What two key factors must taxpayers know in order to calculate their tax amount?

To calculate their tax amount accurately, taxpayers must primarily understand their taxable income and filing status.

Knowing taxable income is crucial because this figure represents the income that is subject to taxation after accounting for any deductions. Taxable income is the starting point for determining tax liability, as it directly influences the applicable tax rate based on the current tax brackets.

Filing status is equally important, as it determines the rate at which income is taxed. There are different filing statuses, such as single, married filing jointly, married filing separately, head of household, and qualifying widow(er). Each status has specific tax brackets and may also affect eligibility for certain deductions and credits. By considering both these factors together, taxpayers can more accurately calculate their tax obligations.

In contrast, while tax credits can reduce the total tax owed and deductions can lower taxable income, they are not as fundamental for determining how much tax is ultimately owed as the taxable income and filing status. Additionally, exemptions may have been more relevant in previous tax years, but recent tax reforms have altered their significance, making taxable income and filing status the primary components for calculating taxes today.