Computing and Paying Income Tax
In this section we'll explain how to compute your income taxes, and we'll also discuss a couple of other types of tax you may have to report and pay on your tax return: the alternative minimum tax (AMT), and payroll taxes on household employees.
To review what we've covered so far, the basic formula for federal income taxes is:
total income - adjustments = adjusted gross income
AGI - deductions and exemptions = taxable income
Taxes are then calculated based on the amount of your taxable income. From this initial tax bill, your allowable credits are subtracted, and any additional taxes (like AMT, self-employment taxes, and payroll taxes on household help) are added, to arrive at the amount of taxes you actually owe for the year.
Many people can calculate their taxes using the tax tables provided by the IRS in the instructions to the 1040EZ, 1040A, or 1040. Simply take the taxable income amount from Line 41 of Form 1040, Line 27 of Form 1040A, or Line 6 of Form 1040EZ, go to the IRS tax tables (included in the instructions to any of these forms) and find the line in the bold-faced column that includes your income amount, and read across to the right to find the column that pertains to your filing status. The amount shown at the intersection between the income line and the filing status column will be your tax.
If your taxable income is $100,000 or more, you can't use the tables. Instead, you must use the tax rate schedules that follow the end of the tables.
Some taxpayers must use other forms to calculate their initial tax bills. If you have a net capital gain shown on Schedule D, you must calculate your tax by following the directions for each line on the back of Schedule D in order to take advantage of the lower 20 percent rate on long-term capital gains. If you have farm income and choose to use income averaging, calculate your tax using Schedule J, Farm Income Averaging. If you are filing a return for a child under age 14 who had more than $1,500 in investment income, you must compute the child's tax using Form 8615, Tax for Children Under Age 14 Who Have Investment Income of More than $1,500.
After you've determined your tax amount using one of the methods described above, add to it any tax amount shown on Form 8814, Parents' Election to Report Child's Interest and Dividends, or on Form 4972, Tax on Lump-Sum Distributions. Write the total amount of your tax on Line 42 of Form 1040, Line 28 of Form 1040A, or Line 10 of Form 1040EZ.
For more details on computing your tax, check out the following:
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