tax bracketYour tax bracket determines how much you have to pay in taxes based on your income. In general, the higher your income, the higher your tax bracket, and the more you will pay when filing taxes.

How do I determine my tax bracket?

If you’re using a tax service, your tax professional should be able calculate your tax bracket for you. If you’re doing your taxes yourself, you can consult your tax software or visit IRS.gov to find your answer.

Note that your tax bracket is not only dependent on your income but also your filing status: single, married but filing separately, or married filing jointly.

Breaking down tax brackets based on income

Your tax bracket is the percentage of tax that you pay on the highest level of your income. When someone tells you that you are in the 25 percent tax bracket, what that person really means is that part of your income is taxed at 10 percent, another part is taxed at 15 percent, and yet a third portion is taxed at 25 percent.

Can I lower my tax bracket?

If all of your income is taxable, you might be able to reduce your tax bracket by making contributions to a regular IRA or a retirement plan. Get some guidance from a tax pro, and learn to take advantage of adjustments to income instead of itemized deductions.

Doing this helps you on a several levels. First of all, it reduces your adjusted gross income (AGI). In 2014, the higher your income, the fewer deductions or exemption dollars you get to keep. By reducing your AGI, you increase your deductions and exemptions.

Also, by reducing your AGI, you will increase your access to a variety of tax credits that are tied to AGI. Therefore, not only will you lower your tax bracket, you will also lower your net effective tax rate (the amount of total taxes paid divided by all of your income).

All of this planning can change dramatically if you have income that is, or should be, untaxed or partially taxed, such as Social Security income or state municipal bond interest. A small change in AGI can cause some of those things to become taxable, either directly or via alternative minimum taxes. For this reason, it might be a good idea to consult a tax pro about adjusting your AGI and tax bracket.

Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.