The Tax Formula for Individuals: This is just a basic explanation of the tax formula for individual tax payers. I hope someone can find this information useful when trying to understand taxes better. Individual tax payers calculate their tax in accordance with a tax formula. Understanding the formula is important, since all tax determinations are based on the result. The formula is as follows: GROSS INCOME -DEDUCTIONS FOR AGI (adjusted gross income) =AGI -GREATER OF ITEMIZED DEDUCTIONS OR STANDARD DEDUCTION -EXEMPTIONS =TAXABLE INCOME x TAX RATE (using appropriate tax tables or rate schedules) =GROSS TAX LIABILITY -TAX CREDITS AND PREPAYMENTS =TAX DUE OR REFUND
Gross Income: The calculation of taxable income begins with gross income. Gross income includes ALL income, unless the tax law provides for a specific exclusion.
Deductions for Adjusted Gross Income: The first category of deductions includes the deductions for AGI. These deductions include student loan interest, a tuition and fees deduction, certain educator expenses, alimony payments, trade or business expenses, certain reimbursed employee business expenses paid under an accountable plan, moving expenses, the penalty on early withdrawal from savings, and contributions to qualified retirement plans. I am not going to go into detail about these deductions however if I can provide more detail in a later hub if enough people request it.
Adjusted Gross Income: The amount of adjusted gross income is sometimes referred to as the "magic line", since it is the basis for several deduction limitations. For example, the limitation on medical expenses is one. A tax payer's AGI is used to determine the phase-out of the otherwise allowable itemized deductions and personal dependency exemption amounts.
The second question is what can be done to protect the refund should an individual file for bankruptcy. Once the debtor's interests or assets become property of the estate, the debtor may claim certain exemptions protecting that property. One specific exemption that may apply in California is the "wild card" should a bankruptcy debtor choose the California (bankruptcy only) exemption statute. In this case, a debtor can exempt any property in the amount of $1,100 plus any portion or a residence or burial plot (around $20,000).
With 2009 tax credit, I learned how to invest in tax liens in USA and started investing in tax liens in Indiana's commissioner's sales. We foreclosed in 4 properties, and today, our net worth increased exponentially. With 2010 tax credit, we are planning to do the same: Invest in tax liens.
There is one more piece of tax information that should be briefly touched on. Should an individual owe taxes from a previous period, it is possible that an individual may not be able to exempt a refund owed. This would be a topic of another discussion...
2010 Tax Rate Tables Married Individuals Filing Joint Returns and Surviving Spouses If Taxable Income Is: The Tax Is: * Not over $16,750 10% of the taxable income * Over $16,750 but not over $68,000 $1,675 plus 15% of the excess over $16,750 * Over $68,000 but not over $137,300 $9,362.50 plus 25% of the excess over $68,000 * Over $137,300 but not over $209,250 $26,687.50 plus 28% of the excess over $137,300 * Over $209,250 but not over $373,650 $46,833.50 plus 33% of the excess over $209,250 * Over $373,650 $101,085.50 plus 35% of the excess over $373,650 Unmarried Individuals (other than Surviving Spouses and Heads of Households) If Taxable Income Is: The Tax Is: * Not over $8,375 10% of the taxable income * Over $8,375 but not over $34,000 $837.50 plus 15% of the excess over $8,375 * Over $34,000 but not over $82,400 $4,681.25 plus 25% of the excess over $34,000 * Over $82,400 but not over $171,850 $16,781.25 plus 28% of the excess over $82,400 * Over $171,850 but not over $373,650 $41,827.25 plus 33% of the excess over $171,850 * Over $373,650 $108,421.25 plus 35% of the excess over $373,650
Gross Income: The calculation of taxable income begins with gross income. Gross income includes ALL income, unless the tax law provides for a specific exclusion.
Deductions for Adjusted Gross Income: The first category of deductions includes the deductions for AGI. These deductions include student loan interest, a tuition and fees deduction, certain educator expenses, alimony payments, trade or business expenses, certain reimbursed employee business expenses paid under an accountable plan, moving expenses, the penalty on early withdrawal from savings, and contributions to qualified retirement plans. I am not going to go into detail about these deductions however if I can provide more detail in a later hub if enough people request it.
Adjusted Gross Income: The amount of adjusted gross income is sometimes referred to as the "magic line", since it is the basis for several deduction limitations. For example, the limitation on medical expenses is one. A tax payer's AGI is used to determine the phase-out of the otherwise allowable itemized deductions and personal dependency exemption amounts.
The second question is what can be done to protect the refund should an individual file for bankruptcy. Once the debtor's interests or assets become property of the estate, the debtor may claim certain exemptions protecting that property. One specific exemption that may apply in California is the "wild card" should a bankruptcy debtor choose the California (bankruptcy only) exemption statute. In this case, a debtor can exempt any property in the amount of $1,100 plus any portion or a residence or burial plot (around $20,000).
With 2009 tax credit, I learned how to invest in tax liens in USA and started investing in tax liens in Indiana's commissioner's sales. We foreclosed in 4 properties, and today, our net worth increased exponentially. With 2010 tax credit, we are planning to do the same: Invest in tax liens.
There is one more piece of tax information that should be briefly touched on. Should an individual owe taxes from a previous period, it is possible that an individual may not be able to exempt a refund owed. This would be a topic of another discussion...
2010 Tax Rate Tables Married Individuals Filing Joint Returns and Surviving Spouses If Taxable Income Is: The Tax Is: * Not over $16,750 10% of the taxable income * Over $16,750 but not over $68,000 $1,675 plus 15% of the excess over $16,750 * Over $68,000 but not over $137,300 $9,362.50 plus 25% of the excess over $68,000 * Over $137,300 but not over $209,250 $26,687.50 plus 28% of the excess over $137,300 * Over $209,250 but not over $373,650 $46,833.50 plus 33% of the excess over $209,250 * Over $373,650 $101,085.50 plus 35% of the excess over $373,650 Unmarried Individuals (other than Surviving Spouses and Heads of Households) If Taxable Income Is: The Tax Is: * Not over $8,375 10% of the taxable income * Over $8,375 but not over $34,000 $837.50 plus 15% of the excess over $8,375 * Over $34,000 but not over $82,400 $4,681.25 plus 25% of the excess over $34,000 * Over $82,400 but not over $171,850 $16,781.25 plus 28% of the excess over $82,400 * Over $171,850 but not over $373,650 $41,827.25 plus 33% of the excess over $171,850 * Over $373,650 $108,421.25 plus 35% of the excess over $373,650
About the Author:
Harris Smith is a writer on personal finance education. Her article tackles the pros and cons of home equity line of credit . A Debt Consolidation loan will change your life.