The Income Tax Formula

The Income Tax Formula

The formula used to calculate your taxes

The formula used to calculate your taxes

	Earned income (W-2 or 1099-MISC)
+	Interest and dividends (Schedule B, 1099-INT, 1099-DIV)
+	Taxable refunds (1099-G)
+	Alimony received
+	Net business income (Schedule C)
+	Capital gains and losses (Schedule D, 1099-B, 1099-S)
+	IRA and pension distributions (1099-R)
+	Rents and other income (Schedule E, Schedule K-1)
+	Social Security benefits subject to tax
	-------------------------
=	Total income
-	IRA, Keogh and SEP retirement account deductions
-	Job-related moving expenses
-	Half of self-employment tax, self-employed insurance
-	Alimony paid
	-------------------------
=	Adjusted gross income (AGI) a very important number!
-	Deductions (Schedule A, 1098)
-	Exemptions
	-------------------------
=	Taxable income
	-------------------------
->	Tenative tax liability
-	Tax credits (child care credit, foreign tax credit etc.)
+	Other taxes (self-employment tax, household employment taxes, alternative minimum tax etc.)
	-------------------------
=	Tax liability
-	Tax withheld
-	Estimated tax payments
-	Earned income credit
	-------------------------
=	Refund or amount you owe