Understanding Income Tax

Understanding Income Tax

Summary: Income tax tips can help you save a ton of money when tax season rolls around; however, understanding exactly what income tax is, is the first step to using the tips you gain wisely. Income tax is the tax that the federal and state governments charge you for the income that you have earned. Fist you take your total income and then apply any types of credits or deductions allowed by the government, and then figure your adjusted gross income. Tax is then figured by a person’s adjusted gross income instead of their total income.



Tax deductions are way to take off the amount of taxable income from your total yearly income. This will help you out to save you money and compensate you for tax exempt or overtaxed expenses you have accumulated. A tax deduction depends on the person’s situation and varies from person to person. Talking with a tax preparer can make sure you get all deductions you are applicable for taken off your income.



AMT stands for alternative minimum tax. AMT is an extra tax that some people have to pay on top of their regular taxes. Furthermore, there are other issues that some people do not always understand such as higher taxes based on raises given during the time worked, and AMT tax. Talking to your tax preparer can help you figure out if these situations apply to you.

Original Article: Basic Income Tax Tips



A number of basic income tax tips can help you save money when tax time rolls around. It's also best to employ year-round strategies and consider the potential impact of raises and the alternative minimum tax (AMT) so that you aren't surprised in April. Preparation and good paperwork could mean the difference between paying a large chunk of money in April and receiving a hefty refund check. While we all need to pay our share, your goal at tax time should be to avoid paying more tax than you actually owe.



Income Tax Income tax is a tax applied on the income you generate. It also applies to corporations or any sort of legal entity. Individuals are taxed on their total income with allowances for deductions. Whether or not you should file taxes depends on a variety of factors, including your citizenship status, gross income, age, filing status and whether anyone can claim you as a dependent. Basically, if you're not a dependent of someone else, such as your parents, you must file a tax return if you are under 65 and your gross income exceeds $8,750.



Tax Deductions The important basic income tax tip is to pay attention to deductions. When claiming deductions, you can take the standard deduction or itemize your tax deductions. Many tax payers take the standard deduction rather then itemize their deductions, even though many of them could save a great deal of money by itemizing their deductions. It takes a little work to keep records of what you've spent, but it could be worth it.



You can take a variety of deductions when filing your tax return. First, you need to learn about deductions that you may qualify for in the coming year. You can claim deductions on your home mortgage interest, real estate taxes and property taxes. You can even claim deductions for home improvements and certain home repairs.



An often-overlooked deduction is for medical expenses. You can deduct the cost of medical expenses that exceed 7.5% of your gross income, which can include doctor and dentist fees, lab fees, contact lenses and glasses, prescriptions, medical supplies and the cost of your insurance premium if your employer does not pay for your coverage.



Tax payers often overlook charitable donations as well. You can deduct charitable donations, such as money donated to the Red Cross, religious organizations and other nonprofit entities. If you donate items like furniture, household items or clothing, you will need to determine the cash value of the donated items. However, make sure you use your head when calculating their value because you may have to defend that number to the IRS some day.



There are also a number of miscellaneous tax deductions, such as union dues, magazine subscriptions related to your employment, business liability insurance premiums, the cost of protective work wear and equipment, employment tools and supplies, the cost of continuing education classes, expenses related to seeking employment in your normal line of work and certain expenses related to computer and cell phone use to the extent such use coincides with self-employment.



Once you have an idea of what you can deduct, you need to start keeping track of all documentation related to the deductions you plan to make in the event the IRS decides to audit your return. If you keep good records throughout the year, you might save money and ease the tax preparation process.

The IRS website offers worksheets where you can plug in your income and any deductions you plan to take so you can get a good idea of what your tax liability might look like. Go to IRS website, play with the deductions and amounts and find the right balance.



Raises and the AMT You might stumble on a few surprises as you prepare your tax return. If you received a raise during the course of the year and did not make any changes to your withholdings, you could find yourself owing more in taxes than you thought. Again, make use of the IRS website to determine if you are withholding enough taxes to cover your tax liability at the end of the year.



Another nasty surprise is the alternative minimum tax. The AMT is basically an extra tax that some lucky taxpayers have to pay on top of their regular income tax. The AMT originally evolved to prevent the very wealthy from using special tax benefits to pay little or often no tax. Unfortunately, however, the AMT limits have not kept up with income. It has reached far beyond the tax bracket it was intended to police and has hit a number of middle class families particularly hard. Since Congress has not yet addressed the problem, almost anyone can find themselves paying the AMT. The AMT provides an alternative number of rules for calculating your income tax in order to determine the minimum amount that someone with your income should pay. If the tax you normally pay falls below that number, you will have to make up the difference between your normal tax, which you have likely already paid, and the AMT.

Source:http://www.life123.com/career-money/taxes/income-tax/basic-income-tax-tips.shtml

Disclaimer: This article was shared for informational purposes only. National Tax Relief is not responsible for any claims, advice or errors that might exist in the articles. Third party websites or analyses presented.

