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Unformatted text preview: ction Exemptions = Greater of Minus Taxable Income 27 Calculate Taxable Income Calculate Taxable Income Next subtract exemptions from AGI An exemption is a deduction for yourself, your spouse and dependents The amount of the exemption for the 2013 tax year is $3,900 per person Each person can be claimed once! Result is now called taxable income Apply tax tables or rate schedules to figure tax 28 Calculate 2013 Tax Liability Using Calculate 2013 Tax Liability Using Taxable Income Step 3: Calculate Taxable Income Single taxpayer W­2 = 60,000 Standard deduction = (6,100) * Exemption (1) = (3,900) Taxable income = 50,000 * Assumes standard deduction > Schedule A itemized deductions 29 Progressive Tax System Progressive Tax System The U.S. income tax is based on a progressive tax system, meaning the more you make, the more you pay Each level of income is taxed at a different rate As you income increases, the next level of income is taxed at a higher rate There have been recent debates regarding a flat tax, but thus far the “fairness...
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