Understanding Tax Brackets: What You Really Need to Know

When tax season rolls around, most people hear the term “tax bracket” — but few fully understand how it actually works. So let’s break it down and debunk some myths.

💡 What Are Tax Brackets?

The U.S. uses a progressive tax system, which means the more you earn, the higher the tax rate applied to portions of your income. You don’t pay the same rate on every dollar you make. Instead, your income is taxed in layers.

Think of it like climbing a staircase. As you go up, only the steps you’re standing on get taxed at higher rates — not the whole staircase.

🧠 Myth-Buster: A Higher Tax Bracket Doesn’t “Take” More of Your Money

One of the biggest misunderstandings is the idea that moving into a higher tax bracket will cause you to take home less money. Not true!

✅ You only pay the higher rate on the amount of income that falls within that bracket. The income below that is still taxed at lower rates.

💰 Real Example:

Let’s say you’re single and you make $50,000 this year.

• The first chunk of your income (up to about $11,600) is taxed at the lowest rate of 10%.

• The next chunk (from $11,601 to around $47,150) is taxed at 12%.

• Anything over $47,150 is taxed at 22% — but only that small amount over.

So you don’t pay 22% on the whole $50,000 — just the portion that falls into that higher range.

🧾 Why It Matters for Tax Planning

Knowing how tax brackets work can help you:

• Time your deductions and income wisely

• Decide whether to elect S Corporation status for your LLC

• Contribute to retirement accounts or make charitable donations more strategically

Smart tax planning isn’t just for the wealthy — it’s for anyone who wants to keep more of their hard-earned money.

📣 Ready to Maximize Your Tax Savings?

We specialize in helping Arizona business owners and professionals save more through personalized tax strategies.

📍 Visit TangerineBiz.com to download our free eBook:

“Smart Tax Strategies for Arizona Business Owners”