HOW FEDERAL INCOME TAX WORKS?

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Did it surprise you to learn that you’re not just taxed at a single flat rate?

Don’t be embarrassed if it did! This stuff is not explained to us and let’s face it, the IRS isn’t making the Tax Code an actual page-turner.

Here are some common questions I got when I shared this over on the clock app. Oh, and these numbers are all based on 2022 since we’re in the midst of tax season now. These numbers all change for 2023.

✔️Theres an income tax calculator in my free guide linked in my bio.

𝗪𝗵𝗮𝘁 𝗶𝘀 𝗮 𝘀𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗱𝗲𝗱𝘂𝗰𝘁𝗶𝗼𝗻? This is money that’s NOT taxed because of different exemptions or discounts you’re entitled to. The IRS wanted to simplify taxes so people wouldn’t have to itemize their deductions (listing them out one by one).

It only makes sense to itemize if doing so will get you a bigger deduction which is rare. About 90% of people use the standard deduction.

𝗔𝗿𝗲𝗻’𝘁 𝘁𝗵𝗲𝗿𝗲 𝗼𝘁𝗵𝗲𝗿 𝘁𝗮𝘅𝗲𝘀 𝗶𝗻 𝗮𝗱𝗱𝗶𝘁𝗶𝗼𝗻 𝘁𝗼 𝘁𝗵𝗲 𝗳𝗲𝗱𝗲𝗿𝗮𝗹 𝗶𝗻𝗰𝗼𝗺𝗲 𝘁𝗮𝘅? You bet there are! There are FICA and state and local taxes to name just a few. I focused on the federal income tax to demonstrate how progressive (gradual) taxes work compared to a flat tax.

𝗗𝗼 𝗜 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗸𝗻𝗼𝘄 𝗵𝗼𝘄 𝘁𝗼 𝗰𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲 𝘁𝗵𝗶𝘀 𝗺𝘆𝘀𝗲𝗹𝗳? HELL NO. I’m only showing it to you so you can have a little better understanding so you can communicate with your tax preparer better. They’re not going to take the time to explain this stuff to you.

𝗜𝘀 𝘁𝗵𝗲𝗿𝗲 𝗮𝗻𝘆 𝘄𝗮𝘆 𝗜 𝗰𝗮𝗻 𝗹𝗼𝘄𝗲𝗿 𝗺𝘆 𝗶𝗻𝗰𝗼𝗺𝗲 𝘁𝗮𝘅? YES! There are deductions you can take advantage of that are called “above-the-line deductions” and guess which one is my favorite? The one for investing in pre-tax accounts! Every dollar you invest in a Traditional 401k or Traditional IRA lowers your tax liability for that year.

So not only will investing help you GROW your wealth, it will help you KEEP more of your money so you can have more tax flexibility when you’re planning your retirement.

delyanne themoneycoach

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In school they tought me chloroplast is the green pigment of a plant

It's actually not that it matters

macdonaldchaboka

This is the only video talking about standard deduction first, thank you. Nobody explains that if you don't make over the standard deduction, you don't have to pay taxes.

whysbrian

We misunderstand it because there's too many people lying to us about it. My job just told me FICA and Federal Income Tax are the same thing. They're not taking out income taxes, only FICA. And I ended up owing $3200 to the IRS this year.

TJ-vesv

Taxes are such a scam plus that money goes to other countries we americans are very stupid

alexgg

Thank you, i just watched a 7 min video on standard deduction and the guy couldn't even explain it half as clearly as you did in 30 seconds

marko

I completely forgot about standard deductions. Kinda changes the perspective of the overall percentage of your income being taxed. Which using these numbers almost 34.4% of your income is taxed
Kinda sad to think that over 700 hours of work is literally just for paying taxes

LukeA_

Thank you! No idea why I’ve never been taught this.

Milton_Friedmanite

So is this for both federal and state taxes? Or just for federal income?

WIDNEXT

I still don’t understand why after the standard deduction it’s broken up to two different tax brackets. Why wouldn’t after the SD you fell under just the 12% bracket for the full $37.050? They have made tax code so complicated.

nvUSboysEnt

Then why do they take 20% out of each paycheck?

chanafair

Yeah pretty much everyone I've ever asked this question were wrong! Thanks for sharing

jugghead-

Wow thank you for your explanation, that made sense.

Question: What would be the standard tax deduction for a $77, 000.00 yearly gross income ?

frankayala