How Income Taxes Work

Eagle Wealth Management |


Hello Eagle Wealth Community,

The Internal Revenue Service estimates that taxpayers and businesses spend about 8 billion hours a year complying with tax-filing requirements.  To put this into perspective, if all this work were done by a single company, it would need about four million full-time employees and be one of the largest industries in the U.S.¹

As complex as the details of taxes can be, the income tax process is fairly straightforward.  However, the majority of Americans would rather not spend time with the process, which explains why more than half hire a tax professional to assist in their annual filing. ²

Getting Started
The tax process starts with income, and generally, most income received is taxable.  A taxpayer’s gross income includes income from work, investments, interest, pensions, as well as other sources.  The income from all these sources is added together to arrive at the taxpayers’ gross income.

What’s not considered income?  Gifts, inheritances, workers’ compensation benefits, welfare benefits, or cash rebates from a dealer or manufacturer.³

From gross income, adjustments are subtracted.  These adjustments may include retirement plan contributions, half of self-employment, and other items.  The result is the adjusted gross income.

From adjusted gross income, deductions are subtracted.  With deductions, taxpayers have two choices: the standard deduction or itemized deductions.  The standard deduction amount varies based on filing status, as shown on this chart:

Chart source:, 2021

Itemized deductions can include state and local taxes, charitable contributions, the interest on a home mortgage, certain unreimbursed job expenses, and even the cost of having your taxes prepared, among other things.  Keep in mind that there are limits on the amount of state and local taxes that can be deducted.  ⁴

Once deductions have been subtracted, the result is taxable income.  Taxable income leads to gross tax liability.

But it’s not over yet.

Any tax credits are then subtracted from the gross tax liability.  Taxpayers may receive credits for a variety of items, including energy-saving improvements. The result is the taxpayer’s net tax.

Whether you hire a tax professional, self-prepare your taxes, or use our tax services, there’s a learning curve when it comes to gathering your tax data. Understanding how the process works will help make this tax season a breeze.  

Remember, you’re not in this alone.   The reason you work with a professional team is so you can share your worries and have someone help you out.  Please give us a call if we can answer any questions.  


Your Eagle Wealth Team


The Week on Wall Street

Deteriorating investor enthusiasm for high-valuation growth companies and a mixed start to the fourth-quarter earnings season made for a volatile week.

The Dow Jones Industrial Average lost 0.88%, while the Standard & Poor’s 500 slipped 0.30%. The Nasdaq Composite index fell 0.28% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 1.31%.1,2,3

Stocks Struggle

Stocks were under pressure all week as investors grappled with higher bond yields and talk of possibly four rate hikes this year. Initially, intraday declines would bring out buyers and pare the losses. Investors were particularly heartened by Fed Chair Powell’s congressional testimony on Tuesday that softened the hawkish tone found in the minutes of the Federal Open Market Committee’s December meeting.

After digesting the hot inflation reports released mid-week, stocks were unable to resist the selling pressures on Thursday. A weak retail sales number, a resumption in the rise in yields, and mixed earnings from some of the big money center banks weighed on the market during Friday’s trading.

Inflation and the Fed

Inflation reports last week continued to reflect upward momentum in consumer prices. The Consumer Price Index posted a 7.0% year-over-year jump–the biggest increase since 1982, while the Producer Price Index rose 9.7% from a year earlier–the fastest pace since 2010 when the index was reconstituted.4,5

Markets responded calmly as both numbers were in the neighborhood of expectations and the monthly increase for each moderated from previous single-month increases. The price pressures are expected to remain in the face of continuing supply chain constraints and wage growth. The pace and persistence of price increases may influence the speed at which the Fed may tighten in the year ahead.


Key Economic Data

Wednesday:  Housing Starts.
Thursday: Jobless Claims. Existing Home Sales.
Friday: Index of Economic Indicators.

Source: Econoday, January 14, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

Companies Reporting Earnings

Tuesday:  The Goldman Sachs Group, Inc. (GS), The Charles Schwab Corporation (SCHW), J.B. Hunt Transport Services, Inc. (JBHT)
Wednesday:  Bank of America (BAC), UnitedHealth Group, Inc. (UNH), The Procter & Gamble Company (PG), Morgan Stanley (MS)
Thursday:  Netflix, Inc. (NFLX), CSX Corporation (CSX), Union Pacific Corporation (UNP), United Airlines Holdings, Inc. (UAL)
Friday:  Schlumberger Limited (SLB).

Source: Zacks, January 14, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.