket | $209, 250 – $373, 650 | $171, 850 – $373, 650 |
| 35% Bracket | Over $373, 650 | Over $373, 650 |
A few other points:
- Personal and dependency exemptions will be unchanged at $3650
- The standard deduction for heads of household increased from $8350 to $8400, but will remain unchanged for others
- The gift tax exclusion will remain unchanged at $13000
Minimizing your income taxes
Regardless of what the income tax brackets look like next year, you should start planning now to minimize your tax hit. Be aware (and take advantage) of the most common income tax deductions as well as those commonly missed tax deductions. Adopt tax efficient investment strategies. And be sure to take advantage of perks at work like a flexible spending account (FSA) or a health savings account (HSA).
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Theodore – I’m sorry for your loss of employment.
When you say “took the plan out” do you mean you withdrew the entire 401(k)?
The rule for 401(k) is a bit different than for IRAs. If you separate from service at age 55 or later, the withdrawals are penalty, but not tax, free. So you weren’t 59-1/2, but were you 55?
You say it’s in the bank. The proper way to have done this is to have transferred the complete 401(k) to an IRA, and then tap only what you needed. Or if you were 55, just take the withdrawal you needed until you found new work.
This is behind you, and you need to move forward, all these rules are not simple, I’ve spent a lifetime keeping up with the changes and trying to teach others how to avoid mistakes that can be costly.
I have a question about 401k’s, and I hope you can
give me an answer. The plan was with my company,
and I have since been laid off due to facility closing
which means in a sence, That I am involuntarily
unemployed. The question is how does a retired
individual whom once had a 40lK plan with the company
that I worked for, But the facility closed, and now
my 40lk is in the bank. I was not 59 when I took the
plan out, and now I am according to the IRS going to
pay a penalty for getting the 401k early. I hoped
that the reson for taking the plan out was obvious.
I do feel that this should be under extenuating
circumstances for taking it early.
I’ve got news for people. People in the lower bracket, their money is for social security ect..
Not actual Income Tax and their rate is lower. The top 50% of wage earners pay 96% of all Income taxes and their rate is higher. They should get the tax cuts because they pay the taxes. The top 1% of the wage earners pay about 1/3 of that 96% of taxes. So, that means the RICH pay the taxes. The the poor people do not pay much. So, Don’t believe politician lies. (i.e.Democrats). Look it up. It’s a fact. IRS, look it up.
This system needs to be replaced with a flat tax of some sort that is fair. This system punishes success and hard work. It’s not American and capitalism. It’s socialism.
Yep its tiered and the middle class is still getting the biggest bump in taxes at 10% for anything over 68K
Do more Tax planning, thats a good start, I guess I could throw my hard earned cash into a Roth, which will nickle and dime me to the point that I might as well pay the stupid government the money instead.
I wish the media and finacial advisor would do a story on how much it costs to have a 401K or to buy and sell stocks. I believe you have to be really rich in order to make these things time worthy.
This sucks im in the 35% tax bracket. Rich is if you make more then 50,000 dollars a week like i do. The rich shouldn’t pay 39% that’s not fair.
Aaron, fair enough. How do you define rich? And what rate up to that level?
the rich should pay 39%
why do the workclass pay 15% tax that is not fair they should not have to pay that much
Thank you Tom that made sense. This has been very helpful as I start to creep up the food chain myself. Taxes become all too important when budgeting and considering future investments. Again thank you for the information.
I see some of you do not understand the tax brtackets and how they effet a jump from one income level to another
The tax brackets are actually a tiered system, which means that only the amount of money above each cutoff is taxed at the higher rate
iow if your in the top of your tax bracket now, say 68,000 getting a pay increase of one dollar will only increase the tax on that one dollar to the next higher bracket
http://www.kiplinger.com/columns/ask/archive/2006/q0213.htm
Nickel – If you remove g’s comment, please remove this first line here as well.
@g – no, g, what’s amazing is that some one bright enough to understand shoots an insult instead of helping to educate.
David – the marginal rate goes up, true. For each $100 taxable right before that $68,000, the couple pays $15 in tax. The tax on that first $68,000 doesn’t change. The next $100 on top of it is taxed at $25. Understand and use this to your benefit. Most people can use their 2009 return to get a good idea what 2010 will look like. Say your projection shows you’ll be at $76000 taxable. Why not plan as a couple to put $8000 in retirement accounts pre-tax, saving it from the 25% rate? If you chose to save more, you can use a Roth, as that next money (moving down) would only be taxed at 15%. You have a kid, and one of you stays home for a while, convert some pre-tax money to Roth at 15%, right till you hit that $68,000 (or whatever the number is when baby comes) again. This example just saved the taxpayer $800, as money was spared the 25% rate, and taxed at 15%.
Disclaimer – I am not defending ‘the system’. No one likes taxes. Just sharing how you can use the knowledge you gain to help your wallet a bit.
Can someone help me understand what the difference is between these tax tables and the tables in notice 1036 at the irs.gov web page.
In that I see completely different tables than what is shown here.
http://www.irs.gov/pub/irs-pdf/n1036.pdf?portlet=7
“Its astounding that if you go from making $68,000 to $68,001 a year (married/jointly) your rate jumps 10%. No other rate hike on that table is that steep.
Even jumping from $137,301 a year to $373,651 won’t increase your taxes by 10%.
Comment by David — Nov 27th 2009 @ 1:55 pm ”
It’s amazing that some people, supposedly educated and reasonably intelligent, still cannot get the concept of MARGINAL tax rate.
If we would start our tax planning at the beginning of the year we’s be so much better off!
John DeFlumeri Jr
I just wish this was all the tax we paid! By the time we add in state, local, excise taxes; our taxes end up being the single largest expense we have.
http://eliminatethemuda.com/2009/09/tax-rates-how-much-do-you-really-pay/
I’m in the [25%] but one way I keep the bill down is claiming a dependant – handy little deduction when I pay over 50% of the expenses.
Kevin: I noticed the same thing. Strange the way that level of income is treated the same for both couples and single filers, isn’t it?
Its astounding that if you go from making $68,000 to $68,001 a year (married/jointly) your rate jumps 10%. No other rate hike on that table is that steep.
Even jumping from $137,301 a year to $373,651 won’t increase your taxes by 10%.
@Kevin
I’m starting to believe that the IRS hates single people who work, too.
I will gross about $72,000 this year. Earlier this year, I calculated that my taxes due would be approximately $12,000. Ouch! Then, after deciding to get married at the end of the year (wife is in school, no income) my tax bill is only going to be $7100.
Why are people who are single paying in the same bracket as married filing jointly if you make $373,649. All the other are different. I truly believe the IRS hates two married people that both work.
What’s my bracket? It all depends on the year end bonus! lol.
Here’s wishing you all BIG BONUSES this year so that this winter’s shopping spree is justified!