Households must deal with tax time each year. Basically, you owe a percentage of your income, but it isn’t quite as simple as that. You are allowed to reduce your taxable income in many ways, so if you donate to your church on a regular basis or have an adopted animal at the zoo, your tax bill will likely be less. It can get kind of complicated, but good records will help you get it right.
The first thing you have to figure out is how much money you made. The IRS has lots of ways of helping you do this, so it’s in your best interests to be accurate. You’ll get a W-2 form from your job, listing how much you made for the year. If you have investments, interest-bearing bank accounts or any other sources of income, you’ll get a 1099 form for each one. Add up all of your income from all sources. Include any other income you might have gotten, even if you don’t have a form for it.
Itemize all of the tax deductions you are eligible for. Common tax deductions include things like interest expense, insurance, moving expenses or educational costs. Be prepared to back up any claims you make with receipts, because you need to be able to prove your deductions if you get audited. Subtract all of these deductions from your income and you will ultimately arrive at your adjusted gross income. This is the amount you have to pay taxes on.
Figure the Tax
Determine what you owe by taking your AGI and finding out where you fall on the IRS’ handy-dandy tax rate chart. You’ll need to know your filing status, too, because it can make a big difference if you file jointly, as a single filer or as the head of a household. The chart shows whether you’ll owe 15 percent, 35 percent or somewhere in between. Multiply your AGI by your tax rate or find your AGI in the IRS tax tables to determine what you owe. Subtract any withholdings, usually shown on your W-2 or 1099 forms, from the total to arrive at what the IRS still expects from you.
Don’t write a check just yet. First see which, if any, tax credits you might have coming. Tax credits are typically used as incentives or aids for people in certain situations, and they often vary from one year to the next. Tax credits include credits for first-time homebuyers or credits for those adopting a child. Deduct the amount of the tax credit directly from the total amount of the tax you owe, so a $400 tax credit knocks a $2,400 tax bill down to $2,000. This is the amount of taxes you have left to pay. However, If your paycheck withholdings, tax credits and deductions exceed the tax owed, you would get a refund from the government.