How deductions and credits work

Estimating a tax bill might be hard to understand when you are just starting in the world but it is actually easy when you first read about it.

Basically estimating a tax bill starts with estimating taxable income. To estimate the whole taxable income, we take gross income and subtract from it the tax deductions.

And after the action is take, whats left it becomes taxable income. After this step we apply the appropriate tax bracket to calculate the tax liability.

The appropriate tax bracket is based on the income and the filing status.

The tax credits together with taxes are already withheld from your pay checks might cover that bill for the year. But if they are not then you might need to pay the rest at tax time. And if you paid too much don’t worry because you will get a tax refund.

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