8509 / How does a taxpayer compute annual tax liability?

1. Gross income for the taxable year is determined (see Q 8513);

2. Certain deductions are subtracted from gross income (above the line deductions) to arrive at adjusted gross income (see Q 8521 to Q 8523);

3. The deduction for personal and dependency exemptions is determined (prior to 2018 and after 2025, see Q 8516 to Q 8520);

4. Itemized deductions are totaled (see Q 8524), compared to the standard deduction and the additional standard deduction, if applicable (see Q 8521), and (generally) the greater amount, along with the deduction for exemptions (prior to 2018 and after 2025), is deducted from adjusted gross income to arrive at taxable income;

5. The proper tax rate is applied to taxable income to determine the tax (see Q 8510);

6. The following amounts are subtracted from the tax to determine the net tax payable or overpayment refundable: (1) credits (see Q 8563 and Q 8564), and
(2) prepayments toward the tax (e.g., overpayments or credits from a prior tax year carried over, tax withheld by an employer or estimated tax payments).