If you have not filed your income tax, it’s time to file it now. Some of the basic steps of filing your taxes have been briefed here.
The citizens today have been paying taxes all year across the world, but to determine if you have paid the correct amount happens in the month of April every year. Some of the important steps to file your taxes are as follows. If you want to know more details about US Tax Or Tax Free Investments, you can also check this Useful Link that help you understand the importance of income tax and filing income taxes as well.
Begin with your gross income
Add your gross income which is inclusive of your salary, annuities, pensions, wages, and interest income. If you are employed, you will receive a W-2 form from your employer that shows the amount you have earned and the withheld income tax.
Consider the adjustments, if any
Some of the adjustments include retirement plan deposits, alimony paid, self employment tax payment, student loan interest amount, or relocation expenses. So subtract the adjustments and the difference amount is known as AGI which means the adjusted gross income.
Make a choice
Once you identify your adjusted gross income, you have to make a choice between the two options. You can either subtract the deductions that are itemized or the standard deductions whichever is of the higher amount. Some of the examples of itemized deductions include medical expenses, home mortgage interest, charitable expenses, and local and state tax of the previous year.
Personal exemptions should be subtracted
The next step involves subtracting all your personal exemptions and the leftover amount is the taxable income that needs to be considered.
Refer the IRS or Internal Revenue Service tax table
The United States follows a system called as a progressive or marginal tax rating system wherein the more your salary the higher is your tax rate. In order to know the exact amount that is taxable, you should refer to your tax table. Look for the number matching with your filing status like married but filing jointly or single, married but separately filing, dependent child, or qualifying widow. That particular number would be your gross tax liability.
Subtract credits from gross tax liability
Subtract all credits from the gross tax liability. Some of the tax credits include earned income credit for families with low income and for child care expenses.
Determine your net tax
The final number would be your net tax. If the net tax amount is positive, then you have to pay money to the IRS and if it’s negative, you get a refund.
Filing your federal income tax return by paying any taxes due by April 15th is a must for every American citizen who is employed and earning income through any source. When you pay or file your tax late, you will be penalized and the interest rate will keep increasing. However, if you are eligible for a refund, you will receive the same within 2 weeks. So, file your income tax now.