In the United States, the tax system is often seen as baffling for many taxpayers, but it does not really need to be so complex as long as you understand the nature of the system itself. There are easy to grasp basics which, once you understand them, give you a very solid idea of how the tax system works and how you might go about getting yourself some tax breaks. The primary aspect of the federal tax system which you will want to understand is that it is a progressive taxation system based on what are called income tax brackets.
These brackets, of which there are currently six, are set by Congress under advisement of the President of the United States. This means that every few years the brackets are adjusted to better reflect the current economic conditions of the nation and its taxpayer base. First, you want to understand that you are not taxed on every cent you earn. In fact, with the reductions you can get from personal exemptions, standard deductions and itemized deductions, you can reduce the amount of income that is eligible to be taxed. This is why so many people hire professional tax specialists to help them find each of the deductions they are legally eligible for according to the rules of the Internal Revenue Service. The income left after all exemptions and deductions is your taxable income and it is upon this remaining income that your tax bracket is determined. The IRS adjusts this rate each year, generally in the late Fall, in an effort to keep taxation consistent with inflation rates.
By having a tax professional on your side, you better the chances that you are are taxed in the income bracket that is most fair for you. As far as the income tax brackets go, while the levels at which your income is taxed changes with inflation, the percentages of the brackets themselves do not change until Congress enacts new legislation for the IRS to follow in their taxation efforts. Since 2001, the percentages for each of the brackets rise from lowest to highest in this order: 10%, 15%, 25%, 33%, and 35% for the top income earners in the nation. Once you understand how these brackets work, you may find that by proper financial strategizing you can reduce the amount of tax you pay by claiming the right deductions to suit your individual situation.
