Federal Income Tax Formula

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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 OWED
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