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] 

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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 & Theft 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

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