(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.)
All right, we are on number five of eight of the Tax Strategy Framework. And remember, you can download the spreadsheet where I've listed all these out and a bunch of these different ideas in the spreadsheet on the WealthGamer.io, the WealthGame Basics course, or for all WealthGame Alliance members, it's there in your portal as well. So number five of eight, this one is tax brackets.
This one sounds a little boring, I know, but planning effectively with your tax brackets. So first, there's kind of gonna be three parts I'm gonna talk about. So first, just understand how the tax brackets in the United States works.
I've talked about, we've done an episode about the tiered tax bracket system in the United States. And then the other parts of this, I'm gonna talk about using your own tax brackets effectively and then using other tax brackets, other people's or other entity tax brackets effectively. So to first start, just understanding the tax bracket system in the United States.
So remember, it's as a tiered system. So I'm not even gonna use the exact numbers, they change every year, but the tax brackets, like your tax rate for income taxes, and we're talking about the federal tax rates, they start at 10%, they go up to like 37%. But on someone that earns $100,000, even though you're in the 12% tax bracket, your income, and that's if you're married, your income all the way at the bottom, say the first $10,000 of income is taxed at about 10%.
So the first 10,000 is taxed at 10%, and then the amount between now 11,000 or 10,000 up to 100,000, that's in that 12% bracket. But even for someone that makes a million dollars in a year, their top income is taxed at 37%. So it's about half their income is taxed at 37%.
But even for someone that makes a million dollars, they have $10,000 at the very beginning of their tax bracket of their taxable income that's taxed at 10%. And then it goes up from the $10,000 up to the couple hundred thousand dollars, roughly where you're getting into the 22% tax bracket, and it moves up through the system. So I think it will be helpful.
So I will go through just briefly, I'll mention the 2025 tax brackets. So if anyone's doing the planning this year, but it does change every year. And then as you're looking at these, I'm kind of laughing because there's so many options with these, but just think of like, right now we're just gonna look at married.
If you're married, these are your tax brackets, and then I'll compare it to what the tax brackets are if you're single. So here's what the tax brackets are for your first, it's actually $23,000. So zero to $23,000 of taxable income is taxed at the 10%.
And then 23,000, I'm just gonna round to the nearest thousand 23,000 to 94,000 is taxed at 12%. And then 94,000 up to 201,000 is taxed at 22%. Then 201 up to 383,000 is taxed at 24%.
Then 383 up to 487,000 is taxed at 32%. And 487 up to 731 is 35%. And then above 731,000 is 37% and up.
I know that example I gave earlier with the $100,000, I was not using the exact tax brackets. What I just mentioned, those are the tax brackets, but they change every year. You don't need to memorize them exactly, but as you're doing the planning, and if you're doing the tax projection worksheet that I do have available to download for free on the WealthGain Basics and the WealthGain Alliance portals, or we email it out a lot to people, we just wanna get it out because we want people to just start putting their numbers to paper and start to see where they fall in these tax brackets because that's what comes next.
The strategy part of this, this number five of eight planning with your tax brackets, that's what I wanna talk about right now. So once you understand all the brackets, then you can kind of, and you understand where you're at in those tax brackets, then the planning can start. So you've got to dig into some of the numbers because then the fun part starts, then you can brainstorm, then we can start looking at like what things you can do to save on your taxes.
So planning with your own tax brackets. So if you are in the same tax bracket, say you make the same taxable income every single year, but like those brackets I just mentioned, say your taxable income, say you're at taxable income of a hundred, say you're at $100,000 every year. So I'm gonna throw another $100,000 example in here, but the 22% tax bracket starts at $94,000 a taxable.
So what I want you to think about, you go, okay, my taxable income is at 100,000, but that 22% tax bracket starts at 94. And if you look on my sheet, this is like the mid-range tax brackets. I would love for everyone to be in the 10 and 12% brackets.
But what that means is you have $6,000 of taxable income taxed at 22%. And then you attack on state tax to that too. It's like, it can get pretty close to 30%.
That's not a great tax rate. That's a lot of tax. And so as you're planning, that's the thought process I want you to go through.
Like, okay, if there's something I can do to get my taxable income down, like just getting down into those lower brackets, just wiping out some of your income, having some of your income not taxed in those mid-range or those top two brackets is great. I think it's a great, great win. And it's really when the tax strategies start to really take in, like have a lot of impact.
So it's not like these tax brackets, think of like the number one of eight of the framework I was talking about, the deductions help with that. Deferring your income, accelerating expenses helps with that. And so that's, it's really, the tax brackets is really part of everything.
Like all these other steps, like it, yeah, it interacts with all these other steps that we've talked about. And so that's your own tax bracket planning. But what I wanted to introduce here in this one, the second part is using other people's brackets or other entity brackets.
So the thought process behind this is whether it's, so say you're in a 24% bracket or 32 or 35, and you go, hey, my, and so when I say other people's tax brackets, this is what I'm talking about. It's like, it could be your parents, it could be family members, it could be your brothers, your sisters, your kids. We've talked about paying kids.
It could be even your employees. It could be other people in your business. If you're like, okay, well, if I, if that income gets reported to me, I'm going to be paying tax.
Let's say you're in the 35% top bracket for that income. I'm going to be paying 35%. But you go, well, my mom or my dad or my kids actually do help in the business.
They're in the business or they're doing this or that. They could be paid a wage and say, they could be in the 10 or 12% bracket. So think of that, just the difference between the tax brackets, same income.
So you paid your mom a salary of $10,000 a year. Say she's in a 12% tax bracket. You're in the 35% bracket.
What does it cost her to receive that 10,000? Cost her $1,200 of income tax. What does it save you? It saves you $3,500 in taxes. That's the thought process when you're using other people's brackets that I want you to think of.
And it's actually the same exercise earlier in the entity structure when we talked about the C-corporations. So planning with corporations, I mentioned the corporations are standalone entities. They have their own tax brackets.
They have, they just, they file their own tax return. They pay their own taxes. C-corporations, the tax rate for a C-corporation in the United States right now in 2025 is 21%.
So if you're in one of those highest tax brackets, there could be, typically part of a bigger plan, I wouldn't just start sending money to your C-corporation because money can, if you need to pull it out immediately, there could be a double tax. But in the short term, in the current year, there could be significant tax savings. If you're in a high bracket, like 35%, and you pay money out to your C-corporation, and there's valid business reasons for that, you save, say it's 10 grand, you save $3,500 in the 35% tax bracket, your C-corporation pays $2,100 at a 21% tax bracket.
So that is, I'm going to stop there with the tax brackets. We'll get into the other ones here soon, but that is number five of eight, planning with tax brackets. Don't forget your own tax brackets, plan with those effectively, and then think of other people's tax brackets.
And it's not just income shifting. Remember ownership of partnerships and S-corporations, the way that that income is reported. You can also change ownership of businesses and send taxable income to those.
You'll see these in long-lasting trusts. We'll do tax returns for grandparents that are sending K-1s, which is showing the ownership of partnerships in partnerships and trusts to their kids and their grandkids, and sometimes great-grandkids. Like it's like a family dynasty where they're shifting income to all sorts of other people in their family.
And they're usually not just shifting income on paper, they actually are shifting cash as well, but it really helps overall reduce the overall tax burden. Okay, have a great rest of the day. See you.
(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.)
