Computing and Paying Income Tax

In this section we'll explain how to compute your income taxes, and we'll also discuss a couple of other types of tax you may have to report and pay on your tax return: the alternative minimum tax (AMT), and payroll taxes on household employees.

To review what we've covered so far, the basic formula for federal income taxes is:

total income - adjustments = adjusted gross income

AGI - deductions and exemptions = taxable income

Taxes are then calculated based on the amount of your taxable income. From this initial tax bill, your allowable credits are subtracted, and any additional taxes (like AMT, self-employment taxes, and payroll taxes on household help) are added, to arrive at the amount of taxes you actually owe for the year.

Financial Calculators What will be your tax bill for the current year? Use this Preliminary 1040 Tax Form Calculator to find out. What will be your tax bill for the current year? Use this Preliminary 1040EZ Tax Form Calculator to find out. Based on your projected withholding for the year, we can show you your refund or the amount you'll owe the IRS next April.

Many people can calculate their taxes using the tax tables provided by the IRS in the instructions to the 1040EZ, 1040A, or 1040. Start with the taxable income amount from Line 43 of Form 1040, Line 27 of Form 1040A, or Line 6 of Form 1040EZ. Go to the IRS tax tables (included in the instructions to any of these forms) and find the line in the bold-faced column that includes your income amount. Read across to the right to find the column that pertains to your filing status. The amount shown at the intersection between the income line and the filing status column will be your tax.

If your taxable income is $100,000 or more, you can't use the tables. Instead, you must use the tax rate schedules that follow the end of the tables.

Some taxpayers must use other forms to calculate their initial tax bills. If you have a net capital gain shown on Schedule D, you must calculate your tax by following the directions for each line on the back of Schedule D in order to take advantage of the lower rate on long-term capital gains. If you have farm income and choose to use income averaging, calculate your tax using Schedule J, Farm Income Averaging.

After you've determined your tax amount using one of the methods described above, add to it any tax amount shown on Form 8814, Parents' Election to Report Child's Interest and Dividends, or on Form 4972, Tax on Lump-Sum Distributions. Write the total amount of your tax on Line 44 of Form 1040, Line 28 of Form 1040A, or Line 11 of Form 1040EZ.

Planning Tools You can download IRS Tax Tables, Form 1040, Form 1040A, Form 1040EZ, Schedule D, Form 8615 and Form 8814 to aid in your financial planning.

For more details on computing your tax, check out the following:

• claiming your credits
• adding your other taxes
• subtracting your payments
• refunds and payments
• signing your return
• assembling and mailing your return
• the AMT
• payroll taxes on household employees

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