Individual Income Tax Formula

Gross Income

All income that is taxable, also known as Total Income, before making adjustments.

Adjusted Gross Income (AGI)

Total income after making minor adjustments, including additions and subtractions.

Taxable Income

AGI minus the larger of Standard Deduction or Itemized Deductions.

Tax Planning

Legal methods to lower tax liability, involving timing and income shifting strategies.

Municipal Bonds

Bonds issued by government entities other than the federal government.

Constructive Receipt

Taxpayers include amounts in income when cash inflows are available unconditionally.

Tax Evasion

Intentional effort to avoid paying legally owed taxes, subject to penalties.

Exclusions

Income that is never taxed, like gain on the sale of a personal residence.

Itemized Deductions

Personal expenses deducted from income, subject to strict rules.

Qualifying Child/Relative

Criteria for dependents to claim certain tax credits.

Child Tax Credit

Credit for each child under 18, with varying amounts based on age.

Earned Income Credit

Refundable credit for low to moderate-income taxpayers.

Recovery Rebate Credit

Special cash payment to qualified taxpayers in 2021 due to Covid-19.