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Federal individual income tax fundamentals

Gross income
  • Salary
  • Commissions
  • Bonuses
  • Business income
  • Up to 85% of Social Security income
  • Farm income
  • Alimony received
  • Unemployment income
  • Capital gains or losses
  • Dividends
  • Taxable interest
  • Rental property income
  • Taxable distributions from IRAs and retirement plans
  • S corporation and partnership income
  • Trust and estate distributions
  • Royalties
- Minus -
Adjustments to income
  • Alimony paid
  • Student loan interest
  • Savings early withdrawal penalties
  • Self-employed SEP, SIMPLE, and qualified plan contributions
  • Self-employment tax (50 pecent)
  • Self-employed health insurance
  • Health Savings Account (HSA) or Archer MSA Account deduction
  • Moving expenses
  • IRA deduction
= Equals =
Adjusted gross income (AGI)
- Minus -
Standard deduction
or
Itemized deductions
  • Qualified mortgage interest, investment interest
  • Charitable contributions
  • Casualty and theft losses
  • State and local income tax or state and local sales tax
  • Medical expenses over 7.5% of AGI
  • State and local real estate and property tax
  • Miscellaneous itemized deductions (generally must exceed 2% of AGI)
- Minus -
Personal exemptions
= Equals =

Taxable income

Calculate tax from tax table or tax rate schedules (and calculate Alternative Minimum Tax (AMT) if applicable).

Use Schedule D to calculate maximum tax on capital gains and qualifying dividends if appropriate.

- Minus -
Available credits
  • Elderly/disabled
  • Earned income
  • Child tax credit
  • Child and dependent care
  • Adoption tax credit
  • Retirement savings "savers credit"
  • Education tax credits
  • Foreign tax
  • Energy tax credits
= Equals =
Income tax liability