Exemptions and Deductions
After calculating your AGI, you can determine your taxable income by subtracting certain exemptions and deductions to which you’re entitled.
Each exemption is a fixed dollar amount that typically increases yearly. Unless your income is more than the government limit, you get one personal exemption as a single taxpayer and two as a married couple. You also get one exemption for each dependent.
You can subtract the standard deduction—again, a fixed dollar amount—or itemize all of the qualifying payments you’ve made during the year and subtract that total. Some itemized deductions include home mortgage interest, real estate taxes, and state and local income taxes.
Finding Your Tax Rate
Once you have your total taxable income, the rest is fairly simple. That number is compared to the tax brackets for the year. Depending on where you fall, that’s how you’ll find the rate for what you need to pay. The U.S. uses a progressive tax rate system. This means that only the section of income that falls into each bracket is taxed at that rate. The income that falls below will be taxed at a lower rate, and so on, until all of your taxable income is accounted for.
Your Refunds and Payments
Your refund or tax payment depends on what you’ve paid throughout the year versus what you owe in income taxes. You’ll receive a refund if you pay more than you owe. Otherwise, you’ll have to pay whatever the balance is.
If you’re getting a refund, you can either get a check from the IRS for the amount you’re owed or apply part or all of the refund to your taxes for the coming year.
If, on the other hand, you owe a payment to the IRS, you must pay it by April 15. Otherwise, you will likely have to pay interest and a late-payment penalty.
If you file a simple return (such as a 1040EZ, or a 1040 with no itemized deductions and an income below $100,000) and send it in by April 15, the IRS will calculate your refund or payment for you.
If you have any questions while completing your return, many tools are available to help. This list of frequently asked questions from the IRS, instructions and guides included with tax software, and assistance from a tax professional can all provide additional support.