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1 1 (August 18, 2023)

handle is hein.crs/govemon0001 and id is 1 raw text is: Calculate Taxable Income Add up income from various sources to calculate ss rncant (or total income).Then subtract allowable deductions to arrive at Examples of exclusions include employer contributions to health and retirement plans, returns to tax-advantaged savings accounts (e.g., 529), child and dependent care benefts, adoption benefits, exclusions a portion of capital gains rm si of a primary residence,and interest an certain bonds. t incor retirement interest other investment investment All income is generally counted Any ab toward gross income, unless it is to calcL excluded by law; i.e., there is an include exclusion. Gross income may be (IRA) co further characterized between accoun ordinary income and long-term itemize capital gains and qualified Itemize dividends (referred to in this interest infographic as investment income) other d which are taxed at different rates. 2023, t * Apply M R Marginal tax rates are applied to to arrive at precredit income tax liability. Special reduced rates apply to investment income, with overall taxable income determining the applicable rate. ordinary income ti M a24 'U $0 taxable income increases--« If a married couple fifes their taxes jointly in 2023 with $250,000 of taxable income ($220,000 ordinary income/ $30,000 investment income): 'ordinary income -$220,000 subject to increasing marginal rates with a top rate -$30K of249%. investment income-.- $30,000 subject to , , a 15% rate. ? investment income 5 long-term capital gains & qualified dividends e14* $0 taxable income increases-. ove-the-line deductions are subtracted from gross income late adjusted gross income (AGI). Above-the-line deductions those for student loan interest, individual retirement account ntributions, certain educator expenses, and health savings ts (HSAs).Then, either the standard deduction or the sum of d deductions (whichever is greater) is subtracted from AGI. d deductions include those for charitable giving, mortgage , state and local taxes (SALT), and medical expenses. Finally, eductions are subtracted to arrive at taxable income. In he other deduction is the 199A deduction for passthroughs. 3 Subtract Tax Credits Nonrefundable tax credits are first subtracted from precredit income tax liability, followed by red ts to calculate inc m tax iabiity. Tax credits reduce income tax liability dollar for dollar the amount of the credit. Nonrefundable tax credits-including the child and dependent care credit, the Lifetime Learning credit, the saver's credit, and the credit for other dependents-cannot be greater than precredit income tax liability. Hence, these credits cannot reduce income tax liability below zero. In contrast, -n b-like the earned income tax credit (EITC), the child tax credit, and the American Opportunity tax credit-which are claimed after nonrefundable credits, are not limited by income tax liability, (meaning they can reduce income tax liability below zero). + positive income tax liability -negative icome tax liability nonrefundable redits The portion ofa refundable tax cre which exceeds inco tax liability is sometimes called refundable portio The portion of a refundable tax credit which reduces income tax liability to zero is sometimes called the `nonrefundable portion. A negative income dit tax liability means me the taxpayer is receiving an increase he in after-tax income. n.

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