How to Estimate Your Federal Income Tax Bill (2024)

Key terms

Tax filing status

Select your filing status as Single, Married filing Jointly or Separately, or Head of Household. You can also choose to estimate your tax liability as a Trust.

Traditional IRA contribution

Enter the total contributions you have made or expect to make for the year. For 2023, your total contributions to all traditional and Roth IRAs cannot exceed $6,500 per filer ($7,000 per filer if age 50 or older). Your total IRA contributions also cannot exceed your taxable compensation for the year.

Number of dependent children

Enter the number of dependent children you had who were under age 17 at the end of the year and qualify for the child tax credit.

Number of non-child dependents

Enter the number of dependents you had who were either your children age 17 or older at the end of the year, or qualified dependents who are not your children.

Amount of gross income considered “unearned”/investment income

Qualified dividends, long-term capital gains, and certain other investment income is generally taxed at a lower rate than ordinary income. Enter income that qualifies for the investment income rate here.

Taxable gross annual income subject to personal rates

Enter wages, ordinary dividends (not “qualified dividends), short-term capital gains, and other income subject to ordinary income tax rates. Do not include income from pass-through organizations here, such as sole proprietorships or an LLC.

Itemized deductions

Enter your total itemized deductions, including qualified mortgage interest, charitable contributions, and nonbusiness property taxes. Your total deductible taxes (state/local and property) cannot exceed $10,000.

Total company pass-through income

Enter net income after expenses from a Sole Proprietorship, LLC, Partnership, or other pass-through entity. Enter 100% of the entity’s income, even if you only own a partial interest in the entity.

Total company assets

Estimate the total company assets that will be reported on the partnership or other entity return for the end of the tax year. For a Sole Proprietorship, leave this blank.

Individual company ownership

Enter your interest in the company (0% to 100%). The total company pass-through income will be multiplied by this percentage.

Total company W-2 wages

Enter the total wages the company paid or will pay for the year.

Tax liability

This is the estimated amount of federal income tax you expect to owe for the year, before any tax withholding or estimated payments.

You may also owe self-employment tax, which is not included in this estimator. Self-employment tax must be paid with quarterly estimated taxes and reported on your income tax return. To estimate your self-employment tax, use the self-employment tax calculator.

What factors influence how much federal income tax you owe?

As a basic rule, the more money you make, the more federal income tax you will owe. If you earn a lower level of income, you may not owe any income taxes at all. As your income rises, it is taxed at higher percentages until your income tax may consume a significant portion of your earnings.

It is always better to make more money, even if it results in higher taxes. The marginal tax rate is always less than 100%, meaning you always keep part of each additional dollar you earn.

The primary factors that influence your federal income tax on a given amount of income are your filing status, deductions, and credits:

Filing status

Choose the most advantageous filing status for which you qualify. For example, if you are single but may qualify to file as Head of Household, you will pay less tax by doing so.

Deductions

Business deductions not only reduce your federal income tax, but your self-employment tax as well. As a small business owner, you may deduct self-employed health insurance premiums and 50% of your self-employment tax.

You may also be able to itemize deductions, such as mortgage interest and charitable contributions.

Credits

You may qualify for credits based on certain expenses, such as how many dependent children you have, or child care expenses. You may also qualify for credits if you spent money on activities the federal government encourages, such as energy conservation, or if you already paid taxes on certain income elsewhere.

What is the difference between my effective tax rate and marginal tax rate?

You don’t pay a flat rate on your total taxable income. Instead, you pay different tax rates on the income in each of your tax brackets. As a result, the percentage of tax you pay on each additional dollar of income (marginal rate) is higher than the overall percentage of tax you pay on your total taxable income (effective tax rate).

For example, if a married taxpayer with $162,300 in taxable income (after deductions) owes $26,321 in federal income tax, their effective tax rate is 16.2.0% ($26,321 / 162,300 = 16.2%). Their marginal tax rate on each additional dollar they earn is 22.0%.

What is the difference between tax deductions, tax exemptions and tax credits?

Tax deductions, tax exemptions, and tax credits are all methods used to reduce individual tax liabilities.

Tax exemptions

Tax exemptions were a flat amount used for years to reduce taxable income, based on yourself, your spouse, your dependents, and other factors. Tax exemptions were replaced by other tax provisions in 2017 tax reform.

Tax deductions

Tax deductions are items for which you are allowed to reduce your taxable income. For example, a business deduction directly reduces your net business income, and therefore your income. Your total itemized deductions reduce your taxable income if they exceed the standard deduction for the year. Otherwise, your taxable income is reduced by the standard deduction ($13,850 in 2023, or $27,700 if filing jointly).

Tax credits

Tax credits directly reduce your income tax liability dollar for dollar. For example, the Child Tax Credit for one qualifying child in 2023 is $2,000. If you owe $3,000 in federal income tax, the credit reduces your tax liability to $1,000 ($3,000 – $2,000 = $1,000).