As a business owner, it is essential that you understand the various aspects of filing your income tax. Income tax needs to be paid quarterly by all means so that your business can remain compliant with the set policies and rules of the government. The United States uses a progressive system for determining tax rates which means the higher your income is, the more tax you will pay. However, the tax calculations is done on specific chunks of your income and not on the whole net income. It is crucial that you find out your exact gross and net income before you start to calculate your income tax. In this article, you will learn about how you can calculate your adjusted gross income.
What is the Adjusted Gross Income or AGI?
There are several types of technicalities involved in the process for calculating income tax and one of the most important technicality is the AGI. For your tax calculation purpose, it is important that you adjust your gross income. The AGI is basically the total or the gross income that you are making before applying on it all your eligible tax deductions. This means that if your annual income is $ 100000, and your eligible deductions add up to $ 20000. Then your net taxable income is $80000 while the $ 100000 will be your adjusted gross income. You can use Adjusted Gross Income Calculators from online sources to get a rough estimate about your gross taxable income.
How can you calculate your Adjusted Gross Income (AGI)
The process for the calculation of the AGI is quite easy. You will need to basically add up all the different forms of income that you have and then you shall have to subtract all the tax deductions that you have from that amount. It will of course depend on the specific tax situation that you are in, but you may also have an AGI which is either 0 or even in the negative.
Restrictions on the AGI deductions
There have been placed certain crucial restrictions on the specific AGI deductions. It is important to note these when you want to calculate your gross income. These restrictions are specifically placed with regards to the deductions made on certain special form of expenses.
- The deductions for expenses incurred on qualified educators are capped at exactly $250.
- The deductions for school tuitions are capped at $2500. Within this slab, a 100% of the first $2000 is capped while only 25% of the rest amount of $2000 can be deducted.
- The deductions for student loan interests are also capped at $2500. In the event that you are filing your tax as a single person then you cannot be eligible for any deduction when your income is more than $80000. For a couple who wants to file their taxes jointly, the rates are $165000.
How should you use your AGI calculator?
Using the AGI calculator from an online source is relatively easy. There are only four simple steps involved in the process.
In the first step, you will need to select your specific filing status. You will find all the relevant options for your filing status within the calculator. In the second step, you shall need to enter in all your eligible incomes. Be careful to not miss out on any source of income. In the third step, you shall need to input in all the eligible deductions that you have. Lastly, you will click on the calculate option and you shall know your what is adjusted gross income.
In case, you feel that you are unable to calculate your income tax properly or accurately then you may consider using an online Income Tax Return Calculator. Online income tax calculators use a lot of sophisticated tools for generating accurate tax returns by taking into account various technicalities. You may also consider hiring a professional tax consultant to help you sort out your taxes and provide the exact ways by which you can get higher tax returns. There are several high-quality professional tax consultants who are available online.
Conclusion
A lot of people face difficulties in calculating their taxes. Online tax calculators can help you ascertain your precise income tax rates. You may consider hiring the services of a professional tax consultant because they can help you to save your taxes in the long run.
