Taxable Income

To estimate your tax refund or owed amount, first determine your taxable income. Use your W-2 forms for reference and subtract deductions and exemptions such as 401(k) or pension contributions. The remaining amount is your taxable income.

Other Taxable Income

• Interest Income: Most interest is taxed as ordinary income. Exceptions include municipal bonds and private-activity bonds.
• Short-term Capital Gains/Losses: Profit/loss from assets held <1 year, taxed at ordinary rates.
• Long-term Capital Gains/Losses: Profit/loss from assets held ≥1 year, taxed at lower rates.
• Ordinary Dividends: Taxed as normal income unless qualified.
• Qualified Dividends: Taxed like long-term capital gains, often lower than ordinary dividends.
• Passive Income: From rentals or businesses without material participation. Losses may be carried forward.

Exemptions & Deductions

Exemptions reduce taxable income. Deductions lower tax bills by reducing AGI. Examples:

• Above-the-line Deductions (ATL): Traditional IRA, student loan interest, qualified tuition, moving expenses.
• Below-the-line Deductions (BTL): Standard deduction, mortgage interest, charitable donations, medical expenses, SALT.

Tax Credits

Tax credits reduce tax owed directly. They can be:

• Refundable: Can reduce liability below $0, yielding a refund.
• Non-refundable: Cannot reduce liability below $0, unused credits expire.

Common examples:

• Child Tax Credit: Up to $2,000 per child.
• Education Credits: American Opportunity Credit, Lifetime Learning Credit.
• Environmental Credits: Solar, wind, or electric vehicle credits.
• Saver's Credit: For retirement contributions.

Alternative Minimum Tax (AMT)

The AMT ensures taxpayers pay a minimum amount of tax and limits deductions. To reduce AMT exposure:

• Max out contributions to retirement accounts.
• Reduce itemized deductions.
• Increase charitable contributions.

Higher-income taxpayers should check eligibility using IRS AMT Assistant.