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 1. State & Local Income Tax Refunds 2. Alimony Received 3. Business Income or Loss 4. Capital Gains or Losses 5. Taxable IRA Distributions, Pensions, & Annuities . Rents, Royalties, Partnerships, S-Corporations, Estates, Trusts 7. Unemployment Compensation & Social Security 8. Other Income II. Less â€Å"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 R etirement Plan F. Penalty on Early Withdrawal of Savings G. Student Loan Interest Deduction H. Alimony Paid I. Tuition and Fees Deduction J. Depreciation Deduction ———————————————————-â€Å"The Line† = Adjusted Gross Income (â€Å"AGI†) III.Less the Greater of (1) Itemized Deductions or (2) the Standardized Deductions— A. Itemized Deductions: 1. Medical and Dental 2. State Taxes 3. Interest Expense on Qualified Mortgage Indebtedness 4. Casualty & Theft Losses 5. Miscellaneous Itemized Deductions i)Misc. Deductions Subject to 2% AGI Floor ii)Misc. Deductions Exempt from 2% AGI Floor B. Standard Deduction [ § 63] IV. Less Exemptions = Taxable Income V. Tax Liability = Taxable Income x Applicable Marginal Tax Rates VI. Less Tax Credits A. Historical Building Rehabilitation B. Renewable Energy C. Work Opportunity Tax Credit D. Qualif ying Child Tax Credit = TAX OWED