How much do i owe for taxes

how much do i owe for taxes

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Tax Filing Status

Before you figure out how much you owe the government, figure out how you will be filing. There are a number of filing statuses which impact how much you can deduct and what tax rate will be in effect on your income. The statuses include single, married filing jointly, married filing separately, and head of household, which is for a single person that maintains a household for dependents.

Deductions and Exemptions

Take some time to figure out how much of your income is not subject to tax. Not only can you take an exemption for yourself and any other dependents, but you can also subtract the money that you spend on a vast range of items. You can deduct interest on your home's mortgage, money contributed to an IRA account, educational expenses, charitable giving, certain medical expenses, and a range of other things. A CPA can help you to find every deduction that you can legitimately claim.

Tax on Income Earned at Work

Income you earn at work is subject to the regular income tax. To figure out your tax bill, calculate your income then subtract any deductions or exemptions. The amount left over is subject to the income tax. To calculate this, find the applicable rates for your income, and multiply your income by those rates.

Tax on Investment Income

Under the tax code as it stands for the 2011 tax year, there are a number of different rates for investment income which is money that you make without working. Dividends are typically taxed at 15 percent, if your income tax rate is 25 percent or higher, or 0 percent if your tax rate is lower. Interest is taxed at your highest marginal tax rate as are short-term capital gains. Long-term gains, which are profits on the sale of capital investments, like stock, that are held for over one year, are taxed at 15 percent. IRA

and 401k distributions can be gains, dividends or regular income and are taxed are all of those rates. Net profit from real estate investing typically comes in the form of capital gains when you sell a building or regular income from collecting rents. Annuity income is typically taxed as interest.

Tax on Self-Employment Income

If you are self-employed, you will pay the same income tax on your profit from self-employment that you would have it you were working as an employee. At the time of publication, self employment tax is 13.3 percent of the first $106,800 of your profit and a tax of 2.9 percent on any profits above that level, although self-employment income tax rates and brackets change yearly. It is important to note that your self-employment profit is taxed, and not your gross sales. With this in mind, be sure to subtract all of the expenses you incur in your business activities.

Understanding Withholding

Most people see taxes being taken from their paychecks in a process called withholding. Withholding is simply an estimate of what you actually owe in taxes. With this in mind, simply adding up what is withheld will not tell you what your tax bill actually is. It will just tell you how much you have prepaid.

State Income Taxes

In addition to your Federal tax bill, most states also levy an income tax, with rates and terms varying widely from state to state. Seven states have flat taxes including Utah, Michigan and Pennsylvania which have have tax rates of 3, 4.35 and 5 percent, respectively. Seven states, including Florida, Washington and South Dakota have absolutely no income tax. Two states, New Hampshire and Tennessee, have limited taxes on certain types of income. The remaining 34 states have progressive income tax rates with top rates varying from Arizona's 4.54 percent to the 7 percent rate in South Carolina and Arkansas to the highest rate of 11 percent in Oregon and Hawaii.


Category: Taxes

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