Paying your income tax on time is crucial. One of the most frowned upon forms of crime is tax evasion and hence, everyone needs to pay their income tax on time. However, it is also essential that you file your IT accurately. Inaccurate tax filing has caused a lot of people to face legal problems. Every year thousands of people are summoned and audited because of tax irregularities. A lot of times, these irregularities are not intentional, and are caused due to minor inaccuracies in their tax filing process. In this small article, you will learn about how you can file your tax returns correctly so that you are compliant with the IRS regulations.
Processing Your Income
The IT is a federal tax that is levied on individuals based on their annual income. Thus, the first order of business is that you need to calculate your exact income from all sources in a specific financial year. These sources include both direct and indirect sources of income. Direct sources of income include salaries, business profits from sales while indirect income include profits from investments, royalties and other forms of passive income. If you have an online business then you will also be taxed for your income. Thus, you need to ascertain how many sources of income you have and what the total earnings are from those sources and add them up. This will be your gross income.
Income Tax Eligibility
Not everyone is eligible to pay income tax. There are strict slabs based on people’s incomes which determines if they need to pay any income tax and how much they must pay. IF your income is lower than the minimum eligibility amount then you are exempted from paying any income tax. The minimum taxable income varies from year to year. Currently the minimum annual income needs to be over nine thousand dollars for a person to be eligible for paying income tax.
Some states levy additional taxes on income also and these are different in each state. However, this amount is very minimal.
Income Tax rates
The United States follows a system of progressive rates for calculating your rate of taxation. This will mean that the higher your income is, the more taxes you will have to pay. Thus, for instance, people who earn between $ 9000 to $30000 annually will need to pay 5 % income tax while those earning between $30000 and $ 50000 will need to pay 8% and so on. However, the tax rates are not applied uniformly on the total income amount, rather the net taxable income is divided into several smaller units and the specific tax rates for those units are applied.
There are several options for tax deductions also, as in the profits that you get from certain specific investments like those made in government bonds and so on. Also certain deductions are levied on educational and housing loans. Thus, it is important that you add up all your tax deduction options and then subtract the amount from your annual gross income. The amount that you get after this will be your annual net taxable income.
Inaccuracies and Causes
Generally, inaccuracies arise during the calculation of the annual gross income as a lot of people unwittingly leave out one or two sources of income. Some people have several investments and stock options, and are unsure which ones qualify under tax deductions. Thus, as a result there are inaccuracies in the calculation of the annual net income. Consequently, the tax slabs that are applied are also inaccurate.
It is crucial that you keep strict accounts of all your incomes and sources of income. In addition to this, you should keep a note of all the recent changes made in the tax rates. IF you feel that you are overwhelmed by all the calculation that is involved in calculating income taxes, then you can consider hiring the services of a professional tax advisor. You may also use an online Income Tax Return Calculator to calculate your tax returns.
It is essential that you should maintain strict accuracy in the amounts that you are filing in your tax returns. Hopefully, the information mentioned in this article will have helped you.