Total Taxes

Date: Monday, Septmber 22, 2008
Time: 11 PM
Place: Kitchen

The only way to determine the total amount of income taxes you pay is to get out your federal and state tax returns. On each of those returns is a line that shows the total tax (line 63 on Form 1040 returns). Add the totals from your federal and state tax returns, and you probably have one of the largest expenses of your financial life (unless you have an expensive home or a huge gambling habit).
You need to note that your taxable income is different from the amount of money you
earned during the tax year from employment and investments. Taxable income is defined as the amount of income on which you actually pay income taxes. You don’t pay taxes on your total income for the following two reasons. First, not all income is taxable. For example, you pay federal income tax on the interest that you earn on a bank savings account but not on the interest from municipal bonds (loans that you, as a bond buyer, make to state and local governments).
A second reason that you don’t pay taxes on all your income is that you get to subtract deductions from your income. Some deductions are available just for being a living, breathing human being. For tax year 2007, single people receive an automatic $5,350 standarddeduction, and married couples filing jointly get $10,700. (People older than 65 and those who are blind get slightly higher deductions.) Other expenses, such as mortgage interest and property taxes, are deductible to the extent that your total itemized deductions exceed the standard deductions.