How to calculate your tax return

This content has been reviewed and edited by an Investment Advisor Representative working for Global Predictions, an SEC-registered Investment Advisor.

Navigating the complexities of a tax return can be overwhelming, especially if you have diverse sources of income, such as wages, freelance earnings, or investment returns. This guide is designed for individual taxpayers, including employees, freelancers, and self-employed individuals, who need to accurately track and report their income to the IRS. Whether you're managing multiple income streams, deciding between standard or itemized deductions, or exploring tax credits, this guide aims to simplify the process for you.

Understanding Your Taxable Income

To begin, identify all your sources of taxable income. This is a crucial step to ensure that you're fully aware of what needs to be reported to the IRS.

Components to Include:

• Wages and Salaries: Check your W-2 forms.
• Freelance Income: Refer to your 1099 forms.
• Investment Returns: This includes dividends and interest.
• Other Income Sources: Such as rental income or alimony.

Deductions: Standard vs. Itemized

Choosing between standard and itemized deductions affects how much of your income is taxed. Evaluation of your situation will help you determine the better option.

1. Standard Deduction Amounts: As of 2024, they're projected to be $14,600 for single and $29,200 for married couples filing jointly.
2. The Case for Itemizing: If your deductible expenses—like mortgage interest and donations—exceed the standard deduction, itemizing may be advantageous.

Estimating Your Tax Liability

Applying the appropriate tax brackets to your adjusted income will give you an estimate of what you owe.

Example Approach:

• For a single filer with $50,000 in taxable income, the 2024 federal tax brackets include rates of 10%, 12%, and 22%, which can be used to estimate tax liability​.

Exploring Credits and Additional Taxes

Tax credits should be considered as they can directly reduce how much tax you owe.

• Educational and Energy Credits: See if you qualify for additional savings from credits such as the American Opportunity Credit, Lifetime Learning Credit, or energy credits for clean energy investments.
• Self-Employment Taxes: These apply if you're self-employed or have freelance income..

Additional taxes such as self-employment taxes may apply if you're freelancing or running a small business.

Using Tax Software or Consulting a Professional

While a strong grasp of the basics is important, using reliable tax software or engaging a tax professional can ensure accuracy and compliance with tax laws.

Benefits of Professional Help:

• Precision and Compliance: Ensures that all potential deductions and credits are accurately applied.
• Simplified Process: Helps avoid common pitfalls that can arise in tax calculations.

Embracing Future Tax Technologies

As financial technology evolves, more sophisticated tools are becoming available to streamline tax preparation. These advancements promise to aid in achieving more streamlined and efficient tax processing.

In using these tips and tools, you're not just preparing for this tax season; you're also laying down the groundwork for more informed financial management in the future. Always remember, however, to consult with professional advisors (whether human or AI) to tailor any financial advice to your personal circumstances, reinforcing the principles of sound financial planning and compliance.