Hello everyone,
It’s JoAnna Laiscell here from Nothing But Numb3rs Accounting and Taxation Services. Today, I want to address a question that I often hear from taxpayers: “Why does my tax bill change so much each year?” It’s a great question, and understanding the answer can help you make smarter financial decisions.
The primary reason why your tax bill fluctuates each year is due to annual adjustments in tax rates and brackets. The IRS adjusts these brackets yearly based on inflation. Currently, we have seven tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for these brackets shift annually, which can result in changes to your tax bill.
In addition to tax rates and brackets, the standard deduction also plays a significant role. The standard deduction reduces your adjusted gross income if you do not itemize your deductions. Any changes to the standard deduction can affect your taxable income and, consequently, your tax bill.
Tax credits are another key element that can influence your tax liability. For example, the child tax credit offers $2,000 per child for dependents under 17. If your child crosses this age threshold, your tax credit eligibility may change, impacting your overall tax liability.
Similarly, education credits can alter your tax bill. These credits phase out based on your earned income. Therefore, being aware of the income thresholds is crucial when applying for such tax credits.
So in wrapping this up, there are several factors that may contribute to fluctuations in your tax bill, including annual adjustments to tax rates and brackets, changes in standard deductions, and variations in tax credit eligibility. To navigate these complexities and ensure you’re maximizing your credits and deductions, it’s essential to work with a knowledgeable Tax Strategist who keeps up with the ever-changing tax laws. So, after you read this give me a call or send me an email. I’d be glad to discuss your situation with you.
Remember, taxes may be inevitable, but understanding them doesn’t have to be taxing!
Visit our website www.nothinbutnumbers.com for more insightful tax tips and advice.
Take Care,
JoAnna Laiscell, January 9, 2024
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