Answer to the nearest dollar:
Divorced, No dependants
Gross Income: $72,000
Deductions: $8300 Mortgage interest, $4550 personal property tax, $3000 charity donations
Tax Credits: none
A) What is the Sum of exemptions and deductions?
B) What is the Taxable income?
C) What is the Tax computation?
D) What is the Income tax owed?
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When filing a form 1040 for US personal income tax, you always start with your gross income. This includes all forms of wages, tips, and revenues that you received for the year as income. In this case, the gross income is $72,000. Next, you calculate the adjusted gross income, which is the gross income minus certain adjustments that can be made to lower the gross income amount. Adjustments can include subtractions for retirement account contributions and half of any self-employment taxes paid. The adjustments here are $5,000, so the adjusted gross income is $67,000.
Next, you apply your exemptions and deductions. The deductions are listed above and total to $15,850. Personal exemptions are dollar amounts you are able to deduct from your taxable income to account for the very basic living expenses of caring for yourself and any dependents you have. Since this person is single (divorced) with no dependents (usually spouses or children), the personal exemption rate is for one person only and for tax year 2012 that amount is $3,900 (good luck subsisting on that amount of money). So the total sum of exemptions and deductions is $19,750.
To calculate the taxable income, subtract the exemptions and deductions from the adjusted gross income. In this case, that is $67,000-$19,750 = $47,250. That is your amount of income that is subject to federal income tax.
The actual calculation to determine the amount of federal income tax you owe on your taxable income amount is a little complicated since the US has a progressive tax system and not a flat tax. As a result, the IRS publishes a comprehensive list of tax tables each year. Using these tax tables, you can look up your taxable income amount and see exactly how much tax you owe on that money. For tax year 2012 for single filers, you pay 10% on the first $8,700 of income, 15% for income between $8,700 and $36,350, 25% for income between $36,350 and $85,650, etc. Please note that you do not simply find which bracket your income falls in and multiply the entire number by the corresponding percentage, you have to multiply each bracket of the income you make by the corresponding percentage and then add the numbers together for the total tax. This is why the IRS produces the tax tables that take this complicated calculation into account. According to the 2012 tax tables for a single filer with $47,250 in taxable income (the tax tables can be found on irs.gov), the amount of federal income tax owed is $7,836.
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