What Are the Six Factors Affecting Your Income Tax Payment?

tax return

Taxes are a necessary evil for any responsible adult. They’re crucial for supporting the government and funding vital public services, such as education, social welfare, and public transportation. 

Besides filing and paying taxes on time, you must understand the different types of taxes, such as income taxes. Federal, state, and local governments collect income taxes from businesses and individuals who generate profits. 

If you want to make more informed decisions in your next payment, this article will discuss how income taxes work and the six factors affecting how much you need to pay. 

How Do They Work?

American citizens pay income taxes depending on their adjusted gross income (AGI) after certain credits or deductions. You can calculate your AGI using the Internal Revenue Service (IRS) rules on the federal level or in your state’s revenue department. If your state doesn’t have an income tax at the state level, you’ll only pay your tax at the federal level. 

Officials calculate income tax obligations according to which income bracket the taxpayer qualifies. Some people can determine their income bracket by looking at their AGI. On the other hand, married couples filing together will have a higher tax bracket because it will help them balance their tax obligations. 

6 Factors Affecting Income Tax Payment

After discussing how income taxes work, this section will enumerate six factors that can affect your next payment.

1. Your Filing Status

Your filing status is the category that will determine your correct tax, filing requirements, standard deduction, and eligibility for certain credits. 

In the 2022 tax year, single filers had a taxable income of up to $10,275. On the other hand, married couples filing together had a taxable income of up to $20,550.

2. Taxable Income

Your taxable income amount will determine how much you need to pay for taxes. Since the federal tax system is progressive, you must remember that your tax rate increases with your income. 

You can determine how they’ll tax your taxable income with marginal tax rates. Whoever pays income taxes will be placed into tax brackets, each with different taxable rates.

3. Exemptions 

Tax exemptions reduce or thoroughly eliminate an individual’s obligation to pay taxes. You can claim personal exemptions for yourself and your spouse, while dependency exemptions work best for your dependents. 

After accounting for your adjustments, you can determine your taxable income amount by subtracting your exemptions and deductions.

4. Tax Deductions 

Tax deductions are deductible items to help reduce your income tax payment. These items include your charitable contributions, medical expenses, and mortgage interests. 

You can claim a standard deduction depending on your income, filing status, and age. On the other hand, you can add all your eligible expenses to itemize your deductions.

5. Tax Credits 

Tax credits are the amount you can subtract from the income taxes you owe. Unlike adjustments, exemptions, and deductions, tax credits only apply to your final tax bill. 

Taxpayers can only avail of these credits if they have childcare expenses, adopt a child, or earn below a certain amount. You can also get tax credits for installing energy-efficient equipment and enrolling in a government health insurance plan.

6. Adjustments 

Tax adjustments to income include your moving expenses, IRA contributions, and student loan interest payments. You can calculate your taxable income by adding all your earned and unearned income. Next, subtract the adjustments to determine your adjusted gross income (AGI).

Becoming a Responsible Taxpayer

Paying income taxes can be confusing for most people, especially if you’re a first-time taxpayer. Reaching out to reliable CPAs and tax services can help you make better decisions during your next payment. 

If you’re struggling to determine your income tax in Framingham, we can help. Ash CPA offers high-quality yet affordable tax services to help you become a responsible taxpayer. Schedule your complimentary consultation today!