Monday, September 16, 2019
Federal Income Tax Formula
FEDERAL INCOME TAX FORMULA Gross Income ââ¬â Above the Line Deductions____ Adjusted Gross Income ââ¬â Itemized or Standard Deduction ââ¬â Exemptions_________________ Taxable Income x Applicable Marginal Tax Rates for Each Bracket Tax Liability ââ¬â Tax Credits_________________ = TAX OWED ABRIDGED INCOME TAX ACCOUNTING I. Gross Income [à § 61] ââ¬â A. Wages, Salaries, and Tips B. Interest Income C. Dividend Income D. Other (Net) Incomeââ¬âReduced 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 ââ¬Å"Above the Lineâ⬠Deductionsââ¬â 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 ââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬âââ¬â-ââ¬Å"The Lineâ⬠= Adjusted Gross Income (ââ¬Å"AGIâ⬠) III.Less the Greater of (1) Itemized Deductions or (2) the Standardized Deductionsââ¬â 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 [à § 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
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