Income Tax Math

 Tax season is winding down. We’ve all heard the saying “In this world, nothing is certain except death and taxes.” The quote is attributed to one of America’s founders, Ben Franklin. There is also one thing that is certain about income taxes. They involve math calculations.

Below is a description of seven income tax features that involve mathematical calculations:

Tax Deductions- About 90% of taxpayers take the standard deduction and the rest itemize deductions when they are larger than their standard deduction. Either way, these calculations require subtraction. First, adjustments to income are subtracted from total income to get adjusted gross income (AGI). Next, deductions are subtracted from AGI to get taxable income.

Extra Standard Deduction- Older adults use addition to increase their standard deduction as per annually inflation-adjusted IRS regulations. In 2025, single individuals can add $2,000 to the $15,000 standard deduction for all taxpayers ($17,000 total) and a couple, both age 65+, can add $1,600 each to the $30,000 standard deduction for all taxpayers ($33,200 total).

Effective Tax Rate- This is the tax rate that you pay on your total income, reflecting the fact that different tiers of income are taxed at different tax rates. This calculation requires division. To calculate your effective tax rate, divide your tax bill (i.e., the amount owed) by your taxable income. For example, $12,000 owed on a $85,000 taxable income = 14.1%.

Required Minimum Distributions (RMDs)- RMD calculations, which affect older adults at age 73 or 75 (depending on year of birth), also require division. They are mandatory withdrawals from retirement savings accounts (e.g., 401(k) plans). The year-end balance in a tax-deferred retirement account is divided by an age-based divisor (e.g., 26.5 for age 73). For example, a 73-year old with a $150,000 account balance must withdraw $5,660.

Refund or Overpayment- This calculation involves subtraction and the result will be a positive or negative number. If total tax payments from payroll withholding are greater than total tax owed, taxpayers get a refund. If tax payments fall short of the amount owed, taxpayers must make a payment to the IRS by the tax filing date, typically April 15.

Business-Related Mileage- Self-employed taxpayers and business owners are eligible to deduct business-related mileage. Employees are unable to do so. This calculation involves multiplication: i.e., multiplying the number of miles driven by the annually inflation-adjusted business mileage rate (67 cents per mile in 2024 and 70 cents per mile in 2025).

Tax Computation Worksheet- This form is used to calculate tax owed on taxable incomes over $100,000 and involves both multiplication and subtraction. First, taxpayers multiply their taxable income by their marginal tax rate (i.e., 22% to 37%). Next, they subtract a designated amount for taxes paid on income taxed at lower rates. The result is the amount of tax owed.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.