Tax Question

[gertymac]

I'm working on estimating our taxes for 2009 and am unsure of one thing.

We fell in the 25% bracket this year so our base tax is $9,350.00. Do Med/EE and OASDI/EE (medicare and SS) get included in that $9,350.00 or just Fed withholding?

Thanks!

[creditcardfree]

Just federal withholding. You don't get Medicare and SS until retirement, or other qualifying event.

If you haven't contributed to Traditional IRA's, which you can for 2009 until April 15th, these could lower your adjustable gross income, thus reducing your taxes a bit.

[gertymac]

Yep, that's what I was afraid of.

Thanks!

[creditcardfree]

You are welcome! You may need to adjust withholding for 2010. There is a calculator on the irs website.

[gertymac]

This is the first year I haven't been a full time student with next to no income, so taxes are much more complicated than I'm used to. So, the tax you pay is based on your AGI (which is fed taxable gross - deductions), right? I can get that AGI down below the $67,900 min for the 15% bracket by adding more deductions (like an IRA), right?

And you said traditional IRAs, not Roths?

[creditcardfree]

Roths do not give you a tax deduction because the money you contribute to them has already been taxed at the time you earned the money.

Your AGI can often be above $67,900 to still have your tax bracket fall into the 15%. After you have your AGI, which in your case might be wages, interest, previous refunds minus ira deduction or student loan interst deductions. After you have the AGI, you also can subtract personal exemptions, probably one in your case (unless you are married) equal to $3,650. You can also take the standard deduction, for single it is $5,700 or itemize. We itemize because we have a home mortgage and we can deduct the interest we have paid on it, in addtion to real estate taxes. Our itemized deductions are more than the standard deductions.

Once you subtact those two out, you then have your taxable income. This is where you go to the tax table to determine your tax. If you fall into the 25% bracket you are only paying 25% on the money above $67,900.

Your taxable wages are in box 1 of your W2. If you contributed to a employee sponsored plan, such as a 401K, your salary will be reduced by the amount you contributed and show in that box.

You may want to pull up the 1040 or 1040A form to look at how the taxes are calculated. They are both on the IRS website.

I hope this helps. Taxes can be confusing, but it really is a matter of understanding what you are eligible to deduct and claim and adding and subtracting. You might look at last years return to give you an idea of things you may have claimed last year.

[gertymac]

Thanks! That is really helpful.

I'll probably get some forms and play with the numbers over the next couple days.

[creditcardfree]

Good luck! Oh, and you can download from for free off the irs website.