Tips To Know Your Tax Liability

Every year many tax payers have no idea whether they will owe taxes or not. Often, some tax payers feel that they may owe, but have no idea how much or why? Understanding how to determine your tax liability will not only help you make better decisions about the way you treat income, but it will go a long way to ease the stress that is often experienced when it’s time to file your tax return.

Obviously, the first variable in the tax formula is gross income. This is the aggregate of all earned and unearned income from various sources throughout the year. Income is either earned or unearned. Earned income is cash or in-kind benefits people receive in exchange for work or service, including employment and self-employment. Unearned income is cash or in-kind benefits that people receive without being required to perform work or service. Depending on the type of income you receive, as well as other variables your tax outcome could vary.

Next, certain deductions are subtracted from gross income. These deductions are referred to as above the line deductions, and are used to arrive at adjusted gross income or AGI. The name comes from their paperwork placement. They