2010 Individual Tax
An income tax is imposed on individual citizens and residents of the United States. The tax is based on an individual’s taxable income. An individual computes his or her taxable income by reducing gross income by the sum of (i) the deductions allowable in computing adjusted gross income, (ii) the standard deduction (or itemized deductions, at the election of the taxpayer), and (iii) the deduction for personal exemptions. Graduated tax rates are then applied to a taxpayer’s taxable income to determine his or her income tax liability. Lower rates apply to net capital gain and qualified dividend income. A taxpayer may also be subject to an alternative minimum tax. A taxpayer may reduce his or her income tax liability by certain tax credits.
- Gross Income
- Gross income means “income from whatever source derived” other than certain items specifically excluded from gross income.
- Adjusted Gross Income
- An individual’s adjusted gross income (“AGI”) is determined by subtracting certain allowable deductions from gross income.
- Taxable Income
- In order to determine taxable income, a taxpayer reduces AGI by any personal exemption deductions and either the applicable standard deduction or the taxpayer’s itemized deductions.
- Tax Liability
- A taxpayer’s net income tax liability is the greater of (1) regular individual income tax liability reduced by credits allowed against the regular tax, or (2) tentative minimum tax reduced by credits allowed against the minimum tax. The amount of income subject to tax is determined differently under the regular tax and the alternative minimum tax, and separate rate schedules apply. Lower rates apply for long-term capital gains and qualified dividend income; those rates apply for both the regular tax and the alternative minimum tax.
