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The Income Tax Formula

Submitted by admin on Mon, 05/11/2009 - 23:58

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
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= Total income
- IRA, Keogh and SEP retirement account deductions
- Job-related moving expenses
- Half of self-employment tax, self-employed insurance
- Alimony paid
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= Adjusted gross income (AGI) a very important number!
- Deductions (Schedule A, 1098)
- Exemptions
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= Taxable income
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-> Tenative tax liability
- Tax credits (child care credit, foreign tax credit etc.)
+ Other taxes (self-employment tax, household employment taxes, alternative minimum tax etc.)
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= Tax liability
- Tax withheld
- Estimated tax payments
- Earned income credit
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= Refund or amount you owe
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