Not all of adjusted gross income is taxed.The second step is to convert AGI to taxable income the amount of income subject to tax. This is done by subtracting various amounts called exmption and deductions from AGI. Deductions and exemptions are discussed more carefully later.
The next step is to calculate the mount of due by applying the tax rate to the taxable income.A rate schedule indicates the tax liability associated with each level of taxable income. Different types of taxpayers face different tax rate schedules. different rates than single people. The final step is to subtract tax credits to arrive at the regular tax libility