With the gig economy, more and more of us are holding second jobs, or side gigs that generate a fair bit of income. The extra cash is nice to have, but all this can be quite a nightmare come tax season. The US also employs a progressive tax system, which means that your income tax rate depends on which bracket your income falls into. This can cause extra confusion. This is why many people have found it useful to hire a tax professional to help them figure out all the details involved in paying income tax with multiple sources of income.
Add Up Your Gross Income
The first step in calculating your income tax is of course to add up your gross income. This may include salary, rental income, part-time income, as well as income from investments. Do note that if you contribute to a retirement account, it will require some adjustment of your gross income. The US taxes overseas income of citizens too, so do make sure that you include any income that you may have generated overseas.
Subtract Deductions
If you are a business owner, some of your expenditures may be tax-deductible as business expenses. Capital losses, or losses as a result of investments, may also reduce the total amount of income tax you need to pay. Depending on your personal situation, you may also be eligible for certain tax reliefs and deductions. Child tax credit is approximately $1000 per child, an example of the various reliefs that are available to taxpayers. If you are filing a joint return with your spouse, be sure to check that you have followed the appropriate procedures, likewise if you are filing separately from your spouse.
Know Your Tax Rates
Your tax rate is based on the income bracket you fall in. This can be anywhere from 10% of your gross income, to almost 40% of your income. However, certain capital gains/dividends may be taxed at a different rate. If you have residency in a foreign country, be sure to check if that country has a tax treaty with the USA, or you may be taxed on overseas income as well. Your state will also collect income tax. This differs from state to state, so be sure to check beforehand what your state’s income tax rate is.
Hire a Tax Professional
Calculating tax in the USA is a complicated business. Your situation may necessitate the hiring of a tax professional to help you calculate the amount of tax you have to pay, and the total number of deductions that you are eligible for. In fact, the cost pales in comparison to the amount of money you end up saving in the long run. Overdue taxes may also complicate your tax situation, so if you have unpaid taxes it is wiser to engage a tax attorney to help you.