Adjustments to Income
As you work with this chapter, obtain the following Internal Revenue Service forms and publications to increase your understanding and to complete the chapter questions and problems.[7]
Form 1040 and Instructions
Schedule B (Form 1040)
Form 3903Form 3903Used to report moving expenses.
Publication 970 Tax Benefits for Education
Overview
In Chapter 2, The Federal Income Tax Return, the income tax formula was introduced:
| Federal Individual Income Tax Formula | |
|---|---|
| Gross Income | |
| − | Deductions for Adjusted Gross Income |
| = | Adjusted Gross Income (AGI) |
| − | Itemized deductions or Standard deduction |
| − | Exemptions—personal and dependents |
| = | Taxable Income |
| × | Tax Rate |
| = | Gross Tax Liability |
| − | Credits |
| − | Prepayments |
| = | Tax Due or Refund |
This chapter will cover the more common deductions for adjusted gross income. The deductions will be reported on Forms 1040 and 1040A in the Adjusted Gross Income section on the face of the form. A distinction is made about deductions for and from AGI. The deductions for will reduce AGI and ultimately, the tax liability. In addition, a lower AGI can also increase the amount of itemized deductions since several itemized deductions are reduced by a percentage of AGI. For example, miscellaneous itemized expenses must be reduced by 2% of AGI before a deduction is allowed. Itemized deductions are deductions from AGI.
[7] The forms and publications are in addition to Your Federal Income Tax, Publication 17, Internal Revenue Service.
