American taxpayers should know the importance of tax brackets, how to do income tax planning in order to stay in a lower tax bracket, and keep a lower income tax rate. This is no different from being aware of the gas station that has the cheapest price on gasoline and planning the route to the grocery store or work in such a way that it is easy to stop and fill up the tank with cheaper gas. The money saved can be spent on something else, maybe another tank of gas to take a trip in the country or to the beach or used to pay bills. Being aware of the changes in the 2010 tax brackets, and when the income is approaching the upper limit of a cheaper tax rate is the same wise allocation of funds. All taxpayers can take legal steps to stay in a lower 2010 tax bracket and keep more of the money they have earned.
One of the tools available to the common taxpayer is an IRA. Money put into a 401k does not count as income the year it is deposited this becomes income in a future tax year. When that money is withdrawn, taxes will be due on the money deposited and the profit it has generated.
For people who qualify, a Roth IRA allows taxpayers to invest funds in a wide variety of potential income generating products including the stock market, currency market, real estate and collectibles. The money contributed to this account does not reduce the income the year it is deposited. When the money and the profit are withdrawn from this account, no federal income tax is due. Qualified people can do a 401k rollover to this new plan and grow their retirement fund tax-free.
Smart taxpayers use legal means to reduce their income in years they are approaching a higher income tax bracket to keep more of the money they have earned.