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Q: How do I estimate my income tax rate?

A:

Every U.S. citizen owes federal income tax. To estimate your federal income tax rate, refer to the tax bracket tables the IRS releases every year. Generally speaking, you will find that the more money you earn, the higher your income tax rate. So if you are single and your taxable income (the amount of money you earn after deductions and exemptions) was $50,000 in 2009, you are in the 25 percent tax bracket. However, that doesn’t mean all your $50,000 is taxed at 25 percent. The income tax system is progressive, meaning the rate at which you are taxed gets incrementally higher along with your taxable income. So for 2009, of that $50,000, the first $8,350 you earn is taxed at 10 percent, the next $25,600 at 15 percent and the remaining $16,050 at 25 percent. In this case, as a result, the percentage of your income paid in taxes – or your average tax rate – is 17.38 percent. But the tax rate of an additional dollar  – your marginal tax rate – would be 25 percent. On top of federal income taxes you will likely owe state income taxes. Income tax rates vary widely from state to state so the easiest way to figure yours out might be to Google “tax brackets 2010” along with the name of the state where you live. You should also contact a tax adviser.

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