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Income Tax: Taxable Income. Taxes – Day 1 Notes. Vocabulary. Gross Income: ALL income; e.g. salary, tips, interest on account, dividends Adjustments: Tax-deferred income that you get to subtract off your gross income e.g. IRAs, other retirement accounts, tax-deferred savings accounts
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Income Tax: Taxable Income Taxes – Day 1 Notes
Vocabulary • Gross Income: ALL income; • e.g. salary, tips, interest on account, dividends • Adjustments: Tax-deferred income that you get to subtract off your gross income • e.g. IRAs, other retirement accounts, tax-deferred savings accounts • Adjusted Gross Income (AGI): Gross Income – Adjustments
Vocabulary • Deductions: expenses that reduce taxable income • E.g. college tuition, work expenses, interest on a mortgage, charitable contributions, state income taxes, medical expenses • Standard Deduction: Deduction you can take instead of itemizing ($5950 for a single individual or $11,900 for a family) • Exemptions: Reduce taxable income for each person you support ($3,800 per person) • Taxable Income: Money that you can be taxed on; AGI – (Deductions and Exemptions)
Example 1 • Melissa earned wages of $42,000, received $250 in interest from a savings account, and contributed $1200 to a tax-deferred retirement plan. She was entitled to a personal exemption of $3800 and to deductions totaling $5950. Find her gross income, adjusted gross income, and taxable income.
Example 2 • Eugene earned wages of $28,400, received $95 in interest from a savings account, and had deductions totaling $6000. He has only 1 exemption. Find his gross income, adjusted gross income, and taxable income.
Example 3 • Mark works as a waiter at Applebee’s. In one year, he earned $18,000 in salary and $1500 in tips. He received $50 in interest from a savings account. He contributed $1200 to a tax-deferred retirement plan. He has a wife and 1 child that he is supporting. He has contributed $195 to charity, has paid $250 to state income tax, and has paid $2000 for interest on a home mortgage. Calculate his gross income, adjusted gross income, and taxable income.
Example 4 • Isabella earned wages of $88,750, received $4900 in interest from a savings account, and contributed $6200 to a tax-deferred retirement plan. She is supporting herself, her husband, and 2 children. She has contributed $9000 to charity, has paid $3500 for interest on her mortgage, and paid state income tax of $2750. Calculate his gross income, adjusted gross income, and taxable income.
