Calculating earnings Tax: The Tax recipe

###Calculating earnings Tax: The Tax recipe### Advertisements

The Tax recipe for Individuals:

2012 Tax Tables

This is just a basic explanation of the tax recipe for private tax payers. I hope someone can find this data beneficial when trying to understand taxes better. private tax payers reckon their tax in accordance with a tax formula. Comprehension the recipe is important, since all tax determinations are based on the result. The recipe is as follows:

Gross Income

-Deductions For Agi (adjusted gross income)

=Agi

-Greater Of Itemized Deductions Or approved Deduction

-Exemptions

=Taxable Income

x Tax Rate (using approved tax tables or rate schedules)

=Gross Tax Liability

-Tax earnings And Prepayments

=Tax Due Or Refund

Gross Income:

The calculation of taxable income begins with gross income. Gross income includes All income, unless the tax law provides for a definite exclusion.

Deductions for Adjusted Gross Income:

The first category of deductions includes the deductions for Agi. These deductions comprise pupil loan interest, a tuition and fees deduction, inescapable instructor expenses, alimony payments, trade or company expenses, inescapable reimbursed laborer company expenses paid under an accountable plan, exciting expenses, the penalty on early withdrawal from savings, and contributions to powerful withdrawal plans. I am not going to go into information about these deductions any way if I can supply more information in a later hub if enough people invite it.

Adjusted Gross Income:

The whole of adjusted gross income is sometimes referred to as the "magic line", since it is the basis for any deduction limitations. For example, the limitation on medical expenses is one. A tax payer's Agi is used to decree the phase-out of the otherwise allowable itemized deductions and personal dependency exemption amounts.

Standard Deduction or Itemized Deductions:

Itemized deductions are personal items that congress has allowed as deductions. Included in this category are medical expenses, inescapable interest expenses, inescapable taxes, charitable contributions, casualty losses, and other misc. Items. Tax payers should itemize their deductions only if the whole exceeds the approved deduction amount. The table below gives the approved amounts for 2010.

Exemptions:

The personal exemption and the dependency exemption were 50 for 2009 and have remained the same for 2010. Keep in mind that there is a Phase-out tax bracket for high-income families. (This can also be discussed in information in a later hub if requested)

The Gross Tax Liability:

A tax payer's gross tax liability is obtained by reference to the tax table or use of a tax rate agenda (which is provided below). Tax earnings and prepayments are subtracted from gross tax liability to reckon the net tax due the government or the refund due the tax payer.

2010 Tax Rate Tables

Married Individuals Filing Joint Returns and Surviving Spouses

If taxable income Is:

The Tax Is:

Not over ,750 10% of the taxable income Over ,750 but not over ,000 ,675 plus 15% of the excess over ,750 Over ,000 but not over 7,300 ,362.50 plus 25% of the excess over ,000 Over 7,300 but not over 9,250 ,687.50 plus 28% of the excess over 7,300 Over 9,250 but not over 3,650 ,833.50 plus 33% of the excess over 9,250 Over 3,650 1,085.50 plus 35% of the excess over 3,650

Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If taxable income Is:

The Tax Is:

Not over ,375 10% of the taxable income Over ,375 but not over ,000 7.50 plus 15% of the excess over ,375 Over ,000 but not over ,400 ,681.25 plus 25% of the excess over ,000 Over ,400 but not over 1,850 ,781.25 plus 28% of the excess over ,400 Over 1,850 but not over 3,650 ,827.25 plus 33% of the excess over 1,850 Over 3,650 8,421.25 plus 35% of the excess over 3,650

Calculating earnings Tax: The Tax recipe