How Is Federal Income Tax Calculated?
If you earn an income over a certain amount, you are required to pay federal taxes, such as FICA (Social Security and Medicare) and income tax. The federal tax code includes a number of tax credits and deductions that may lower your tax liability.
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Filing Status and Exemptions
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To calculate your federal income taxes, you must establish your filing status and exemptions. Your filing status may be single, head of household, married filing separately or married filing jointly. Exemptions, which include personal and dependent exemptions, allow you to lower your taxable income by a certain amount.
Tax Deductions
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When calculating your federal taxes, look for any deductions that you can take to lower your taxable income. Exemptions, home equity interest deductions, student loan interest deductions and charitable contributions are just a few of the deductions you may qualify for.
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Tax Bracket
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Your federal tax bracket is the percentage you must pay on your taxable income. Tax brackets range from 10 to 35 percent as of tax year 2010. See Resources to find your top tax bracket.
Tax Credits
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Tax credits can significantly lower your tax liability. They differ from deductions in that they reduce the amount you owe in taxes, versus your taxable income, resulting in much higher savings than a deduction.
Filing Taxes
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Reviewing the IRS publications online should equip you with enough information to be able to file your own taxes. When in doubt, however, visit a tax professional to be sure that you have maximized all of your deductions and credits.
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References
Resources
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
