Federal Income Tax Brackets 2011: Guide To What You Owe?

Will the 2011 Federal Income Tax Brackets actually tell you how much you owe the IRS?

We don’t recommend using the 2011 Federal Income Tax Brackets as a guide. The only way to figure out your tax bill is to prepare your tax form. Why? A big reason is that tax brackets assume all income is ordinary; that is income from wages, self-employment or short-term capital gain. Dividends and long-term capital gains are taxed at lower rates and certain types of income, like Muni-bonds, are tax free.

Here are the four tax rate schedules of income tax brackets for 2011.

  • Tax-Bracket-Single
  • Tax-Bracket-Married-Joint (or qualifying widower)
  • Tax-Bracket-Married-Separate
  • Tax-Bracket-Head-of-Household

However, there is one thing that catches many new high income earners by surprise- the Alternative Minimum Tax (AMT).

What is the AMT?

The  AMT is a parallel tax system with rates ranging from 26%-28%. If your liability is higher under the AMT than under “standard” income taxes, then you have to pay the AMT. Given that standard tax rates top out at 35%, this doesn’t sound too bad. Unfortunately, the AMT also disallows many routine deductions, resulting in a potentially large tax liability.

The AMT was first introduced in 1969 in an attempt to stop the richest households from getting off with little or no income tax liability. At the time, it was intended to target just 155 high-income households. Today, however, the AMT is receiving widespread attention. Why? Because it’s not indexed to inflation! Congress hasn’t figured out that a dollar is not what it used to be 40 years ago.  Thus, an increasing number of “regular” taxpayers are being forced to pay, and last year, the number had climbed into the neighborhood of 4 million filers.

Who is subject to the AMT?

The AMT disallows certain types of deductions with a lump sum exemption. As an aside, this exemption is what Congress just voted to increase in order to protect millions of middle-class taxpayers from triggering the AMT. The more of these disallowed deductions that you would otherwise take, the more likely you are to have a higher tax liability under the AMT, and thus the more likely you are to be subject to it.

For example, the AMT throws out deductions for state and local tax, property tax, home-equity loan interest (if the loan isn’t used for home improvements), medical expenses (these are still allowed, but in a more limited fashion), and various other itemized deductions. All of these things are replaced by a lump sum exemption that’s phased out as your income increases, which Congress just increased to save taxpayers near the cutoff from slipping over the line. Large numbers of personal exemptions also put you at risk since those aren’t allowed under the AMT.

What are the AMT tax brackets?

26% or 28% depending on myriad factors than can only be answered by filling out Form 8801.

If you need assistance filing your taxes, or if you have a tax issue you need resolved – contact us. We can help. Call 888-727-8796 or email info@irsmedic.com.