If your income exceeds the range in a lower bracket, the remaining amount of income will be taxed at the rate in the next bracket, and so on. Only the portion of your income that falls into each bracket is taxed at that bracket’s tax rate.

What happens when you drop a tax bracket?

Dropping into a lower tax bracket requires that you either earn less taxable income or increase the number of tax deductions you qualify for. With a bit of planning, you can make sure you don’t pay more taxes than you owe each year.

What happens when you drop into a lower tax bracket?

This strategy really shines when it can drop you into a lower tax bracket, because not only will you pay less in taxes, but you’ll also reduce your tax rate for part of your income. You’ve probably seen those tax charts with the income ranges on one side and a series of percentages – 10%, 15%, 25%, etc. – on the other side.

Why are there different tax brackets for different income levels?

Tax brackets are the government’s way of categorizing income tax rates. As income rises, so does the tax rate. Wealthy individuals pay a higher rate on their income than the poor. That is known as a progressive tax system.

What’s the average tax rate for the 15% bracket?

Households in this bracket pay 15 cents of each additional dollar of salary they earn in income taxes; however, their overall income tax rate is usually much lower. On average, households in the 15% bracket pay 6.5% of their income in income taxes, due to the standard deduction, personal exemptions, and various tax credits.

How much of your income is off limits for taxes?

So if you wanted to drop into a lower tax bracket, your goal for 2017 would be to get at least $12,050 (that’s $50,000 minus $37,950) of your income declared off-limits for tax purposes. Image source: Getty Images. The IRS actually provides quite a few ways to transform taxable income into nontaxable income. They’re called “deductions.”