To calculate income taxes, a person should consider his income minus any relevant deductions, then multiply the result by the tax rate or use IRS tax tables. Income can include salary, earnings from dividends and investments, royalties, gambling earnings and lottery winnings. Deductions can include medical expenses, retirement contributions and interest expenses.
Individual tax calculations vary from person to person. However, each individual must follow basic processes to calculate a tax obligation. The first process revolves around calculating total income. This income can contain a number of components, including dividends, capital gain, royalties and business income. In addition, several factors affect the total income. These factors include the number of dependents, exemptions claimed and filing status.
After income is calculated, a taxpayer should consider any relevant deductions. Common deductions include state sales taxes, reinvested dividends, out-of-pocket charitable contributions, student loan interest and work-related moving expenses. A taxpayer should consult the Internal Revenue Code to ensure that he is eligible for specific deductions.
After the deductions are determined, the taxpayer arrives at income before taxes. This income is the basis used to calculate the tax obligation. The taxpayer then applies the relevant tax rate, as provided on the individual income tax rate and filing status table in the current year tax instructions or on the IRS.gov website. Taxpayers also may use standard tax tables in the current year tax instructions.
A tax is a collection imposed by a local, state or federal municipality, notes Debt.org. Taxes on income are calculated based on personal and business revenue less any eligible deductions. Real estate taxes are calculated by using a property value as the base rate and applying a property tax rate. This tax is unique, as the value of real estate fluctuates periodically. Finally, a sales tax is applied to purchases made in a retail setting. These taxes are enforced more locally as opposed to at the federal level.
Tax season is a period when individuals and businesses compile the necessary documentation to report tax obligations, notes Forbes. This documentation is then sent to the related governing body. In the United States, this body is the Internal Revenue Service. Given the complexity of tax calculation, a person can reference the IRS website for answers to many tax questions.