Tax time can be a very confusing time for many taxpayers. There are many different rules and regulations that can complicate the process of filing your taxes. The problem is compounded for those who do not understand the complex rules that govern when and how much to claim on their taxes. Fortunately, there are resources available to help you navigate the tax code.
Taxable income refers to the basis upon which an individual income tax system applies. Simply put, the amount over which tax is imposed. Generally speaking, it includes any income over and above the standard deduction and any expenses and deductions. However, it can also include business interests, winnings, dividends, and interest. All of these things are taxable income and subject to taxation.
Taxable income can also include gifts and other unclaimed income. If one has over a certain amount, they are treated as having over a set level of taxable income. Married couples filing joint returns are subject to a higher tax rate than single taxpayers. This rate is usually 10%.
Taxable income is further subdivided into several brackets. The highest bracket is called the top marginal rate. Any amount over this amount must include an additional zero in order to claim an income tax deduction. This includes amounts received from interest or dividends, but it does not include capital gains and dividends. The next highest tax bracket is the marginal band.
The next tax bracket is called the intermediate rate. It includes any amount over the top that exceeds the taxpayer’s tax deductible amount. The final bracket, called the minimum tax deductible, is the lowest amount that a person or family may claim. If this amount is not paid, their total taxable income is then included in the highest tax bracket. All of these brackets are figured by taking into account a person’s gross salary, prorated to their dependents, and any employer health insurance.
People who do not earn much money, but are still employed can choose to be in a higher tax bracket. These people may pay higher taxes, but it may not be very much. A large bonus paid to a co-worker can negate any taxable income. People who are self-employed may have to report some of their income when applying for social security benefits, or when filing an estate planning document. Whatever the case, people who cannot pay taxes on their full income must report the full amount of their income when filing their annual tax return.