Using Tax Calculators To Maximum Advantage

Reviewed: July 31, 2014
By FinanceWeb

Tax Calculators For Every Season

Tax calculators give every taxpayer a chance to find the best approach to meeting the annual legal obligations. In recent years, the Congress has made significant amendments to the tax codes; taxpayers must carefully consider how the changes affect their situations. Because the tax codes are complex and subject to frequent changes, many taxpayers use tax calculators to expedite the process of estimating tax liability. One can select calculators for their circumstances such as self-employed, business owners, and same sex couples. There are many advantages to using tax calculators and one need not wait until tax season to do so. A substantial benefit to using tax calculators is for planning purposes.

Withholding Calculations

For individual taxpayers working on salaries, federal withholding reduces take-home pay. Standard withholding rates do not account for individual variations in deductions and exclusions from taxable income. Taxpayers can use withholding calculators provided by the IRS or by private companies specializing in taxation and tax information. Calculators offer taxpayers an opportunity to take control of their tax situation. One can adjust upward or downward the amount for withholding to suit the situation. This is an excellent method for streamlining the tax process rather than tying up income and filing for a refund.

Federal Law Changes

Calculators offer ease and convenience when estimating or determining federal tax liability. Calculators build-in applicable changes in the law such as business owner, employer, and employee obligations under the Affordable Care Act. Many taxpayers are eligible for healthcare subsidies under the healthcare reform laws based upon a tax status and income amount. Federal policies also govern tax obligations for same sex couples. The IRS adopted a rule that recognizes marriages licensed in any state; this rule adopts the law of the state of the marriage’s celebration. Marital status can cause a significantly different federal tax burden for a taxpayer.

Changes in State Law

State laws such as wills and marriage control some aspects of taxation. States have made advances in legal policies that affect taxpayer status such as recognition of same sex marriages. If taxpayers were married in a state that recognizes same sex marriage, then same sex couples must file federal returns as married taxpayers. However, if the same sex couple resides in a state that does not recognize same sex marriage, they must file state tax returns as single persons with the exceptions of Utah, Colorado Missouri, and Oregon. In most other states, the same sex couple must file as single taxpayers. They must fill out pro forma federal returns as if single taxpayers and use that amount as the federal taxable income for state tax purposes. In these cases, a tax calculator offers a quick and easy way to handle the multiple computations required by law; each same sex partner can complete a dummy or pro forma federal tax return for the purpose of state tax computation.

Self-Employment Calculator

A vital aspect of tax laws for self-employed persons involves preparing for retirement and long-term medical care. While the new healthcare reforms extend medical care choices, retirement benefits remain tied to employee contributions to Social Security. The IRS provides a calculator to assist self-employed, sole proprietors, and small business owners. It is a very useful place to begin an assessment of tax and related healthcare considerations. The calculator includes self-employment deduction and the self-employment healthcare deduction. The benefits of using this calculator are simplicity, accuracy and avoiding the necessity of detailed research. For simple situations, this calculator provides an excellent starting point. If more complex, such as multiple income streams and partnerships, professional advice may be the best way to achieve the maximum benefits.

Sources:
IRS Withholding Calculator
http://www.irs.gov/Individuals/IRS-Withholding-Calculator

Kiplinger Tax Calculator
http://www.kiplinger.com/tool/taxes/T055-S001-tax-withholding-calculator-kiplinger/