Tax Planning & Strategy

The total amount of tax you owe to the government based on your taxable income, including all applicable taxes such as income tax, capital gains tax, and self-employment tax. It is calculated by determining taxable income, applying the appropriate tax rates, and then subtracting any tax credits. It varies with your income level, filing status, and the deductions and credits you qualify for.

The rate at which your last dollar of income is taxed. In the progressive U.S. system, income is taxed in tiers, so being in a 22% bracket means only the income within that bracket is taxed at 22%, not your entire income. It differs from your effective tax rate, which is the average rate you actually pay across your total income after deductions and credits.

Your total income for the year minus certain allowed adjustments, a key figure the IRS uses to calculate parts of your tax return and determine eligibility for tax benefits. It sits between gross income and taxable income, since you subtract adjustments like retirement or HSA contributions to reach it, then subtract deductions from it to find taxable income. A lower AGI can reduce taxable income and improve access to income-based credits and deductions.

Money taken out of certain payments and sent directly to the IRS on your behalf, most commonly federal income tax withheld from each paycheck. It works as a pay-as-you-go system, spreading your tax payments across the year instead of paying everything at tax season. For employees it is set by Form W-4, and it can also apply to pensions, annuities, and certain retirement distributions.

A tax on the profit you make from selling assets such as stocks, real estate, bonds, or cryptocurrency, applied to the difference between what you paid (cost basis) and what you sold for. Assets held one year or less produce short-term gains, taxed at your ordinary income rate, while assets held longer produce long-term gains, taxed at lower rates of 0%, 15%, or 20% depending on income.

A financial account that provides tax benefits in exchange for saving toward specific goals, letting you reduce taxable income, grow savings tax-free, or defer taxes until later. Types include retirement accounts like traditional and Roth IRAs and 401(k)s, health savings accounts, education accounts like 529 plans, and dependent care FSAs. Each works differently, either lowering the taxes you owe now or the taxes you’ll owe in the future.

Investment accounts or products that let you postpone taxes on earnings until you withdraw the money later, usually in retirement, rather than paying tax each year on growth. Common examples include traditional 401(k) plans, traditional IRAs, 403(b) and 457 plans, and some annuities. Because taxes don’t reduce gains along the way, more money stays invested to compound, though withdrawals are typically taxed as ordinary income.