6 Steps to Prepare for Tax Time

Currently, the United States tax system can be very complicated and daunting. This leaves many people asking, "What is income tax?" When researching the topic they quickly give up without answering their question when they see the mountains of information and paperwork. The basic principles of income tax are actually pretty simple though. When tax time rolls around next April, make sure that you are armed with the knowledge to make sure your taxes are filed correctly. In this article, we will cover the basic steps on how to get started.

1. The first step is to calculate your gross income. This is how much money you earned before subtracting any taxes or expenses. Your gross income includes wages from your work, interest income, retirement income, etc. Basically any money that came into your pocket over the last year.

2. Take out any adjustments. These might be alimony payments, education loan interest, and other taxes, interest, and payments. The amount you are left with is called your adjusted gross income.

3. When you have your adjusted gross income, subtract any deductions that you might have. The list of available deductions is very long. It is always smart to talk to a tax professional to figure out what deductions are available to you. You can also access the Internal Revenue Website to calculate what you can take out of your adjusted gross income.

4. After your take out your personal expenses you now have your taxable income. This is what you will use to figure out what you owe.

5. You now need to find out your tax bracket. This is located on the Internal Revenue Service's website and ranges from ten percent all the way to thirty five percent.

6. Finally, you will need to file your tax return and payment regardless of how much you owe. You can file your statement and money electronically through the IRS website, or by mail. Remember the deadline is April 15th.

If you do not file and pay your taxes you can be fined serious amounts of money and possibly even go to jail. Even if you cannot afford to pay all of your taxes at once, it is still important to file your taxes or request a tax extension.

If you feel uncomfortable filing your taxes, seek the counsel of a tax professional. They can help walk you through the whole tax process in a painless way. Sometimes they can even spot deductions that you have missed.

Hopefully after reading this article you can now answer people when they ask, "What is income tax?"

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