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
6. Rents, Royalties, Partnerships, S-Corporations, Estates, Trusts
7. Unemployment Compensation & Social Security
8. Other Income
II. Less “Above the Line” Deductions—
A. Unreimbursed Qualified Moving Expenses
B. ½ 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 (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. Qualifying Child Tax Credit

= TAX