What Numbers Go into Calculating What My Income Tax Is?A bunch of different number go into calculating what you income tax is. Three main number make up the bulk of the number you will need to calculate you annual income: taxable income, adjusted gross income, and gross income. What Is Taxable Income?Taxable income is the number that will be multiplied against you current tax rate. Tax rates vary, but generally you have a higher rate of taxation depending on how much money you make, your marital status, and the amount of dependants you have. Taxable income in the tax world is generally defined to be your adjusted gross income (see below) minus deductions (both standardized and itemized). The deductions spoken of here are both żabove the lineż and żbelow the lineż deductions, which are deductions that are a mix or qualified and unqualified deductions. What Is Adjusted Gross Income?Adjusted gross income is generally defined to be your gross income (see below) minus your deductions. The deductions spoken of here by the tax code are żabove-the-lineż deductions which all persons can take. Section 62 of the tax code lists żabove the lineż deductions which may be taken by all: - Trade and business deductions
- Certain trade and business deductions of employees
- Losses from sale or exchange of property
- Deductions attributable to rents and royalties
- Certain deductions of life tenants and income beneficiaries
- Pension, profit-sharing, and annuity plans of self-employed individuals
- Retirement savings
- Certain portions of lump-sum distributions from pension plans
- Penalties forfeited because of premature withdrawal of funds from time savings accounts or deposits
- Alimony
- Reforestation expenses
- Certain required repayments of supplemental unemployment compensation benefits
- Jury duty pay remitted to employer
- Deduction for clean-fuel vehicles and certain refueling
- Moving expenses
What Is Gross Income?Gross income is defined to be żall income, from whatever source derivedż. This phrase gives the IRS maximum broad power to tax a wide variety of types of income, and allows the IRS to err of the side of taxing you rather than not taxing you. In general, it is the taxpayer who bears the burden of proving that they should not be paying the tax, not the IRS. Should I Contact a Lawyer Regarding My Tax Issues?
With the plethora of tax software out there, most people are capable of doing their taxes on their own. More sophisticated and more complex tax returns (i.e. those done by business owners) may require more time and perhaps the advice of a lawyer. Additionally, should you have a dispute with the taxing authority you may need to go to court, and then a lawyer may almost be required. It is at least a good idea to have the advice of a lawyer then. |
