How to Figure Liable Taxes
Almost every American adult is required to file a federal individual income tax return. Calculating individual income tax liability is not that difficult for most people, although it is more difficult for people with complex finances who choose to itemize their deductions. An error could result in unexpected tax liability later on, as well as interest and penalties imposed by the Internal Revenue Service.
- Difficulty:
- Moderately Easy
Instructions
Things You'll Need
- IRS Form 1040
- IRS Form 1040 Instructions
- Personal financial records
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1
Download IRS Form 1040 and Form 1040 Instructions from the IRS website. If you have already decided not to itemize your deductions, you may use Form 1040-EZ.
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2
Calculate your total income during the tax year from any source, anywhere in the world, even if the source of the income is overseas. Americans are taxed on their worldwide income. Income includes salary, capital gains, interest and even government benefits such as unemployment payments.The only exception is gifts that you have received. Check your last W-2 form for your salary total.
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3
Add together all the deductions that apply to you from lines 22-35 of Form 1040 including relocation expenses, alimony expenses, self-employment expenses, etc. Subtract this total from your total income to get your Adjusted Gross Income.
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4
Figure your allowable deductions using Schedule A of Form 1040, including health care expenses, interest on mortgage payments and taxes imposed by state and local governments. Compare this total with your standard deduction (from line 40 of Form 1040), and deduct whichever figure is larger from your AGI. If you are sure that your standard deduction will be the larger figure, then don't bother itemizing your deductions.
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5
Multiply $3,500 (in 2008) by the number of dependents you are claiming on line six of Form 1040, and subtract this product from the result of Step 4. This is your taxable income.
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6
Multiply your taxable income by the tax rate applicable to your taxable income level. This can be done using the tax rate table available in the Form 1040 Instructions. The result is your total tax.
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7
Subtract all federal income taxes already paid from your total tax to arrive at your total tax due (taxes withheld from your salary can be found on your W-2 form). If the result is positive, this is the amount you owe the IRS. If the amount is negative, this is the amount of the refund that the IRS owes you.
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Tips & Warnings
An automatic filing and payment extension of six months is available for taxpayers who request one by April 15 using IRS Form 4868.
The IRS imposes interest and penalties upon taxpayers who do not file and pay their taxes on time. The amount imposed is generally based on a percentage of the outstanding tax due.
