What Is Line 15 on Form 1040? Your Taxable Income
Understand how deductions lower your income to arrive at the taxable income on Line 15 of Form 1040, the key number used to calculate your tax bill.
Line 15 on the IRS Form 1040 is designated for your taxable income. This is not your total earnings for the year, but a calculated amount that serves as the foundation for determining your tax liability. The entire first page of the Form 1040 builds toward calculating this single number.
The Formula for Taxable Income
The calculation for taxable income is a straightforward subtraction: your Adjusted Gross Income (AGI) minus your eligible deductions. Your AGI, found on Line 11 of Form 1040, is the starting point for this process. AGI is calculated by taking your total gross income and subtracting “above-the-line” adjustments, such as student loan interest or certain retirement contributions.
Once you have established your AGI, you subtract your allowable deductions to arrive at the Line 15 amount. This step is where you reduce your income exposure before any tax is calculated. The result of this subtraction is your taxable income, the figure that determines how much tax you will owe.
Determining Your Deduction Amount
The deduction amount subtracted from your AGI is the larger of either the standard deduction or your itemized deductions. The standard deduction is a fixed dollar amount that the IRS allows you to subtract, with the specific amount depending on your filing status, your age, and whether you or your spouse are blind. This option provides a simplified way to reduce your taxable income without tracking individual expenses.
You can choose to itemize deductions if your total eligible expenses exceed your available standard deduction amount. This involves adding up specific expenses you paid during the year, which are detailed on Schedule A, “Itemized Deductions.” Common itemized deductions include payments for mortgage interest, state and local taxes up to a $10,000 limit, and charitable contributions.
A separate deduction that can also lower your taxable income is the Qualified Business Income (QBI) deduction. This is available to eligible owners of sole proprietorships, partnerships, and S corporations. Calculated on Form 8995, the QBI deduction allows for a reduction of up to 20% of qualified business income.
How Taxable Income Determines Your Tax
The figure on Line 15 is the amount used to figure out your income tax obligation and is the input for the next calculation. You will take the Line 15 amount and use it to find your tax in the tax tables provided in the IRS instructions for Form 1040. For higher income levels, a separate tax computation worksheet is used.
After consulting the appropriate table or schedule, the resulting tax amount is entered on Line 16 of the Form 1040. This represents your preliminary tax liability before any tax credits are applied. The progressive nature of the U.S. tax system means that different portions of your taxable income are taxed at different rates, a calculation that is built into the IRS tax tables.
If your deductions are high enough to reduce your taxable income on Line 15 to zero or a negative number, your regular income tax liability for the year is zero. You might still owe other types of taxes, such as self-employment tax or alternative minimum tax, which are calculated separately.