In general, not many people are giving the time to think about their taxes; not until the tax season comes. For many Americans, it is no doubt the most stressful time of their year and a lot of people mark their calendars along with the special events of their lives. On the other hand, let us also face the fact that there is no enjoyment in having to meet the deadline for the filing of tax returns.
In reality, the preparation for the filing of income tax return is quite perplexing and thus, requires your time and patience. It may appear to be a cumbersome job, not to mention quite tiring but this is something that can’t be taken for granted.
When calculating individual tax, you have to start it by evaluating your gross income which does include your interest income, work income, annuities, and pension and then subtract any adjustments similar to tax on self-employment, educational loan interest paid, alimony, retirement plans, adjusted gross income or AGI and interest penalty on the early withdrawal of savings. Once you have calculated the AGI, you have two options to take and one is to subtract the itemized deductions or the standard deductions; basically whichever is greater.
Few examples of the itemized deductions may include a couple of dental and medical expenses, charitable contributions, interest on home mortgages, local and state taxes as well as casualty losses.
You’ll soon arrive at the figure of your taxable income after you have subtracted personal exemptions. If for example that your taxable income is greater than a hundred thousand dollars, then you have to visit the IRS tax rate schedules. And with such, things might be more complex because here, the marginal tax rate system will be used. In here, there are six brackets of percentage applied and they’re ten, fifteen, twenty-five, twenty-eight, thirty-three, and thirty-five percent. Tax bracket to which you’ll fit in will be based as per your marital status and your income.
And in the US, tax returns are actually forms filed with IRS or the Internal Revenue Service either done through the state or with local tax collection agency, in which has the info on how to properly and accurately calculate income tax or any other taxes. The form 1040 is standard US individual tax return form and several other variations of the form are available similar to the 1040EZ and 1040A. An interesting fact is that, any income regardless if it came from legit business or not is taken into account for taxation purposes like for instance, there’s no exemption for taxes whether the sale came from illegal drugs.