Income Tax Calculator

Taxable Income

In order to find an estimated tax refund or due, it is first necessary to determine a proper taxable income. It is possible to use W-2 forms as a reference for filling out the input fields. Relevant W-2 boxes are displayed to the side if they can be taken from the form. Taking gross income, subtract deductions and exemptions such as contributions to a 401(k) or pension plan. The resulting figure should be the taxable income amount.

Other Taxable Income

Interest Income–Most interest will be taxed as ordinary income, including interest earned on checking and savings accounts, CDs, and income tax refunds. However, there are certain exceptions, such as municipal bond interest and private-activity bonds.

Short Term Capital Gains/Losses–profit or loss from the sale of assets held for less than one year. It is taxed as a normal income.

Long Term Capital Gains/Losses–profit or loss from the sale of assets held for one year or longer. Taxation rules applied are determined by ordinary income marginal tax rate.

Ordinary Dividends–All dividends should be considered ordinary unless specifically classified as qualified. Ordinary dividends are taxed as normal income.

Qualified Dividends–These are taxed at the same rate as long-term capital gains, lower than that of ordinary dividends. There are many stringent measures in place for dividends to be legally defined as qualified.

Passive Incomes–Making the distinction between passive and active income is important because taxpayers can claim passive losses. Passive income generally comes from two places, rental properties or businesses that don’t require material participation. Any excessive passive income loss can be accrued until used or deducted in the year the taxpayer disposes of the passive activity in a taxable transaction.

Exemptions

Broadly speaking, tax exemptions are monetary exemptions with the aim of reducing or even entirely eliminating taxable income. They do not only apply to personal income tax; for instance, charities and religious organizations are generally exempt from taxation. In some international airports, tax-exempt shopping in the form of duty-free shops is available. Other examples include state and local governments not being subject to federal income taxes.

Tax Deductions

Tax deductions arise from expenses. They help lower tax bills by reducing the percentage of adjusted gross income that is subject to taxes. There are two types of deductions, above-the-line (ATL) and below-the-line (BTL) itemized deductions, which reduce tax based on the marginal tax rate. The “line” in question is the adjusted gross income (AGI) of the taxpayer and is the bottom number on the front of Form 1040.

Modified Adjusted Gross Income (MAGI)

MAGI is mainly used to determine whether a taxpayer is qualified for certain tax deductions. It is simply AGI with some deductions added back in. These deductions are:

• Student loan interest
• One-half of self-employment tax
• Qualified tuition expenses
• Tuition and fees deduction
• Passive loss or passive income
• IRA contributions, taxable Social Security payments
• The exclusion for income from U.S. savings bonds
• The exclusion under 137 for adoption expenses
• Rental losses
• Any overall loss from a publicly traded company