Knowing how to calculate income tax expense, you can calculate the exact amount of tax you paid or have to pay. Calculating income tax expense is very easy using IRS form 1040. You just have to fill the two forms and perform certain calculations to arrive at the amount of income tax expense. This will help you to estimate the amount of tax you need to pay.
The basic formula which is used to calculate the amount of tax paid is the difference between income expenses. This is calculated on the percentage of gross yearly income. Several exemptions and deductions also affect the income tax. There are four brackets in this form for “single”, “married filing jointly”,” married filing separately” and “head of household”.
You need to fill form 1040-EZ or form 1040-A. There are certain terms which need to be satisfied for filling the forms. You can fill form 1040-EZ if your adjusted gross income on Line 4 is less than $12,880 or $15880, for married filing jointly with no qualifying children. If you have qualifying children then you need to fill the form 1040-A or form 1040. This will help you in claiming your children and calculate earned credit income.
Steps to fill the form
Step 1: Fill the exemption portion on page 1.
Step 2: Write the figure under Tax and credit.
Step 3: There are certain figures stated for exemption credit for each individual, multiply this figure by the number of exemptions on page 2.
Step 4: Go to line 7 of page 1, place estimated gross income here.
Step 5: On the same page on line 12, place business income or loss.
Step 6: On line 19 place the unemployment compensation figure.
Step 7: Read the rest of the form carefully and place all the figures on the form. When you have filled the form completely, add all the numbers and place this amount on line 22.
Step 8: Read the adjusted gross income and place any applicable figures in the boxes. Add the figures and put the obtained result in box 36.
Step 9: Subtract the figure in box 36 from the figure in box 22. Write this figure on line 37 and line 38.
Step 10: Now, go to page two. Place the amount of standard deduction amount on line 40a. Subtract line 40a figure from line 38 figure and place it on line 43. This amount is your taxable income.
Now, look into the instruction book provided with the form. In this book, locate the figure at which you arrived from the calculations on line 43. Follow the line across the proper filling status. The amount which you get is the average income tax expense for the current year.
Tips:
- To see whether you are qualified for filling a particular form, you can go to the IRS website and use the EIC Assistant. There is a link “start Here: Am I an Eligible Individual”, clicking on which will give the eligibility criteria for filling different forms.
- The form 1040-A is simple and shorter than the form 1040-EZ.
- You may have to use a calculator to perform calculations, as the calculations are quite big to be calculated manually.
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