Taxable income is the portion of gross income used to calculate how much taxpayers owe in taxes in a given year. In general, it’s their adjusted gross income (AGI) minus allowable itemized or standard deductions. It includes wages, salaries, bonuses, and tips—plus investment income and various types of unearned ♏income. It’s generally less than adjusted gross income because of deductions that reduce it.

A tax return consists of the documents filed with a tax auth♛ority that report your income, expenses, deductio🥂ns, credits, and other relevant information used to calculate the taxes an individual or other entity owes. On the return, taxpayers calculate their tax liability, schedule tax payments, and can request refunds for overpayment of taxes.

AGI is calculated by taking specified tax-deductible expenses from your gross income to reach the figure on which your tax liability will be calculated. Among them are: alimony payments, retirement-plan contributions, educator expenses, early withdrawal penalties, HSA contributions, student loan interest, and self-employment tax and health insuranꦺce costs.

🔜Tax liability is 💫the payment owed by an individual, business, or other entity to a federal, state, or local tax authority. Income taxes, sales tax and capital gains tax are all forms of tax liability. Individuals and businesses can lower their tax liability by claiming deductions, exemptions, and tax credits.

Calculating the MAGI adds back in certain costs that are deducted from gross income to create the AGI. Among the items ℱare IRA contributions, student loan interest deductions, excluded foreign in🌳come and half of self-employment tax.

Payroll taxes are percentage𒐪s withheld from an employee’s pay by an employer who pays it to the government on the employee’s behalf. In the U.S., payroll taxes are used to fund Social Security and Medicare. Unlike income taxes, which go into the government’s general funds, payroll taxes are used for specific programs.