Financial planners make a comparison between marginal tax rate vs effective tax rate since the two measures assist in making strategic tax decisions. Marginal rate is important when making additional income plans like bonus, capital gains, freelance, overtime or rental earnings, as additional income can be taxed at a higher rate. Good tax rate is relevant to annual planning of big picture and assessing the success of deductions, credits, and investment plans. In deciding on tax saving instruments, planners would always examine your marginal rate since this will give the amount of tax that will be saved on every rupee or dollar of deduction that is claimed.
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