Tax season probably isn’t your favorite time of the year (unless you’re also an accountant). But understanding where you stand in terms of the federal tax brackets can make a big difference in your total tax liability—how much you owe or get back.
You might be wondering: I paid taxes last year, why do I need to stay up-to-date on tax brackets?
The answer? The Internal Revenue Service (IRS) makes adjustments to tax brackets every year by modifying tax provisions that also impact deductions. Yep—that means for your 2025 tax year, things will likely change.
Ultimately, understanding the federal tax brackets is crucial for determining what you owe and for effective business planning. Like, what should you do if you’re near a bracket cutoff? Should you defer a purchase until next year?
Here’s everything you need to know about federal tax brackets for 2024-2025, including savvy planning tips to optimize your finances.
Why tax brackets matter for small business owners
If you’re a small business owner, taxes are more than just a line item or something on your “to-do” list—they’re a key part of your financials that impact everything from your cash flow to your growth strategy. And one of the most crucial (and misunderstood) concepts in this process is federal individual income tax brackets.
Let’s break it down simply. One of the first things you need to know is the difference between marginal and effective tax rates.
Different parts of your income are actually taxed at different rates, and as the income increases, so does the tax rate:
- Your marginal tax rate is the highest rate that applies to your last dollar of income.
- Your effective tax rate is the average percentage you pay across every portion of your income.
Think of it like a set of tiered water buckets. As you pour in income, each bucket (or bracket) fills up and overflows into the next. Only the water in the top bucket is where the highest rates apply, not everything you’ve poured in (phew).
This means:
- Myth: “If I move into a higher bracket, all my income is taxed at that rate.”
- Reality: Only the income within that bracket is taxed at that level.
Understanding federal tax brackets is crucial for two major parts of small business finances—estimated quarterly payments and year-end planning.
- Estimated quarterly payments: The IRS expects taxpayers, including the self-employed, to pay taxes throughout the year, on a quarterly basis. Your filing status—whether you’re filing single, jointly, or head of household—determines how much of your income is taxed at each level. Knowing your bracket helps you more accurately estimate how much to pay each quarter, avoiding both underpayment penalties and overpayment cash drains.
- Year-end tax planning: As you approach year-end, knowing your projected tax bracket can help you make smart financial decisions, like when to make an investment in equipment or sell a business asset, pay bonuses, or defer income. Moves like these can help you optimize your overall tax liability and improve year-end cash flow.
2024 federal income tax brackets
Here are the official federal tax brackets for the 2024 year, according to the IRS (meaning income earned in 2024, filed by April 15, 2025. These brackets apply to taxable income, meaning your entire income after deductions. Brackets differ depending on your filing status—whether you’re a single filer, married individual, filing separate returns, or married couple filing jointly.
Keep in mind that while you might be a small business owner, most owners actually file as individuals or through pass-through entities. If that’s you, then this table directly affects your taxes.
Single filers:
| Tax Rate | Taxable Income Range |
| 10% | $0 to $11,600 |
| 12% | $11,601 to $47,150 |
| 22% | $47,151 to $100,525 |
| 24% | $100,526 to $191,950 |
| 32% | $191,951 to $243,725 |
| 35% | $243,726 to $609,350 |
| 37% | Over $609,350 |
Married couples filing jointly:
| Tax Rate | Taxable Income Range |
| 10% | $0 to $23,200 |
| 12% | $23,201 to $94,300 |
| 22% | $94,301 to $201,050 |
| 24% | $201,051 to $383,900 |
| 32% | $383,901 to $487,450 |
| 35% | $487,451 to $731,200 |
| 37% | Over $731,200 |
Married individuals filing separate returns:
| Tax Rate | Taxable Income Range |
| 10% | $0 to $11,600 |
| 12% | $11,601 to $47,150 |
| 22% | $47,151 to $100,525 |
| 24% | $100,526 to $191,950 |
| 32% | $191,951 to $243,725 |
| 35% | $243,726 to $365,600 |
| 37% | Over $365,600 |
Head of household:
| Tax Rate | Taxable Income Range |
| 10% | $0 to $16,550 |
| 12% | $16,551 to $63,100 |
| 22% | $63,101 to $100,500 |
| 24% | $100,501 to $191,950 |
| 32% | $191,951 to $243,700 |
| 35% | $243,701 to $609,350 |
| 37% | Over $609,350 |
2025 federal income tax brackets (projected)
Each year, the IRS adjusts the brackets based on inflation. These projections are for the 2025 year, according to the IRS (meaning income filed in April 2026), and are based on current inflation adjustments and IRS indexing.
As of this time, the 2025 federal income tax rates remain unchanged at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, based on current tax rates and the IRS’s inflation adjustments. These annual shifts help reduce the effect of bracket creep, where inflation pushes you into a higher tax bracket without a real increase in purchasing power.
Single filers:
| Tax Rate | Projected Income Range |
| 10% | $0 to $11,950 |
| 12% | $11,951 to $48,700 |
| 22% | $48,701 to $103,400 |
| 24% | $103,401 to $197,900 |
| 32% | $197,901 to $251,600 |
| 35% | $251,601 to $628,300 |
| 37% | Over $628,300 |
Married couples filing jointly:
| Tax Rate | Projected Income Range |
| 10% | $0 to $23,900 |
| 12% | $23,901 to $97,400 |
| 22% | $97,401 to $206,800 |
| 24% | $206,801 to $395,800 |
| 32% | $395,801 to $503,200 |
| 35% | $503,201 to $770,300 |
| 37% | Over $770,300 |
Married filing separately:
| Tax Rate | Projected Income Range |
| 10% | $0 to $11,950 |
| 12% | $11,951 to $48,700 |
| 22% | $48,701 to $103,400 |
| 24% | $103,401 to $197,900 |
| 32% | $197,901 to $251,600 |
| 35% | $251,601 to $385,150 |
| 37% | Over $385,150 |
Head of household:
| Tax Rate | Projected Income Range |
| 10% | $0 to $17,100 |
| 12% | $17,101 to $65,400 |
| 22% | $65,401 to $103,350 |
| 24% | $103,351 to $197,900 |
| 32% | $197,901 to $251,600 |
| 35% | $251,601 to $628,300 |
| 37% | Over $628,300 |
While next year’s tax bill might seem a world away, keeping these estimates in mind can help with your 2025 tax planning. For example, you can decide whether to accelerate (i.e., invoicing) or defer income (push off bonuses) to optimize your tax liabilities.
Self-employed or run a small business? Here’s what to know
Self-employed? We salute you—we know you’re swamped with the day-to-day of running your business. But keeping your business afloat (and ahead) isn’t enough—you also need to know how self-employment income is taxed.
First, self-employment income is taxed as ordinary income. It flows through the same federal income tax brackets as wages or salary, but keep in mind that long-term capital gains may be taxed differently depending on the type of gain. Your income may fall into different brackets based on how it’s earned.
But here’s the kicker: you’re also responsible for the self-employment tax, which is used to fund government programs like Medicare and Social Security.
Regardless of your business’s structure, your personal tax bracket applies.
However, how your income passes through that personal return varies based on your business structure:
- Schedule C: Used to report net profit based on your income and expenses, typically used by sole proprietors and single-member LLCs. Then, that final calculation is used to complete your personal tax return and determines how much you pay.
- S Corporation: Pass income through via Schedule K-1, and only salary is subject to self-employment tax (distributions are not).
- LLCs: Typically also pass through income to the owner(s), showing up on a Schedule C or K-1.
Keep in mind, your entity doesn’t change your tax bracket, but it does affect how much income is reported, how much of your income is subject to self-employment tax, and how taxes are withheld or paid.
Tax planning tips based on your bracket
No matter where you fall on the federal tax bracket spectrum, understanding your position allows you to unlock smarter, more strategic planning. You know those stories about financially savvy folks who have less tax liability? You can be one of them.
Here are some tax tips to keep in mind, based on your bracket, which can help reduce tax surprises and lower your liability.
If you’re near a bracket cutoff…
If you’re hovering near the edge of a higher tax bracket, and you don’t want to spill over into the next “bucket,” one way to potentially reduce your taxable income is through your retirement contributions.
When you make contributions to accounts like your SEP IRA and solo 401(k), you lower your amount of taxable income. You can also look into tax credits, which directly reduce what you owe—these credits can be especially valuable if you’re near a bracket cutoff.
Each type of plan has its own rules: for example, with a tax-deferred 401(k), you’ll be taxed on the money you withdraw in your retirement years, but likely at a lower rate.
If you’re in a higher-income tax bracket…
If you’re in a higher tax bracket, the qualified business income (QBI) deduction allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income.
There are income thresholds and rules, especially if your business is a specified service trade or business (SSTB), so proper structuring is key. The current bracket structure came from the 2017 Tax Cuts and Jobs Act, which is set to sunset in the near future.
Also, donating to qualified nonprofits can significantly reduce taxable income. The limits are based on your adjusted gross income. According to the IRS, your deductions can’t generally be more than 60% of your AGI, but in some cases, 20%, 30%, or 50% limits may apply.
For married taxpayers, some deductions phase out more quickly, so timing matters.
If your income is uneven or seasonal…
If your income is uneven or seasonal, consider using quarterly estimated tax adjustments to closely match estimated tax payments with actual earnings. This approach can help you avoid penalties and improve cash flow.
The goal with these strategies isn’t to avoid taxes—it’s to plan them with intention. When you do so, you can reduce stress, make taxes a breeze, and keep more of your hard-earned money working for you and your business.
Frequently asked questions (FAQs)
Taxes touch just about every part of your business—and it’s normal to have questions. Below are a few of the most common questions we hear from small business owners seeking clarity on brackets, filings, and their impact on the bottom line.
What’s the difference between marginal and effective tax rate?
Your marginal tax rate is the highest rate that applies to your last dollar of income, while your effective tax rate is the average you pay across all of your income.
Let’s say you earned $120,000. That puts your marginal tax rate at 24%, but only your income over the lower bracket threshold is taxed at that rate. Once you tie all of the tiers together, your effective tax rate (what you pay on average) might be closer to 18%.
Do business owners pay more in taxes than employees?
It depends. Self-employed individuals, certain remote workers, and businesses might have higher rates due to the self-employment tax.
However, they typically have access to many tax deductions that employees don’t (like home office expenses, equipment, and business travel) and have more control over how and when their income is received (which allows for strategic planning that can lower overall tax liability).
Should I change my business structure based on my bracket?
Not necessarily. Your federal tax bracket alone shouldn’t be the sole factor in your decision. Choosing the right business structure depends on factors such as net income, payroll, and growth plans.
For example, switching to an S corp might save on self-employment tax, but it also comes with stricter rules around payroll, compliance, and profit distribution. That’s why it’s best to speak with a qualified CPA or tax expert for guidance.
Plan Ahead With Archer Lewis
Understanding your federal tax bracket is a smart starting point for making your most important financial decisions and is the cornerstone of a well-structured business financial strategy.
The key is timing: many business owners wait until tax season to consider their bracket positioning, when most planning opportunities are already off the table.
Instead, review your bracket positioning before year-end, when there’s still time to make moves that move the needle in your finances. Whether it’s adjusting income, contributing to retirement plans, or changing your business structure, a proactive conversation can help you plan with purpose.
If you’re to take control of your taxes, start a conversation with our team today. We’ll help you use your tax bracket as a tool, not a surprise.
