Income Tax Calculator

Taxable Income

To estimate your tax refund or liability, begin by calculating your taxable income. Start with your gross income—often referenced from your W-2 forms—and subtract any allowable deductions and exemptions (such as contributions to a 401(k) or pension plan). The resulting figure is your taxable income.

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Other Taxable Income

Additional sources of taxable income include:

• Interest Income:
  Interest earned from checking and savings accounts, CDs, and even some tax refunds is generally taxed as ordinary income. Exceptions include interest from municipal bonds and private-activity bonds.
• Capital Gains/Losses:
  • Short-Term: Profits or losses from assets held for less than one year are taxed at your ordinary income rate.
  • Long-Term: Profits or losses from assets held for one year or longer are subject to taxation based on your ordinary income marginal rate.
• Dividends:
  • Ordinary Dividends: Taxed as regular income unless specifically designated otherwise.
  • Qualified Dividends: These benefit from lower tax rates, similar to long-term capital gains, but must meet strict IRS criteria.
• Passive Income:
  Income from activities in which you do not materially participate—such as rental properties or certain business ventures—falls into this category. Any excess passive losses may be carried forward until they can be deducted or when you dispose of the passive activity.

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Exemptions

Tax exemptions reduce, or in some cases completely eliminate, your taxable income. Beyond individual taxpayers, many organizations—like charities and religious institutions—enjoy exemption from taxation. Even certain shopping experiences (e.g., duty-free purchases at international airports) benefit from tax exemption rules.

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Tax Deductions

Tax deductions lower your tax liability by reducing the portion of your income that is subject to taxation. They are generally categorized into two types:

Modified Adjusted Gross Income (MAGI)

MAGI is your adjusted gross income (AGI) with specific deductions added back. It is used to determine eligibility for various tax benefits. Items added back include:

• Student loan interest
• One-half of self-employment tax
• Qualified tuition expenses (and tuition/fees deductions)
• Passive losses/income adjustments
• IRA contributions and taxable Social Security payments
• Exclusions for income from U.S. savings bonds
• Adoption expense exclusions
• Rental losses
• Losses from publicly traded companies

Above-the-Line (ATL) Deductions

ATL deductions reduce your AGI and are claimed directly on your tax return before you decide whether to itemize. Common ATL deductions include:

• Traditional IRA Contributions: Note that tax deductibility may be limited by your MAGI.
• Student Loan Interest: Reported on Form 1098-E and subject to income limitations (for example, in 2024, the deduction phases out at $95,000 for single filers and $195,000 for joint filers).
• Qualified Tuition and Fees: Must meet IRS definitions and cannot be claimed alongside an education tax credit.
• Moving Expenses: Deductible when related to relocating for a new job (with the new workplace at least 50 miles away) and when not reimbursed by your employer.

Below-the-Line (BTL) Deductions

BTL deductions include either the standard deduction or itemized deductions (reported on Schedule A) and reduce your taxable income on a dollar-for-dollar basis. Common examples include:

• Mortgage Interest: Deductible for primary or secondary residences up to specified limits (e.g., $750,000 in 2024 and $1,000,000 in 2025 for certain loans). Only secured debt qualifies.
• Charitable Donations: Only contributions to qualified organizations are deductible.
• Medical Expenses: Deductible for necessary medical costs beyond a specified percentage of your AGI (10% generally, or 7.5% for those aged 65 or older), excluding most cosmetic procedures.
• State and Local Taxes (SALT): You can deduct either income or sales tax—but not both—with a combined cap (e.g., $10,000 in 2024 and 2025).
• Other Expenses: Additional eligible deductions can include investment interest, tax preparation fees, and various out-of-pocket costs related to charitable activities, education, or job searching.

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Business Expenses

Expenses that are both ordinary and necessary for operating a business or trade are deductible. For sole proprietorships, these are typically reported on Schedule C and may be classified as either ATL or BTL depending on the nature of the expense. It is important to distinguish between business expenses, capital expenditures, and personal expenses.

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Standard vs. Itemized Deductions

Taxpayers have the option to claim the standard deduction—a fixed amount set by Congress—or to itemize deductions if they exceed the standard amount. In 2025, the standard deduction is:

• $15,000 for single taxpayers
• $30,000 for married couples filing jointly

Many choose the standard deduction for its simplicity, though itemizing can yield greater tax savings if you have significant deductible expenses. Tax software or calculators typically determine which option provides the maximum benefit.

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Tax Credits

Tax credits directly reduce the amount of tax you owe, making them generally more valuable than deductions. They come in two forms:

• Non-Refundable Credits: Can reduce your tax liability to zero but not below.
• Refundable Credits: May result in a refund if the credit exceeds your tax liability.

Some common tax credits include:

Income-Related Credits

• Earned Income Tax Credit (EITC): A refundable credit for low to moderate-income households, with higher benefits for families with children.
• Foreign Tax Credit: Helps avoid double taxation on income earned abroad (non-refundable).

Child and Dependent Credits

• Child Tax Credit: Up to $2,000 per child (with $1,400 potentially refundable), phased out at higher income levels.
• Child and Dependent Care Credit: Covers a percentage of qualifying care expenses based on income.
• Adoption Credit: A non-refundable credit for qualified adoption expenses.

Education and Retirement Credits

• Saver’s Credit: A non-refundable credit encouraging retirement contributions, with percentages based on income and capped at $2,000 for single filers (or $4,000 for joint filers).
• American Opportunity Credit: Provides up to $2,500 per eligible student for the first four years of higher education; partially refundable if the credit reduces your tax to zero.
• Lifetime Learning Credit: A non-refundable credit of up to $2,000 for qualified education expenses applicable to undergraduate, graduate, and professional courses. (Note: You cannot claim both the American Opportunity Credit and Lifetime Learning Credit in the same year.)

Environmental Credits

• Residential Energy Credit: Available for home improvements that incorporate renewable energy technologies (e.g., solar, wind, geothermal).
• Non-Business Energy Property Credit: For energy-efficient home improvements such as insulation or high-efficiency windows and doors.
• Plug-in Electric Motor Vehicle Credit: Offers up to $7,500 for the purchase of a new qualifying electric vehicle used primarily in the U.S.

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Alternative Minimum Tax (AMT)

The AMT is a parallel tax calculation designed to ensure that taxpayers with numerous deductions pay a minimum level of tax. It recalculates your income without many common deductions (such as the standard deduction, certain itemized deductions, and some business expenses). If your income exceeds the AMT exemption threshold, you may owe AMT. Strategies to mitigate AMT liability include:

• Maximizing retirement contributions (e.g., to a 401(k) or IRA)
• Reducing itemized deductions
• Increasing charitable contributions

For personalized guidance, the IRS provides an online AMT Assistant.