Taxable Income Calculator — Standard vs Itemized Math

What Is Taxable Income?

Taxable income is the portion of your gross income that the IRS actually taxes. It is almost always lower than your total salary because of deductions and adjustments. Understanding how to calculate it is the key to lowering your tax bill.

The formula is simple but powerful:

Our Taxable Income Calculator does this math for you, comparing the Standard Deduction against your potential Itemized Deductions to ensure you take the path that saves you the most money.

Gross Income vs. AGI vs. Taxable Income

Many taxpayers confuse these three terms. Here is the breakdown:

• Gross Income: This is everything you earn before taxes—wages, dividends, interest, and business income.
• Adjusted Gross Income (AGI): This is your Gross Income minus specific "above-the-line" adjustments like 401(k) contributions, student loan interest, and HSA contributions. Your AGI determines your eligibility for many tax credits.
• Taxable Income: This is your AGI minus either the Standard Deduction or your Itemized Deductions. This is the final number the IRS uses to calculate your tax bill.

Standard Deduction vs. Itemized Deductions

The biggest decision you will make when filing is whether to take the Standard Deduction or Itemize. You cannot do both. The IRS allows you to choose whichever one lowers your taxable income the most.

The Standard Deduction (2024 & 2025)

The Standard Deduction is a flat amount that reduces your taxable income, no questions asked. It is adjusted annually for inflation. See the IRS Topic No. 551 Standard Deduction for more details.

For most people (about 90% of taxpayers), the Standard Deduction is the better choice because it is high enough to exceed their potential itemized expenses.

Itemized Deductions

Itemizing means listing out specific eligible expenses. You should only itemize if your total eligible expenses are greater than your Standard Deduction. For a full list, refer to IRS Schedule A (Form 1040). Common itemized deductions include:

• State and Local Taxes (SALT): Deduct state income tax (or sales tax) and property taxes, up to a cap of $10,000 per year ($5,000 if married filing separately).
• Mortgage Interest: Deduct interest on the first $750,000 of mortgage debt ($375,000 if married filing separately).
• Charitable Contributions: Deduct donations to qualified non-profit organizations.
• Medical Expenses: Only the portion of unreimbursed medical expenses that exceeds 7.5% of your AGI is deductible.

Strategies to Lower Your Taxable Income

Reducing your taxable income is the most effective way to pay less tax. Here are three proven strategies:

Common Mistakes to Avoid

Frequently Asked Questions