How to Read Tax Tables

If you’re doing your taxes you will probably need to consult the IRS tax tables at some point.  The basic gist of taxes is to take your annual income and reduce it by using  deductions and exemptions.  The reduced figure is called our Adjusted Gross Income, also known as AGI.  That’s your taxable income.  Then you can apply tax credits to further reduce your tax bill.

It’s the AGI that’s used on the IRS tax tables to figure out how much you owe Uncle Sam.  Only one line out of fourteen pages of tax tables pertains to you and your AGI, so don’t be intimidated column after column and row after row of figures.  Just find the line that covers your AGI range and scroll across to find your tax.

The sample here is directly from the IRS website, showing you how simple it is to read the IRS tax tables.  In this case, it’s a married couple who area filing their taxes together on one form.  That’s called married filing jointly in tax lingo.  Their AGI came out to be $25,325.  What they did was find the page with that range of numbers and scrolled across to the correct filing status (married filing jointly).  Their tax is circled: $2949.00.  Now that number is taken and it goes into box 44 on the IRS 1040 tax form.  Voila: one of the mysteries of doing your taxes made simple!

Want to Know More?

Using the tax tables means you’re almost done preparing your taxes.  But how you get to that point will actually affect the amount of tax you owe.  How?  If you aren’t aware of all the credits you can get and all the deductions you can get, you won’t be reducing your taxable income enough, and you’ll be consulting the tax table at a higher level.  The tables are arranged in increments, every line is up another $50.  So every credit helps, if it pushes you back a line.  Every line is worth about $7 in taxes.

Figuring Your Gross Income

Your gross income is not what you use to figure your tax, thank goodness.  Gross income is all your income before you reduce it with credits and deductions.  But it’s the starting point for preparing your income taxes.

You’ll have documents likeW2s and 1099s for the two types of income, earned and unearned.  Interest on your savings account is income but it’s not earned.  You didn’t work for it, you just let it sit in a bank account.  Your paycheck is earned income.  Something like a bonus from your job is also earned.  So are benefits and perks from your job like the opera tickets your boss gave you last winter.

Turning Gross Income into Taxable Income

Now that you’ve got the entire income totaled, let’s adjust it to find your taxable income.  After that, we”ll take that taxable income dollar amount and look it up on the tax tables and you’re done doing your taxes.

Adjusting your Gross income is almost automatic when it comes to adjustments.  Your filing status, meaning whether you chose single, married, or married filing jointly, will determine how much you get for your standard deduction.  For a single person, the standard deduction is almost $6000…that much is lopped off your Gross Income right away, just for being alive.

Itemizing Your Deductions: Moving You Up the Tax Tables

But sometimes you have paid out enough money during the year in certain categories that the total is more than the standard deduction.  That’s when you want to choose to itemize your deductions.  Only some expenses count, though, so make sure you dot all your I’s and cross all your T’s.  Here are some things that count as deductions:

  • interest on your mortgage
  • medical expenses
  • donating to charity

Deductions are a plenty, so make sure you know about all the possibilities, since each one will further reduce your Gross Income.  Remember, every credit you find will move you up in the tax tables, and you’ll be paying less tax.

Exemptions: Moving you Up the Tax Tables

You can shave off more from your Gross Income if you take care of someone in your household.  This can be your children, your incapacitated spouse, or another relative who depends on you for care every day.  These are called dependents.  For every dependent you have, more money gets chopped from your Gross Income.

Tax Credits: After the Tax Table Lookup

There are all sorts of tax credits the IRS allows, each of which also reduce the tax you’ll pay.  But unlike the deductions and exemptions, credits are applied after you’ve found your taxable income from the tax tables.  In other words, tax credits reduce your taxable income, while deductions and exemptions reduce your Gross Income.

An example of a tax credit would be the various Education Credits.  If you paid for college, you get to chop off the cost of tuition and certain fees, from the tax amount you found on the tax tables.