1. Taxable Income
Unit 3 – Taxes – Day 1 Notes

2. 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

3. Vocabulary Deductions: expenses that reduce taxable income
Standard Deduction: flat rate deductions ($6100 for a single individual or $12,200 for a family)
Itemized Deduction: used if deductions add to more than the standard.
college tuition, work expenses, interest on a mortgage, charitable contributions, state income taxes, medical expenses

4. Vocabulary
Exemptions: Reduce taxable income for each person you support ($3,900 per person)
Taxable Income: Money that you can be taxed on

5. How to Calculate Taxable Income
Gross Income
Adjustments
AGI
Deductions
Exemptions
Taxable Income

6. 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 $3900 and to deductions totaling $ Find her gross income, adjusted gross income, and taxable income.

7. Example 2
Eugene earned wages of $28,400, received $95 in interest from a savings account, and had deductions totaling $ He has only 1 exemption. Find his gross income, adjusted gross income, and taxable income.

8. 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.

9. 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 $ Calculate her gross income, adjusted gross income, and taxable income.