- 1). Add all your income sources to find your total income for the year. Be sure to include not only the income earned from wages, but also the income that you may have earned through interest or dividends on investments. Most people will find their wage earnings on a W-2 form. Independent contractors will receive a 1099-MISC from the companies that paid your wages. You should receive all of these income forms in the mail soon after the first of the year.
- 2). List your deductions and exemptions. The federal government does not tax you on all of the income that you earned. You are eligible for certain tax deductions. For most people, it's easiest to take the standard deduction. Others---business owners especially---may want to list deductions separately because they will be able to deduct more. Possible deductions include interest on a mortgage or student loans, and certain travel or business expenses. Exemptions are portions of your income for which you do not have to pay taxes. For example, if you have foreign earned income and paid taxes in that country, you are exempt from paying U.S. taxes on that money up to a certain amount.
- 3). Adjust your taxable income for any deductions or exemptions. Subtract the deductions from your total income. This is the income on which you will have to pay taxes.
- 4). Look up your tax bracket from the Internal Revenue Service. Use the tax bracket guide from the IRS for the current tax year. Find your income level, which will show the tax rate, or tax bracket. Note that this is the tax rate on the last dollar that you earned. For the first portion of your income, you will pay the lowest tax rate. For the next portion of your income, you'll be paying the next highest tax rate (and so on) until you reach your income level.
- 5). Determine your effective federal tax rate. Because your tax bracket doesn't reflect the percentage of taxes that you pay from your salary, you may also be interested in finding out your effective federal tax rate--the amount of tax that you pay as a percentage of your income. To get this rate, divide the amount of taxes that you pay by your total income, then multiply by 100.
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