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Taxable Income Formula:
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Taxable income is the portion of your income that is subject to federal and state income taxes. It's calculated by subtracting your deductions from your Adjusted Gross Income (AGI).
The basic formula for calculating taxable income is:
Where:
Adjusted Gross Income (AGI): This is your gross income (wages, dividends, capital gains, business income, retirement distributions, etc.) minus certain adjustments like student loan interest, IRA contributions, and educator expenses.
Deductions: You can choose between the standard deduction (a fixed amount based on filing status) or itemized deductions (sum of specific expenses like mortgage interest, charitable contributions, and medical expenses).
Instructions: Enter your AGI and total deductions in dollars. The calculator will subtract deductions from AGI to determine your taxable income. Negative results will be shown as $0 since taxable income cannot be negative.
Q1: What if my deductions exceed my AGI?
A: Your taxable income would be $0. You cannot have negative taxable income.
Q2: What's the difference between standard and itemized deductions?
A: You choose whichever is larger. Standard deduction is a fixed amount, while itemized deductions are the sum of specific qualifying expenses.
Q3: Does this calculator account for tax credits?
A: No, tax credits are applied after calculating tax on your taxable income, not in the taxable income calculation itself.
Q4: Are all deductions included in this calculation?
A: This calculator uses your total deductions (standard or itemized). Some above-the-line deductions are already accounted for in your AGI.
Q5: How often does the standard deduction change?
A: The standard deduction amounts are typically adjusted annually for inflation by the IRS.