Figuring the Taxes

Taxable income and tax are determined by using the taxpayer's adjusted gross income, exemption amount, and standard deduction or itemized deductions.

These amounts play an important role in determining the taxpayer's tax liability. Be certain they are figured correctly.

Taxable income is determined by subtracting certain items from the adjusted gross income (AGI). These include:

• Personal and dependency exemptions, and
• Standard or itemized deductions

A separate worksheet is used to calculate the tax (instead of the tax tables) for taxpayers with certain types of income, such as capital gains, qualifying dividends, or foreign earned income.