Three of the Most Onerous Taxes

Tax rates across the board can fluctuate, making some taxes rather high. Although you may experience having to pay a lot of tax in one area, you may be able to offset that with credits, deductions, and reportable losses. It is important to know where your tax will be high and how to reduce your liability.

Estate Taxes

Estates are taxed at a rate of 40 percent. There is an exemption for larger, more valuable estates. If your estate is worth $5.45 million or more, it is reduced by $5.45 million to leave the remaining amount to be taxed at the 40 percent rate.

Lottery Winnings Taxes

If you take the lump sum after winning the lottery, you already pay a huge chunk of it to taxes, 39.6 percent. The kicker here is that 25 percent of your winnings is withheld by the government for tax purposes before distribution, leaving the rest taxable when you complete your return.

Moving to Higher Income Brackets

If you change jobs or have a significant increase in income, it can change your tax bracket. Top income earners can end up in the 35 percent tax bracket before credits and deductions. Deductions reduce your taxable income and credits reduce your taxes owed dollar-for-dollar.

Final Thoughts

It is important that you pay close attention to your finances and tax withholdings. If you make a mistake, it can cost you thousands of dollars. When the above situations become a factor for you, it is ideal to hire an accountant or tax preparation specialist to help find credits and deductions to reduce your tax liability.

Image credit: Chris Potter