|
Answer:
Dear
BuyandHolder,
Your
question reminds all of us that we are heading into
tax season - not our favorite time of the year!
DEFINITION
Let's
start with the basics. A tax bracket is the point
on the income tax rate schedules where one's taxable
income falls. It is expressed as a percentage to be
applied to each additional dollar over the base amount
for the bracket.
CURRENT
TAX BRACKETS
The
current tax brackets for individuals are: 10%, 15%,
25%, 28%, 33% and 35%.
FINDING
YOUR INCOME TAX RATE
The
tax rates and income dollar amounts for single filers
are listed below.
For
the figures for married couples filing jointly, married
couples filing singly and head of household filers,
go to www.irs.gov
and order or download Publication #17. Or, consult
the tables in one of the annual tax guides available
at libraries and bookstores, such as Lasser's, H&R
Block, Dummies, etc.
|
Single
Filers
|
|
Tax
Rate
|
Income
Amounts
|
| 10% |
Up
to $7,000
|
| 15% |
$7,001
to $28,400
|
| 25% |
$18,401
to $68,800
|
| 28% |
$68,801
to $143,500
|
| 33% |
$143,501
to $311,950
|
| 35% |
$311,951
or more
|
THE
8 STEPS TO GETTING THERE
To
determine your taxes you need to go through a number
of steps. What follows is just a mini-guide, in fact
it's really a mini-mini guide. It is NOT all-inclusive
-- that's why I've used the abbreviation "etc." so
often!
Read
the steps below to get an overview of what's involved
and then follow the instructions in IRS Publication
#17. Or, use one of the software programs, such as
Quicken, that will walk you through the process, step
by step.
Caution:
If you don't like crunching numbers, I strongly urge
you to consult a professional.
1)
Determine your FILING STATUS. Your choices are:
single, married filing join return (even if only one
of you had income), married filing separate return,
head of household, or qualifying widow(er) with dependent
child (children).
2)
Find your GROSS INCOME. This is your taxable income
before subtracting deductions. It consists of your
wages, salary, freelance income, tips, taxable interest
and dividend income and taxable pension and/or annuity
received, alimony received, etc. (Be sure to consult
your W-2 forms from your employers.)
3)
Determine your ADJUSTED GROSS INCOME. This consists
of all your income minus IRS-allowable ADJUSTMENTS.
So, subtract from your Gross Income these adjustments:
alimony you paid (not received), interest penalties
on early withdrawals, moving expenses, interest paid
on student loans, contributions to a traditional IRA,
SEP, Simple or Keogh plan, etc. The result is your
Adjusted Gross Income (AGI).
4)
Decide on ITEMIZATION. At this point you must
make a choice - whether to take the standard IRS-allowed
deduction or to itemize (that is to list) all your
deductions. Obviously pick the greater dollar amount.
Among the many itemized deductions taxpayers can claim:
charitable contributions, interest paid on home mortgages,
state and local taxes and casualty and theft losses.
5)
Next, subtract your PERSONAL EXEMPTIONS. This
is a set dollar amount the IRS gives for you and your
spouse. If you or your spouse is 65 or older or blind,
you're entitled to an increased standard deduction.
6)
Consult the TAX TABLES. At this point, check the
IRS Tax Tables in IRS Publication #17 or one of the
current tax guides. Find where your taxable income
dollar amount lands in the table and then follow the
line to your filing status. The dollar amount you
owe will be listed. But this may not be the final
amount due the IRS. Step #7 may reduce your tax bill.
7)
Subtract any CREDITS to which you're entitled.
The most common is the child and dependent care expenses
tax credit. You may also qualify for an adoption credit,
an education credit or lifetime learning credit.
8)
Subtract any FEDERAL INCOME TAX WITHHELD from
your W2s and/or 1099s and any estimated taxes you
paid that can be applied to this return.
Bottom
Line: The result is your net tax or estimated
total tax --the amount you must pay or will be
refunded.
Good
luck!
|
