Individual Income Tax Calculation and Deductions Overview

Formula for individual income tax calculation

Income (broadly defined) - Exclusions = Gross Income - Deductions for AGI = Adjusted Gross Income (AGI) - Greater of Itemized Deductions or Standard Deduction - Qualified Business Income Deduction = Taxable Income - Tax = Tax Due or Refund.

Deductions for AGI

Deductions for AGI reduce gross income to calculate AGI, such as IRA contributions or student loan interest.

Deductions from AGI

Deductions from AGI (itemized deductions) are subtracted from AGI to calculate taxable income, such as medical expenses and mortgage interest.

Standard deduction for a single taxpayer under age 65 in 2024

$14,600.

Maximum standard deduction for a married couple filing jointly in 2024

$29,200, with an additional $1,550 for each spouse over age 65 or blind.

Standard deduction for a dependent taxpayer

The standard deduction for a dependent is the greater of $1,300 or earned income + $450, up to a maximum of the normal standard deduction ($14,600 for a single taxpayer).

Qualifying child vs. qualifying relative for dependency

A qualifying child must meet age, relationship, residency, support, and citizenship tests. A qualifying relative must meet relationship, support, gross income, and citizenship tests and live with the taxpayer (except for parents).

Age and residency requirements for a qualifying child

Under age 19, or under age 24 and a full-time student for at least 5 months of the year, and must live with the taxpayer for more than half the year.

Standard deduction for a married couple both aged 67 in 2024

$29,200 (basic) + $3,100 (additional for both being over age 65) = $32,300.

Filing status for a taxpayer whose spouse died in 2022 but maintains a household for a dependent mother in 2024

Head of Household.

Taxability of a gift from parents

No, gifts are not taxable income.

Filing requirement for a single taxpayer earning $50,000 in 2024

The taxpayer must file a return because their income exceeds the standard deduction ($14,600).

Filing status of a taxpayer married and filing separately in 2024 but maintains a household with their child

Head of Household.

When a taxpayer does not have to file a return based on income

If gross income is below the standard deduction for their filing status.

Calculation of taxable income

Taxable Income = AGI - (Greater of Itemized Deductions or Standard Deduction) - Qualified Business Income Deduction.

Maximum capital loss deduction allowed for tax purposes

$3,000.

What happens if a taxpayer's standard deduction exceeds their gross income

They are not required to file a tax return, but they may still file for a refund if they had taxes withheld.

Additional standard deduction for a single taxpayer who is age 65 or older or blind

$1,950 for 2024.

Deductibility of a capital loss from personal property

No, a loss on personal-used property is not deductible.

Taxable income calculation for a dependent with earned income and interest income

Not provided in the notes.

Taxable income

The gross income minus the standard deduction for dependents, which is the greater of $1,300 or earned income + $450.

Filing status for a surviving spouse

Surviving Spouse.

Common exclusions from gross income

Interest from municipal bonds, gain on the sale of a personal residence (up to $250,000 for single taxpayers, $500,000 for married filing jointly), certain fringe benefits (e.g., medical/dental health insurance, life insurance), scholarships for tuition, fees, books, and supplies (room and board are taxable).

Exclusion for foreign-earned income in 2024

Up to $126,500 of foreign-earned income can be excluded for qualifying individuals.

Qualifying medical expenses for itemized deductions

Prescription drugs, eyeglasses, wheelchairs, payments to medical care providers (e.g., doctors, hospitals), health insurance premiums (for self-employed taxpayers, premiums are 'For AGI' deductions).

Deductible medical expenses

Only the portion of medical expenses that exceed 7.5% of your AGI can be deducted.

Deduction cap for state and local taxes (SALT)

The cap for SALT deductions is $10,000 for taxpayers who itemize deductions.

Non-deductible tax payments

Federal income taxes, Social Security taxes, Medicare taxes, gift taxes.

Maximum deduction for home mortgage interest after December 15, 2017

$750,000 ($375,000 for married filing separately) of mortgage debt is deductible for home loans taken after December 15, 2017.

Maximum deduction for gambling losses

Gambling losses can be deducted only to the extent of gambling winnings.

Child Tax Credit in 2024

$2,000 per child under age 17, up to $1,600 of it is refundable, phases out for taxpayers with AGI exceeding $400,000 (MFJ) or $200,000 (all other taxpayers).

Maximum amount of the American Opportunity Credit

$2,500 per student, based on 100% of the first $2,000 in expenses and 25% of the next $2,000 in expenses.

Earned Income Credit (EIC)

Provide tax relief to the working poor. Available for individuals with earned income who meet certain income thresholds.

Expenses deductible as 'Other Itemized Deductions'

Gambling losses (up to the amount of winnings), federal estate tax on income in respect of a decedent, certain unrecovered investments in pensions.

Alimony payments for divorces finalized before 2019

True: Alimony payments are taxable to the recipient and deductible by the payer.

Taxability of unemployment benefits and workers' compensation

True: Unemployment benefits are taxable, but workers' compensation is not.

Deductibility of medical expenses for a child who earns $7,500

True: Medical expenses for a child who earns $7,500 can still be deducted by the parent, even though the child is not considered a dependent.

Availability of the Earned Income Credit to taxpayers with children

False: The Earned Income Credit is available to both taxpayers with children and those without, if they meet other criteria.

Eligibility of room and board for education tax credits

False: Education tax credits typically only cover tuition and course materials, not room and board.