The Two Main Ways to Calculate Personal Income Tax

Individual income tax can generally be calculated in two ways, depending primarily on your income. For us common folk, there is the yearly tax table, founded, amended, and wholly endorsed by our beloved government and, for those fortunate enough to have an income under 100,000 dollars. Then there is the "tax computation worksheet" guaranteed to make you squirm for those that make over 100,000 dollars.

How much tax you may pay is an entirely different story. That depends on your filing status, your deductions, your tax credits and your exemptions. In other words, how much of your income ends up taxable. For instance, your gross income could be over 100,000 dollars, but your taxable income could be well below 100,000 dollars. In that case, you would still qualify to use the tax table. Either way, the government will get their money!

The difference between using these two tax methods is primarily the tax bracket you find yourself in. The highest tax bracket you will be in using the tax table is approximately 22.5%. While high, it could be worse. You could be in the 35% tax bracket that using the "tax computation worksheet" could put you in. Of course, don't forget the state taxes and the local and excise taxes that many states charge you.  The only defense that you have against the IRS is a good tax preparer. Be prepared and take advantage of all the tax benefits that are allowable.