April 2020 is right around the corner, and 2019 taxes will be due soon. The most important thing to remember when it comes to taxes (besides paying them) is that U.S. tax rates are marginal. For example, you’re only taxed 10% of the first $9700 you earn per year. Each dollar over that threshold is taxed at the next rate, but no matter how much you make the first $9700 will always be just 10%. Here’s the full list of rates:
10%: $0 to $970012%: $9700 to $39,47522%: $39,475 to $84,20024%: $84,200 to $160,72532%: $160,725 to $204,10035%: $204,100 to $510,30037%: Anything above $510,300
Again, the tax rates are marginal, meaning that if you’re earning just over $84,200 a year then the vast majority of your income will be taxed at rates below 24%. Many people are concerned about a potential raise or bonus at work bumping them “into the next tax bracket”, but the effect of this increased rate is only on the additional income.
The Earned Income Tax Credit (EITC or EIC) provides a credit to working Americans that lets them avoid taxes on a portion of their income. For filing tax year 2019 with no children, the amount is $15,570 but can go up quickly with dependents. More information is available on irs.gov.
Any gifts with a value under $15,000 can be freely given without notifying the IRS, but giving more than that (per recipient) requires you to complete IRS Form 709. In most cases, this won’t require you to pay any tax on the gift, but the IRS does require gifts over that value to be reported for their files.
Given that crafty tax filers can find ways to avoid paying taxes on most of their income, the United States has a program in place called the Alternative Minimum Tax (AMT). If the filer is above a certain threshold, they’re required to pay a minimum tax of 26 or 28 percent depending on their specific situation. More information on the AMT can be found here, and it largely affects high-income filers. If you’re wondering if you need to file under the AMT, or you just have questions in general about 2019 taxes, don’t hesitate to contact us today.