CHAPTER2

Key Components Defined

A Better Understanding

Now that you are familiar with the tax formula, it is important that you understand how each of the key components works, and how each will affect your tax. This chapter will give you a deeper understanding of the following components:

  • Income
  • Deductions (Adjustments to Income) and AGI
  • Deductions (Standard or Itemized)
  • Exemptions
  • Taxable Income
  • Income Tax, Tax Brackets, and Marginal Rates vs. Effective Rates
  • The Alternative Minimum Tax (AMT)
  • Credits (Non-Refundable)
  • Other Taxes
  • Credits (Refundable)

Income

My client, Jim, called me on the phone one day and said he would be making about $200,000 more that year than in the previous year. He wanted to know how much he should save for taxes. ...

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