How do taxes work anyway?
How much you pay in taxes is determined by how much money you make. Generally speaking, the higher your income, the more tax you pay.6 But the IRS doesn’t simply add up how much you make in a year and call it a day.
The IRS calculates your tax liability (how much you owe) by looking at your earnings and what are called “tax deductions.” You get deductions for things like donating to charity, paying interest on a mortgage, and covering the costs of health care.7 Essentially, your taxable income minus your deductions determines how much money you’ll owe the government at the end of the year.
The IRS lets you decide whether you want to itemize your deductions (meaning list out each individual deduction), or instead take what’s called the standard deduction ($6,300 for a single adult or $12,600 for married couples filing together). Whether you itemize or take the standard deduction will depend on factors like if you have children, own a home, or have major medical expenses.8
Table of Contents:
- Taxes: the basics
- How do taxes work anyway?
- Step 1: Preparing to File
- Step 2: Select your method of filing
- Step 3: Filing & receiving your tax return
- Glossary of terms you may encounter
- Tax FAQs
- About the experts
- Works Cited