Estimate Your Tax Payments: A Guide for Individuals
As the tax season approaches, individuals need to start thinking about their tax payments. In the United States, taxpayers are expected to pay taxes on their income, which is why it is essential to estimate your tax payments accurately. This article aims to guide individuals on how to estimate their tax payments.
Before estimating your tax payments, you need to understand how taxes work. Taxes are collected by the government to fund public services such as education, healthcare, and public safety. The Internal Revenue Service (IRS) is responsible for collecting federal taxes in the United States.
Types of Taxes
There are different taxes that individuals may have to pay. These include:
1. Income Tax: This is a tax on an individual’s income.
2. Sales Tax: This is a tax on goods and services purchased.
3. Property Tax: This is a tax on the value of property owned.
4. Estate Tax: This is a tax on the transfer of property after an individual’s death.
Estimating Your Tax Payments
To estimate your tax payments, you need to determine what your taxable income is. Taxable income is the amount of income that is subject to tax after allowable deductions.
Step 1: Calculate your Adjusted Gross Income (AGI)
Your AGI is your total income minus allowable deductions such as contributions to a retirement account or student loan interest. You can find your AGI on your tax return from the previous year.
Step 2: Determine Your Taxable Income
To determine your taxable income, subtract your deductions from your AGI. You can use the IRS Form 1040 to calculate your taxable income.
Step 3: Use Tax Tables to Calculate Tax Owed
Once you have calculated your taxable income, you can use the tax tables provided by the IRS to determine how much tax you owe. The tax tables take into account your filing status (single, married, etc.) and your taxable income.
Step 4: Subtract any Tax Credits or Withholdings
If you have any tax credits or withholdings, you can subtract them from the amount of tax you owe to determine your estimated tax payment.
It is crucial to estimate your tax payments accurately to avoid any penalties or interest charges. By following the steps outlined above, individuals can estimate their tax payments with ease. Remember to keep track of your income and deductions throughout the year to make accurate estimations.
Estimated tax payments allow an individual to properly budget and forecast their financial standing during the tax season. Estimated tax payments enable a taxpayer to align finances and evaluate their current financial condition or placement.
For nearly all taxpayers, the due date for the first tax payment is April 15th of each year–this is also the same day where the return is due for the previous year. Estimated tax payments are widely elastic to an individual’s adjusted gross income. The income tax, which is the predominant federal tax, is based off of coordinating tax brackets which weigh an individual’s salary and attach a corresponding tax percentage or rate to it.
The United States federal tax system is a progressive model where higher incomes yield higher taxation rates. Once the tax rate has been established through a review of gross adjusted income the taxpayer must then take note of all the deductions, write offs, and tax credits associated with their tax application. These three vehicles are all forms of tax planning which decrease one’s taxable income yielding a slighter payment or larger tax return.
To estimate a tax return an individual must subtract the total amount of deductions from their gross income. Following this simply subtraction, the individual must attach the corresponding percentage found in their salary’s tax bracket. If the number is greater than the amount withheld throughout the year during normal pay periods the individual can observe their estimated tax payments. If the number is less, which is usually the case, the taxpayer will receive a tax refund.