My Taxable Income...

Now substantially improved and simplified

Featured Article : UNDERSTANDING FEDERAL INCOME TAXES

Taxpayer Education

The Federal Income tax is probably the most heard of tax in the country. You need to think about income tax whenever you take in any money for yourself from a job or from any other sources, so it's something that most of us already know intimately.

But that doesn't mean it makes sense to us.

The federal income tax system is set up as a progressive tax, the more you make the more you pay, and that applies to the following groups:

• Individuals
• Corporations
• Trusts
• Descendants' estates
• Certain bankruptcy estates

While we're more familiar with the idea of individual income taxes, it is safe to say that any income from any source is probably going to have some sort of taxation upon it.

The formula for the federal income tax is simple to understand as well, when you remove all of the individual tax laws and amendments.

YOUR INCOME/ANY INCOME – DEDUCTIONS = ADJUSTED GROSS INCOME

You make a certain amount of money before taxes that goes onto your tax form. If you can reduce this number with deductions, you will reduce the amount of money the government can tax you on.

The IRS then sets up a taxation table based off of the adjusted gross income that you get from this formula – giving you your tax rate. The maximum rate of tax that is paid is 35%.

Now, if you've had taxes taken out from every paycheck, as most people do,you will then subtract the tax rate amount from this amount that you paid. If the amount is a positive number, then you're going to receive a tax refund.But if you get a negative number, this means that you will still need to pay money to the government.

Where most people get stuck is in the idea of what they owe to the government, but tax tables are easily available well ahead of tax season, so you can begin to see what you might need to pay in order to keep yourself from having to owe any taxes when you prepare your forms.

On the other hand, some corporations and individuals also like to pay just enough tax during the year so that they don't owe anything, but also so they don't get a refund. Because, in essence, this refund is a 'free' loan for the government until you receive that refund check.

Income taxes can be reduced with more deductions as these will lessen the overall gross income that will be taxed as a result.