Below are a few straightforward methods to know how to estimate your taxes.

1. List the price you paid last year

According to Charles Corsello, an enrolled agent and the creator of TaxCure LLC, the simplest way to determine how much tax you owe is to use your previous year's revenue. You would owe roughly the same sum if your earnings were equal to the prior year's.

On line 24 of your previous tax return, you may find the total amount owed for the year. After that, deduct the taxes you've already paid in the present year from that sum, including any sums your employer has deducted from your income. You may also deduct any projected tax payments that you make. Subtract any tax credits you might be eligible for.

If nothing significant has changed in your financial status, you should be able to estimate your tax obligation after deducting your total tax payable withholding, tax payments, and available credits. It is the first way to know how to estimate your taxes.

2. A Calculator for Your Taxable Income

However, it's possible that you got a pay raise or found a position with a higher wage. Since your salaries have changed, you must determine your taxable income to determine your estimated tax liability. To do this, take your total income and reduce all eligible exemptions and deductions.

The amount of tax due will then be determined using your tax bracket. Marginal rates for 2023 are 10%, 12%, 22%, 24.4%, 32.2%, 35.5%, and 37.5%. You can estimate your tax bill for the year by deducting any amounts withheld from your previous paycheck and any tax credits you are eligible for from your total tax payable.

Work through the IRS's 1040-ES 2023 Estimated Tax Worksheet if you need help with this calculation. It is lengthy, but Corsello notes that it includes instructions and a form you may use to calculate your exact debt.

The Self-Employment Tax and Deduction Worksheet section of Form 1040-ES can assist self-employed individuals who do not have taxes withheld by their employers in estimating the quarterly payments due on April 18, June 15, September 15, and January 15, 2024.

3. Utilize a tax calculator or tax software online.

Entering earnings, documenting status, and other data into an online income tax calculator or tax software is another potentially less time-consuming approach to calculate your taxes liability.

According to Corsello, several tax software filing programs charge you each time you file so that you can get a rough estimate in advance.

Pros:

• You don't need a pen and paper to do the math.
• The tax software may automatically fill out some tax forms.
• Tax preparation software may guide you through the procedure in an understandable question-and-answer manner.
• You can return to the tax program and finish what you began when you're ready to file your tax return.

Cons:

• Errors may occur due to inadequate or unclear guidance on calculators and software.
• Tax professionals can offer more help because tax software and calculators might be unable to handle complex tax issues.

So, these are three ways to know how to estimate your taxes.

Understanding Federal Tax Credit Calculation

Tax credits, as opposed to adjustments and deductions, apply to your tax liability or the total amount of taxes you owe, as opposed to your income.

For example, you might estimate that you owe $1,000 in taxes according to your taxable income and tax rate. However, if you are eligible for a $200 tax credit, your responsibility would only be $800. In a nutshell, the federal government would need to get $800 from you.

However, tax credits are only given under specific conditions. You can still receive payment for some credits even if you don't owe any income tax since they are returnable. Nonrefundable tax credits, however, can only wholly eliminate your liability. The list below includes descriptions of the most well-known federal income tax credits.

• For taxpayers with earnings under a certain threshold, there is a refundable credit known as the Earned Income Tax Credit. For taxpayers with three or more children, the 2021 credit can be up to $6,728 ($6,935 for the next tax year), with smaller amounts available for people with two, one, or no children.
• Concerning childcare costs incurred while working or looking for a job, the Kid and Dependent Care Credit is a nonrefundable credit of up to $4,000 for one kid ($3,000 in the tax year 2022) or $8,000 for two or more children ($6,000 in the tax year 2022).
• The Adoption Credit is a nonrefundable credit that helps to defray particular expenses associated with adoption.
• During your initial four years of post-secondary education, you may be eligible for the American Opportunity Tax Credit, a partially refundable credit of up to $2,500 annually for enrollment costs, tuition, educational supplies, and other qualifying expenditures.

How to Determine Your Tax Refund

The amount of taxes you pay over the year determines whether or not you will receive a tax refund. It is a result of their being deducted from your pay. However, other factors include your tax debt and whether you were given any refundable tax credits.

If you owe less taxes than what was deducted from your salary during the year when you file your tax return (your tax liability), you will be given a refund for the difference. It is the most typical justification for tax refunds.

If you are eligible for one or more refundable tax credits but did not pay any taxes during the year or owe any taxes, you will also get a refund in the amount of the refundable portion of the credits.

FAQs

How should we calculate estimated tax?

To determine your estimated tax, it would be best to compute your taxable income, estimated gross earnings, credits, deductions, and taxes for the entire year.

How does the tax calculator function?

The family's revenue, location, filing status, and the amount of personal exemptions are the primary parameters used by the income tax calculator to determine your federal, state, and local taxes.

What is the US's typical income tax rate?

State income tax rates vary wildly, while the federal tax rate can range from 10% to 37%, depending on your income. Additionally, some cities may impose income taxes at the city level.

Do we have to submit quarterly estimated taxes?

If a corporation filing a tax return expects to owe $500 or more in taxes for the year, it is typically required to make anticipated tax payments. You must file quarterly estimated taxes if your income falls under these IRS minimums.

Conclusion

We hope this article about how to estimate your taxes is helpful. As you can see, tax deductions can significantly reduce your tax burden. And there are some excellent ways to estimate your taxes that can help you accomplish this and lessen your stress related to money.