Personal income taxes?
can someone please explain personal income taxes, both state and taxes
Public Comments
- Federal income tax has a basic structure. Some of the details change every year, but the structure has always stayed the same. Basically, your federal tax return goes like this: Add up all income to determine total income Subtract qualified adjustments for things that don't count as income (such as student loan interest, IRA contributions etc). The result is your Adjusted Gross Income or AGI, which will be used to determine your eligibility for certain credits and deductions. From your AGI you subtract your deductions, which can be either the standard deduction for your filling status, OR your actual itemized deductions, but not both. Then you also subtract your personal exemption amounts. The result is your Taxable income. Based on your filling status you determine your tax, by laying your taxable income across the tax brackets to determine your tax. Then you apply any non-refundable tax credits. This means you subtract the credit amount from the amount of your tax. The fact that these are "Non-refundable" means if the credit is more than your tax, you loose any amount that is left over after your tax is reduced to zero. The result of this calculation is your actual tax liability. Then you apply payments. Payments include any money you actually paid such as money withheld from your paycheck, money from your previous year's taxes that you asked to have withheld for the next year, or money you sent in willingly because you thought you might owe. Also included in the payments section are "refundable tax credits". These credits count just like payments, so if the credit is for more than the taxes you actually owe, you'll get the rest of it refunded to you. This is how some people actually get a refund of more than they paid in. By comparing your total payments to your actual tax liability, you determine how much refund you're getting (if you overpaid), or how much you owe (if you underpaid). Most state income tax programs follow the same basic structure. Once you understand this structure, its easy to understand things like the first time home buyer's credit, or the making work pay credit, by simply noting that these are "refundable tax credits"
- Go to IRS.GOV and get a free Pub 17 for a comprehensive explanation of "taxes".
