Although most taxpayers dislike tax season, it’s important for small business owners to know how federal tax brackets might affect their tax bill. The Internal Revenue Service (IRS) uses tax brackets to determine how much you pay in federal income tax. Learn what tax brackets are, how they work, how to calculate the taxes you’ll pay, and more in this article from Nav.

Tax Brackets and How They Work

Tax brackets are federal income tax rates, or what percentage of your taxable income (the amount you make that is subject to federal taxes) you’ll pay to the federal government. Tax brackets allow the IRS to use what’s called a “progressive” tax system, which means you pay more in taxes the more you make. You pay taxes for the previous year, so last year’s taxes are due in April of each year.

There are seven tax brackets for 2023 and 2024 taxes ranging from 10% to 37%. This percentage depends on your taxable income and your filing status. The IRS made inflation adjustments for 2023 and 2024. The tax brackets differ between married filing jointly, head of household, or single filers and married filing separately. 

The amount of tax you pay depends on income thresholds. See the table below to get an understanding of the tax brackets for the tax years 2023 and 2024. 

Tax Brackets 2023

Tax bracket	Single filer or married filing separately	Married filing separately	Head of household	Married filing jointly
37%	>$578,125	>$346,875	>$578,100	>$693,750
35%	$231,250	$231,250	$231,250	$462,500
32%	$182,100	$182,100	$182,100	$364,200
24%	$95,375	$95,375	$95,350	$190,750
22%	$44,725	$44,725	$59,850	$89,450
12%	$11,000	$11,000	$15,700	$22,000
10%	up to $11,000	up to $11,000	up to $15,700	up to $22,000

Tax Brackets 2024

Tax bracket	Single filer	Married filing separately	Head of household	Married filing jointly
37%	$609,351 or more	$365,601 or more	$609,350 or more	$731,201 or more
35%	$243,726 to $609,350	$243,726 to $365,600	$243,701 to $609,350	$487,451 to $731,200
32%	$191,951 to $243,725	$191,951 to $243,725	$191,951 to $243,700	$383,901 to $487,450
24%	$100,526 to $191,950	$100,526 to $191,950	$100,501 to $191,950	$201,051 to $383,900
22%	$47,151 to $100,525	$47,151 to $100,525	$63,101 to $100,500	$94,301 to $201,050
12%	$11,601 to $47,150	$11,601 to $47,150	$16,551 to $63,100	$23,201 to $94,300
10%	up to $11,600	up to $11,600	up to $16,550	up to $23,200

What Is a Marginal Tax Rate?

Finding your federal income tax isn’t as easy as multiplying your taxable income by the tax bracket you fall into (and you would pay more if it was). Instead, the IRS uses marginal tax rates. This means that rather than paying the same tax rate across your entire salary, you’ll pay a lower percentage in taxes for the lower portion of your income. 

In other words, the first $10,000 or so that you make will be taxed at the lowest tax bracket. Then, the next $30,000 or so that you make — the amount before you hit the next tax bracket — will be taxed using the second-to-lowest tax bracket. This continues all the way up for your entire taxable income. The more you make, the higher rates you pay on that portion of your income.

Take a look at the example in the next section of this article to help clear up any confusion about marginal tax rates.

How to Calculate Federal Income Tax Bracket

Let’s use an example to help you understand exactly how to do the math to find how much federal income tax you’ll pay. For example, If your taxable income is $80,000 for 2023 and you file single, you’ll pay:

• 10% on your salary up to $11,000: $1100
• 12% on your salary from  $11,001 to $44,725: $4047
• 22% on your salary from $44,726 to $80,00: $7760.28

Thus, in a simplified example with no other deductions or adjustments, you’d pay $12,907  total in federal income taxes for 2023.

Say you got a big raise that puts your salary at $100,000. This income level is technically above the threshold for the higher 24% tax bracket. However, you would only pay 24% of your taxable income on the income  that falls in the higher tax bracket. For 2023, that would be income above $95,376 for a single filer.

Find your effective tax rate, which is your overall tax rate spread across all your income, by dividing your total tax by your taxable income. This rate may make it easier to calculate your total expected on your tax filings going forward. You can also use a federal tax calculator to do the math for you.

New Inflation-Adjusted Tax Brackets

The IRS has announced the new inflation-adjusted tax brackets for 2024. They are listed above. In addition, for tax year 2024 there are a number of inflation-adjusted changes. Among them:

• The maximum Earned Income Tax Credit EITC amount is $7,830 for qualifying taxpayers with three or more qualifying children, an increase of $400 for tax year 2023. 
• The monthly limits for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, up $15 from $200 for tax year 2023.
• For employees who participate in health flexible spending arrangements, the dollar limitation for employee salary reductions rises to $3,200 and the maximum carryover to the next year (if the plan permits that) rises to $640, up $30 from 2023.There are also new limits on Medical Savings Accounts. 
• The foreign earned income exclusion is $126,500, up $500 from 2023.
• The annual exclusion for gifts is $18,000 for calendar year 2024, which is up from $17,000 for calendar year 2023.
• Taxpayers can get a maximum credit for qualified adoption expenses up to $16,810, increased $860 from the year before. 

What Is the Standard Deduction for 2023?

Tax deductions reduce taxable income. More deductions mean a lower taxable income, so more is usually better. Taxpayers can use either the standard deduction or itemized deductions. A standard deduction is what it sounds like — it’s a set deduction for anyone in the same filing status. 

The 2023 standard deduction amounts depend on your filing status. Here’s a breakdown of the different standard deductions:

• Single filer: $13,850
• Head of household: $20,800
• Married filing separately: $13,850
• Married filing jointly: $27,700

Typically, tax filers only use an itemized deduction when their actual deductions are larger than the standard deduction. 

So if your actual deductions will equal more than the standard, it may be a good idea to file your tax return using itemized deductions. 

What Will the Standard Deduction Be for 2024?

The 2024 standard deduction amounts will also depend on your filing status. Here’s a breakdown of the different standard deductions:

• Single filer: $14,600
• Head of household: $21,900
• Married filing separately: $14,600
• Married filing jointly: $29,200

What Is the Capital Gains Tax Rate for 2024?

When you sell an asset like jewelry, stocks or bonds, or even a home, you may have a capital gain. Generally, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. (There are some differences for gifts or inherited property.)

Also, capital assets held for more than a year incur long-term gains while assets held less than a year are short-term gains. 

Short-term gains are taxed at your income tax rate. Long-term capital gains are taxed at the following rates for 2023 and 2024

0% capital gains rate applies if your taxable income is less than or equal to:

• $44,625 for single and married filing separately;
• $89,250 for married filing jointly and qualifying surviving spouse; and
• $59,750 for head of household.

15% capital gains rate applies if your taxable income is:

• more than $44,625 but less than or equal to $492,300 for single;
• more than $44,625 but less than or equal to $276,900 for married filing separately;
• more than $89,250 but less than or equal to $553,850 for married filing jointly and qualifying surviving spouse; and
• more than $59,750 but less than or equal to $523,050 for the head of household.

However, a capital gains rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate. 

And there are some circumstances where the capital gains rate could be even higher. For example, selling collectibles or art can be taxed at a gain of 28%.

Will Tax Returns Be Bigger in 2023?

As of the week of February 16, 2024, the IRS reports the average refund (for the tax year 2023) is $3207 compared to an average refund of $3140 for 2022. It’s not quite an apples to apples comparison–we won’t know the average for 2023 until most returns are filed–but the IRS says that “filing season statistics below continue to show a strong start to Filing Season 2024, with all systems running well.” 

What Is the Highest Tax Bracket in 2024?

High levels of income can mean a higher tax bracket. The highest tax bracket will be 37% in 2024 and will apply to will be required for individual taxpayers who make more than $609,350. Married couples filing jointly and making over $731,200 will pay 37% on income in the highest bracket. 

Rates and Tax Brackets for Small Businesses

The ways in which your personal income taxes differ from your business income taxes will largely depend on the type of business you run. 

Most businesses in the US are taxed as “pass-through entities”, which means the business doesn’t pay income taxes, but instead those taxes flow through to the owners’ personal income tax returns. 

While the business may need to file an informational tax return, the tax bill is assessed at the personal level. In other words, for most businesses, there are no separate tax brackets. According to the Tax Foundation, the corporate tax rate is 21% at the federal lecel, and most states also have a corporate income tax. However, corporations often use tax strategies to reduce that rate. 

And don’t forget about self employment taxes! Self-employed individuals and many business owners must pay the entire cost of FICA, which includes medicare and social security. You’ll often need to make quarterly estimated tax payments to cover these costs. Fail to pay these taxes on time and you’ll likely have to pay penalties, making it even more expensive. 

In addition, small business taxes may include:

• Payroll taxes
• Sales tax
• Use tax
• Property tax
• State and local taxes

Learn how to make tax time easier for your small business. 

What Is the Federal Tax Rate for LLCs?

A Limited Liability Company (LLC) is a popular business structure, but not all LLCs are taxed in the same way. Depending on the number of members and how it chooses to be taxed (elections), an LLC may be taxed as a corporation (including an s corporation), partnership, or as part of the LLC’s owner’s tax return (as a “disregarded entity”). The latter is similar to the way sole proprietorships are taxed. 

It’s also more important to work with a professional tax preparer for business tax planning than for personal taxes since business taxes are usually more complicated. Consider working with a certified public accountant (CPA) or enrolled agent, or use tax software (or both together), to help ensure that you get the biggest possible tax refund. 

And be sure to learn about the many tax benefits of opening a business. 

Lowering Your Tax Rate Through Business Expenses

Tax deductions, tax credits, and exemptions are the best way to fall into a lower tax bracket and to avoid what’s known as “bracket creep.” Deductions lower your taxable income, meaning your income level is lower and may fall into a lower income bracket. When you track your business expenses, you may have spent more than the standard deduction, which means you’ll be able to lower your taxable income (and possibly your tax bill) even more than if you took the standard deduction. 

Carefully track your business expenses. Use a business credit card and business checking account to separate business and personal expenses. 

Then make sure you’re using all available tax deductions to lower the profit from your business to save money on federal and state taxes when you file your personal tax returns. Nav can help you track your cash flow, stay on top of your business credit scores and manage your business financial health. When you need a small business loan, Nav can help you find the financing options that’s right for your business.