Tax time can be a nail biter. If you’ve had any significant life changes, such as getting married, buying or selling a home, switching to a new job or having a child, you may see an impact on your taxes. If you’re concerned about whether you will owe or get a refund, you can use the documentation you have on hand to figure out whether you will have an IRS balance to pay.
With the complexity of the United States tax laws, you may also want to consider having a tax professional review your calculations before you file. You can also use software to compute or double check your calculations. Even if you are using other resources to complete your taxes, it never hurts to have an idea of what to expect by doing your own calculations.
IRS Balance or Refund on Taxes
The first step in finding out if you will owe the IRS or get a refund is to determine your income for the year. Gather all your income documentation and your spouse’s as well if you’re filing jointly. This includes your gross income from any work you do, income that’s reported on a Form 1099, any unemployment compensation you’ve received and any distributions from a retirement account. Any income needs to be included, such as interest you’ve earned on investments or other accounts. Add all this up to determine your gross income.
Fortunately, your gross income is not the basis for your taxes. The IRS bases your tax rate on your adjusted gross income. To find your AGI, subtract allowable expenses. These include educator expenses, moving expenses in some circumstances, contributions to a traditional IRA and student loan interest deductions. You can find details about allowable expenses in the instructions for Form 1040. Once you subtract these items, you have your AGI.
Once you have your AGI, you can subtract either your itemized deductions or your standard deduction. Itemized deductions include business expenses and medical expenses, while your standard deduction is a flat rate based on your filing status. For example, the standard deduction for a single filer in 2017 was $6,350. You may want to figure out both and use whichever is higher to find your tax rate.
If you’re filing taxes for the 2017 tax year or before, you can also deduct personal exemptions. You can generally take one deduction for each taxpayer on your tax return as well as your dependents. The personal exemption for 2017 is $4,050 per person.
Once you’ve subtracted your deductions (and exemptions if applicable), you have your taxable income. Find the tax brackets for the appropriate year to determine the total you owe in taxes. Keep in mind that the U.S. has a progressive tax, which means that as your income increases, your taxes on that income will increase. For example, if you were a single taxpayer with a taxable income of $50,000 in 2017, you would owe 10 percent of the first $9,325, 15 percent of your income from $9,326-$37,950 and 25 percent for your income over $37,950, which comes to $8,238.75.
Once you know the total amount of the taxes you owe, subtract any tax credits, such as the Earned Income Tax Credit. That will give you the final total of what you owe in federal taxes. Compare that number to how much your employer has withheld in taxes throughout the year. If your employer withheld more than you owe, you will get a refund. If your employer withheld less, you will need to pay the IRS.
If you’re owed a refund, you’ll want to file your tax return as soon as possible. Once your tax return is accepted by the IRS, you can use the IRS tracker called “Where’s My Refund?” to find the status of your refund.
Exceptions to Getting a Refund or Owing Taxes
Some individuals and couples don’t have to file a tax return. To determine whether you need to file, check the standard deduction for the appropriate tax year for your filing status. If your income is below the standard deduction, you don’t need to file a tax return. If you’re not sure whether you need to file, you can also visit the IRS website and use their interactive tool called “Do I Need to File a Tax Return?” to find out if you need to file. You can use the tool without creating an IRS.gov account.
Even if you don’t have to file, though, you may still want to if you’re entitled to a refundable tax credit. The Earned Income Tax Credit and the Child Tax Credit are both refundable, so if you qualify for them, you may receive a refund. You can only get the refund if you file taxes, though.
2018 Laws That Impact Your Taxes
The Tax Cuts and Jobs Act, which was passed in December 2017, eliminates personal exemptions beginning with the 2018 tax year (which are filed in 2019). Instead, the standard deductions are significantly higher. The standard deduction for 2018 is $12,000 for single filers, $24,000 for married couples filing jointly and $18,000 for those filing as head of household.
2017 Laws That Impact Your Taxes
Since personal exemptions are still allowed for 2017 taxes, the standard deduction is lower. The standard deduction for single filers is $6,350. For married couples filing jointly, the standard deduction is $12,700. If you’re filing as head of household, the standard deduction is $9,350. The personal exemption is $4,050.
Items you will need
- W2 forms or last pay stub
- Current tax forms and instructions
- Investopedia: Next Season, File Taxes on Your Own
- Investopedia: How to Calculate AGI for Tax Purposes
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts and More
- Forbes: IRS Announces 2017 Tax Rates, Standard Deductions, Exemption Amounts and More
- IRS: Tax Time Guide: Check Refund Status Online With Where's My Refund?
- IRS: Form 1040 (2017)
- IRS: 1040 Instructions 2018
- IRS: Do I Need to File a Tax Return?
- Investopedia: Tax Credit
- Intuit TurboTax: What is a Personal Exemption?
- Creatas/Creatas/Getty Images
- How Can I Calculate How Much Taxes I Will Pay Next Year?
- How to Estimate Tax Liability Form 4868
- How to Calculate Your Next Paycheck
- Why Aren't They Taking Out Enough Federal Taxes from My Paycheck?
- How to Figure Federal Income Tax Withholding
- Federal Income Tax Payroll Deductions
- Advice on Filling Out a W4 Form
- What Is the Purpose of a W-4 Form?