An income tax calculator is a spreadsheet tool designed to help individuals or businesses estimate their income tax liability based on their income, deductions, and applicable tax rates.
Follow the steps below to easily create an income tax calculator.
List your income sources in column A and their amounts in column B.
To calculate your total income, sum the amounts in column B. If your income is listed from B2 to B4, the formula is =SUM(B2:B4).
In columns D and E, list your deductible expenses and their amounts, respectively.
Sum the amounts of deductible expenses in column E. If your expenses are listed from E2 to E3, the formula is =SUM(E2:E3).
Subtract total deductions from total income to find taxable income. If your total income is in B5 and total deductions are in E4, type '=B5-E4'.
List the tax brackets and corresponding rates in a new section of the sheet.
For the simplified tax rates provided, you'll need a formula that calculates the tax based on the brackets. Here's a simplified approach to apply the correct tax rates:
=IF(G2>40000, (G2-40000)*0.3 + 20000*0.2 + 20000*0.1, IF(G2>20000, (G2-20000)*0.2 + 20000*0.1, G2*0.1))
Assuming G2 is your taxable income, this formula calculates the tax owed by applying the different tax rates to the income falling within each bracket.
The formula above gives you the total tax owed based on the taxable income. Display this in a clear and labeled cell.
Test your calculator with different income and deduction scenarios to ensure it works as expected.
Get a copy of our free income tax calculator template here.
We hope that you now have a better understanding of what an income tax calculator is and how to create your own income tax calculator.
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