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We will be using this sample tax return in this example.
The middle column of the Key Figures box includes Filing Status, Marginal Rate, Average Rate/Effective Rate, Safe Harbor, and Tax Exempt Percentage of Income (if applicable), many of which are accompanied by teal question mark icons (?) that allow users to learn more about the figure in question.
Click here to review the article discussing Total Income, AGI, Deductions, Taxable Income, and Total Tax key figures.
Click here to review the article discussing Tax Exempt Interest, Qualified/Ordinary Dividends, ST/LT Capital Gains, Carryforward Loss, and Credits claimed key figures.
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Filing status
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This can be single, married filing jointly, married filing separately, head of household, or qualifying widower. While the tax rates won’t change based on the filing status, eligibility for certain credits, deductions, and account contributions may depend on the filing status.
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Marginal rate
- This is the rate at which the last dollar of ordinary income is taxed. Many taxpayers assume that their marginal rate reflects the rate at which all of their income is taxed, which isn’t true. Ordinary income (e.g., wages, interest, IRA distributions, Social Security, etc.) is taxed at progressively higher rates, meaning that different buckets of income are taxed at different rates. For example, if someone is in the 24% bracket, that means their last dollar of ordinary income was taxed at 24%. But they were also taxed at rates of 10%, 12%, and 22% for the respective amounts of income in each of those brackets. This concept is illustrated later in the tax report.
- This is the rate at which the last dollar of ordinary income is taxed. Many taxpayers assume that their marginal rate reflects the rate at which all of their income is taxed, which isn’t true. Ordinary income (e.g., wages, interest, IRA distributions, Social Security, etc.) is taxed at progressively higher rates, meaning that different buckets of income are taxed at different rates. For example, if someone is in the 24% bracket, that means their last dollar of ordinary income was taxed at 24%. But they were also taxed at rates of 10%, 12%, and 22% for the respective amounts of income in each of those brackets. This concept is illustrated later in the tax report.
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Average rate
- Holistiplan defaults to an average rate determined by dividing the total tax by total income. Some practitioners prefer the concept of the effective rate, which is total tax divided by taxable income. Users can choose to include the effective rate by customizing the Key Figures box (Customizing Key Figures).
- Holistiplan defaults to an average rate determined by dividing the total tax by total income. Some practitioners prefer the concept of the effective rate, which is total tax divided by taxable income. Users can choose to include the effective rate by customizing the Key Figures box (Customizing Key Figures).
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2026 Safe harbor:
- This represents the amount that the taxpayer needs to have paid the IRS prior to the due date of next year’s return to avoid underpayment penalties. Taxpayers can accomplish this either through withholding from wages, Social Security benefits and retirement account distributions; estimated payments on the IRS’s quarterly system; or a combination of these three. The safe harbor amount is determined by the AGI and the amount of tax on the previous year’s return. In this case, the safe harbor amount reflects what Peter and Paula must pay by year-end of 2026 (or by January 15, 2027, if they plan on making an estimated payment for the fourth quarter of 2026).
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Tax-Exempt Income:
- If the tax return includes any tax-exempt income – such as interest generated by municipal bonds – we’ll calculate the amount of tax-exempt income as a percentage of total interest income. This can be a key talking point when talking about portfolio construction: higher income clients may want this percentage to be high, as they would likely benefit more due to their higher tax brackets. Conversely, clients in lower brackets may want to see this number lower, due to the limited tax savings they might experience.