Taxes are the one thing that everyone hates but they must do each year. While some of the population waits till April 15th to worry about their taxes, there are some who start figuring right away. The IRS determines how much a person owes or how much they are refunded by their taxable income. This is the amount of money that one must pay to the government each year. This amount is based on their income. If a person overpays this amount, then they get to receive a refund of the excess portion. However, if a person doesn’t pay enough taxes on their taxable income, then they must pay.
The taxable income must be figured on Form 1040. The tax return has many forms, but this one is for the main figures and what the IRS really pays attention too. The IRS uses two various methods for configuring the taxes. First, if a person makes over $100 thousand a year the IRS will use what is called a gross tax computation. However, those who make under $100 thousand per year can use the standard tax tables. The filing status is a big portion of how the taxable income is configured. The method used really doesn’t matter as much as the filing status.
There are four filing statuses that a person can use. The most commonly used ones are Single and Married Filing Jointly. However, there are also the statuses of Married Filing Separately and also Head of Household. A person may have a couple different statuses that they can fit into, but they may need to do some calculation to see which category will give them the best return.
A person will find their filing status and their income in the tax tables. The IRS tax tables can be found online at the IRS’s website, or they can be found on the back of the IRS publication and 1040 instructions. The number found on the table is considered the taxable income. This number can be transferred to the tax line on Form 1040. This process is pretty straightforward for those who make under $100 thousands. However, it gets a bit more trick for those who make over $100 thousand dollars.
For the computation method, the IRS provides a specific worksheet. First, a person will need to do two computations. The first of the computations is to take the taxable income for the person and multiply it by the marginal tax rate. Then they will subtract the pre-computed amount to arrive at the total. The values that a person needs to use are given on the worksheet provided by the IRS. This worksheet can also be found on the 1040 Instructions application. The computed tax amount goes on the same line that the other method does, it’s just how a person arrives at the taxable income is different.
While accountants and tax professionals can help those who struggle finding their taxable income, there are also several self-help pages online and calculators that can do the same thing for free.