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What you’ll need: All forms listing income (earned and unearned), including a W-2 and 1099 forms; individual tax form.
What you need to know
Doing your taxes can be a headache, and figuring out your taxable income is no exception.
Simply put, taxable income is the total gross income you make, minus exemptions, deductions and credits. Gross income can be classified as earned and unearned.
You gross income includes:
Earned income
Salary.
Wages.
Tips.
Commissions.
Bonuses.
Unemployment benefits.
Sick pay.
Some benefits from your company (e.g., company car, tickets to events).
Unearned income
Money from interest and dividend payments.
Profit from assets you sold.
Business and farm income.
Rents.
Royalties.
Gambling winnings.
Alimony payments.
Earnings from your retirement fund.
Social Security payments.
Taxpayers add their earned and unearned income together to get their gross income.
Depending on your filing status and which form you choose to file, the Internal Revenue Service allows you to use deductions and tax credits to adjust your income downward.
Personal exemptions also reduce your taxable income. Exemptions include people who depend upon you for financial support, such as your spouse, your kids, possibly your parents and yourself.
After making these adjustments to your income, you arrive at your adjusted gross income, or AGI. Your AGI is used to calculate how much tax you owe.
Step-by-step
Enter the filing status, income, deductions and credits to estimate your total taxes for 2008.
Before starting your taxes, it’s best to gather up all the paperwork you’ll need. Using Bankrate’s 7-day tax filing plan can help you get organized so you’ll quickly finish your taxes with less aggravation.
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