Federal Income Tax Formula
FEDERAL INCOME TAX FORMULA
Gross Income – Above the Line Deductions_____.
Adjusted Gross Income – Itemized or Standard Deduction – Exemptions_____.
Taxable Income x Applicable Marginal Tax Rates for Each Bracket Tax Liability – Tax Credits_____= TAX OWED ABRIDGED INCOME TAX ACCOUNTING
I. Gross Income [§ 61]
- A. Wages, Salaries, and Tips
- B. Interest Income
- C. Dividend Income
- D. Other (Net)
Income—Reduced by Deductible Expenses
- State & Local Income Tax Refunds
- Alimony Received
- Business Income or Loss
- Capital Gains or Losses
- Taxable IRA Distributions, Pensions, & Annuities. Rents, Royalties, Partnerships, S-Corporations, Estates, Trusts
- Unemployment Compensation & Social Security
- Other Income
II. Less “Above the Line” Deductions
- A. Unreimbursed Qualified Moving Expenses
- B. Of Self-Employment Tax
- C. Self-employed Health Insurance Deduction
- D. IRA Deduction
- E. Payments to Keogh Retirement Plan
- F. Penalty on Early Withdrawal of Savings
- G. Student Loan Interest Deduction
- H. Alimony Paid
- I. Tuition and Fees Deduction
- J. Depreciation Deduction
“The Line” = Adjusted Gross Income (“AGI”)
III. Less the Greater of
- Itemized Deductions or
- the Standardized Deductions
A. Itemized Deductions:
- Medical and Dental
- State Taxes
- Interest Expense on Qualified Mortgage Indebtedness
- Casualty & Losses
- Miscellaneous Itemized Deductions
- Misc. Deductions Subject to 2% AGI Floor
- Misc. Deductions Exempt from 2% AGI Floor
B. Standard Deduction [§ 63]
IV. Fewer Exemptions = Taxable Income
V. Tax Liability = Taxable Income x Applicable Marginal Tax Rates
VI. Fewer Tax Credits
- A. Historic Building Rehabilitation
- B. Renewable Energy
- C. Work Opportunity Tax Credit
- D. Qualifying Child
Tax Credit = TAX OWED
