How to Calculate Taxes: Everything You Need to Know How to Calculate Taxes: Everything You Need to Know

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How to Calculate Taxes: Everything You Need to Know

According to the International Centre for Tax and Development, tax revenues add up to more than 80% of the total government revenues.

These estimates apply to more than half of all the countries in the world. For the rest of the nations, tax contributes to at least 50 % of government revenues.

A tax is a compulsory monetary contribution made to the government. It is assessed and imposed by the state on activities, income, occupation, and property owned by individuals and organizations.

There are different types of taxes. Most of them fall on three basic categories: taxes on goods, taxes on property, and taxes on income. In this article, we will discuss how to calculate taxes so that you can understand them more.

How to Calculate Income Tax

The government imposes income tax on income generated by individuals and businesses. Taxpayers file their income tax returns annually.

To calculate income tax, use the following steps.

Step 1: Sum up All Your Income

This includes income from self-employment, employment earnings, rental income, and taxable social security earnings. You can also add pensions and bank interests.

Leave out the non-taxable incomes such as maternity allowance, pension credit, lottery winnings, child benefits, and premium bond prizes.

Step 2: Confirm If You Can Get Tax Relief for Your Expenditures

You can claim tax relief on your pension scheme contributions, or certain employment expenses. If you are self-employed, deduct your business expenses before you get your taxable profit.

Step 3: Check If You Are Entitled to Tax-Free Allowances

Some states give their residents a basic personal allowance. In most cases, people who earn more than $100,000 earn a less personal allowance.

Some states also give the aged workers a higher personal allowance, although it depends on their levels of income. Others get blind and deaf allowances. Deduct all the allowances which apply to you to get the taxable amount income.

Step 4: Calculate the Tax Payable

Use the tax rates of your state to find the amount of tax you should pay. Settle the payments early and start planning for your next obligations.

How to Calculate Property Tax

A property tax is an ad valorem tax. Ad valorem taxes are calculated according to the value assessment. The property value tax varies between different countries, and thus, you should confirm the rate given by your state first.

But how do you know the value of a property? Local tax assessors determine the value. In most states, the property assessment is done after every five years. The rates are also determined once in every five years.

Value assessment depends on the current market value of the property. It is done in three major ways:

Sales Comparison

A property value assessor compares the value of your property against similar properties. After that, they make variables adjustments to the property according to the value of the recently sold properties.

They can either add or subtract the value depending on its current location, features, and usability.

The Cost Method 

This method factors in depreciation. The assessor uses depreciation to either add or reduce the value to your property. Also, the assessor estimates the cost of constructing a home on the said ground. The costs include labor and material expenses.

Income Method

The income method is used on business and commercial properties only.

The assessor finds out how much income you will get when you rent out the apartments. The evaluation factors in insurance expenses, prevailing rental rates, and cost of maintenance.

Calculating Property Tax

The property assessment value is multiplied by the tax rate of your state. The local tax rate is also known as the mill rate or the millage rate. One mill is equivalent to a tenth of a cent of the total property value.

This is the same as $1 for $1,000 value. Although the mill rate varies in each state, it is rare to find a property tax which is based on only one mill.


Assume that the value of your property is $250,000, and the local mill rate of your state is 45. To get your property tax, you will multiply $250,000 with 4.5 per cent to get your annual tax bill of $11,250.

You can pay your property taxes monthly, semi-annually, or annually. Payments should be directly sent to the local tax authority.

How to Calculate Excise Tax

An excise tax is a monetary contribution made on the sale of goods. These goods could be automobiles, ammunition, or even real estate. Each state or federal government has its own excise tax figures.

In 2018, excise duty revenue in the United States amounted to $95 billion. The number is expected to increase to $137 billion by 2029.

It’s essential to learn how to calculate the excise tax of the goods you purchase to avoid being scammed. For instance, if you buy a new car, you should know the excise duty rate, and calculate it with the purchase price.

You can calculate your excise duty using these methods:

Calculating Excise Duty According To the Purchase Price

If the excise tax issued by your state is 5% of the automobiles purchase price, you would multiply the price with 5%.

Calculating Excise Tax According To the Dollar Amount

Assume that you buy a piece of property at $130,000, and the real estate tax is $1.50 per $100. You would take $130,000 and divide it by 100 to get $1,300. You would then multiply $1,300 with $1.50 to get $1,950.

Calculating Excise Tax with Online Calculators

Most automobile and real estate websites provide free online calculators. This is an easier way to reduce errors.

Why Should You Know How To Calculate Taxes?

Preparing and calculating taxes increase your knowledge. The act also boosts your confidence and helps you make better financial decisions throughout the year.

Learning how to calculate taxes also saves you the costs of looking for a professional to do the calculations for you. So, trust yourself and confirm the local tax rates of your state.  Calculate and start filing your returns early to avoid the repercussions.

ATG is a financial and tax advisor consultant company based in North and South Carolina. We offer accounting services, financial counsel, and smart tax strategies to empower our clients. Contact us today to get professional advice for your business.

Do you want the best tax strategies?

Taxes are complicated. We make it easy.

Schedule a free 15-minute consultation with our expert to start your journey to increased profitability and well-managed finances!

About ATG Accountants & Advisors

ATG Accountants & Advisors is your partner in professional and personal financial management. We are experts in providing profitability driven accounting, CFO, controller & tax advisory services for small businesses seeking growth or expansion.

Stop struggling to keep up with your finances. Gain access to an experienced accountant.
Do you want the best tax strategies?

Taxes are complicated. We make it easy.

Schedule a free 15-minute consultation with our expert to start your journey to increased profitability and well-managed finances!

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