The federal income tax is levied on taxable income of U.S. citizens and residents for the taxable year. It also applies to estates, trusts, partnerships, corporation, and other entities. The federal income tax and all other income tax laws, provide for annual returns of income. These are usually remitted to the appropriate department of revenue and cover the preceding fiscal or calendar year by the taxpayer or his representative.
There are four main steps to calculating federal income tax. These are:
- Calculating total income
- Subtracting deductions
- Applying the right tax rate to taxable income
- Subtracting withholding and other payments and credits