Skip to Main Content
It looks like you're using Internet Explorer 11 or older. This website works best with modern browsers such as the latest versions of Chrome, Firefox, Safari, and Edge. If you continue with this browser, you may see unexpected results.

FINANCE GUIDE: TAXES IN AMERICA

This guide will cover important topics like simple interest, compound interest, consumer price index (CPI), and the tax system in America. Gaining an understanding in these topics can help you manage your finances more efficiently.

INTRODUCTION

Taxes can be a tricky thing and can cause frustration for a lot of people. Luckily, there are software programs and professionals that can complete our taxes for us, but without a complete understanding of the tax system, a person does not know if they are paying too much to the government or not receiving enough back for their refund. Gaining a complete understanding of the basic tax components can help any individual get the most out of his/her taxes.

INTRODUCTION TO TAXES

The price you pay for a good and/or service. Usually a set percentage for each category. For example, sales tax in Chicago is 1.25%, Illinois is 6.25%, and Cook County is 2.75%.

There are different tax rates depending on how much money you make and what type of household you have.

source

VIDEO WITH EXAMPLES AND HELPFUL TAX TOOL CALCULATOR

CHECK YOUR KNOWLEDGE

THE VARIOUS PARTS OF TAXES

1. Gross Income:

All income for the year, which includes: wages, tips, profits, winnings, etc.

2. Adjusted Gross Income:

 Adjusted Gross Income = Gross Income - Adjustments to Income

Adjustments are "pre-tax dollars" or amounts that do not count against your gross income and do not get taxed. You usually adjust for accounts that include saving for college and/or retirement funds

3. Taxable Income:

Taxable Income = Adjusted Gross Income - (Deduction + Exemptions)

Deductions: Reduced from income (not taxed). Examples include contributions to a charity or interest on a home mortgage.

Exemptions: Based on how many children you claim plus yourself and your filing status. 

There are two ways to calculate: (you can only choose one, so pick the highest one to lower your taxes owed)

1. Itemized deductions: all deductions are added together.

2. Standard deduction: dependent on a person's filing status.

4. Total Tax:

Total tax = Taxable Income * the tax percent from the tax table below.

What a person owes for the entire year. 

5. Payments/Withholdings:

- A way to pay your taxes as the year progresses.

- Results in a refund or payment at the end of the tax period. 

RATE THIS GUIDE