| |New | | | 6 |LO 1 |“Deductions for”: meaning and various designations | |New | | | 7 |LO 1‚ 8‚ 9 |Effect of AGI on some deductions from | |Unchanged |6 | | 8 |LO 2 |Choice between standard deduction and itemizing; variables | |Modified |7 | | |
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ACCT 330 – TEST 2 CHAPTER 6 – DEDUCTIONS AND LOSSES Criteria for deducting business and investment expenses – must be… * Related to a profit-motivated activity of the taxpayer * Ordinary‚ necessary‚ and reasonable in amount * Properly documented * An expense of the taxpayer Expenditure is not deductable if it is… * A capital expenditure * Expense related to tax-exempt income * Illegal or in violation of public policy‚ or * Specifically disallowed by tax law Business
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FEDERAL INCOME TAX FORMULA Gross Income - Above the Line Deductions____ Adjusted Gross Income - Itemized or Standard Deduction - Exemptions_________________ Taxable Income x Applicable Marginal Tax Rates for Each Bracket Tax Liability - Tax Credits_________________ = TAX OWED ABRIDGED INCOME TAX ACCOUNTING I. Gross Income [§ 61] — A. Wages‚ Salaries‚ and Tips B. Interest Income C. Dividend Income D. Other (Net) Income—Reduced by Deductible Expenses 1. State & Local
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furniture and personal belongings inside the house was $50‚000. The homeowner’s policy will only cove 50% of the value of the loss. Specific Issues 1. Whether Sam can claim any type of tax deduction on his individual return for the damages to the house. 2. If so‚ how is the amount of the deduction determined? Conclusions 1. Sam can claim itemized
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COMPREHENSIVE VOLUME--CHAPTER 7--DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES Student: ___________________________________________________________________________ 1. James is in the business of debt collection. He purchased a $20‚000 account receivable from Green Corporation for $15‚000. During the year‚ James collected $17‚000 in final settlement of the account. James can take a $2‚000 bad debt deduction in the current year. True False 2. If a business debt previously
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income‚ minus the standard deduction‚ and the deduction for personal exemptions.” We already know that Dale and Jane have a $157‚000 adjusted gross income or “AGI”‚ defined in §62 (a) as “gross income minus the following deductions” (all of the deductions that are listed are found on the first page of form 1040). Because the Carl’s AGI is already known‚ the next step in the process of determining their tax liability is to deduct the standard deduction. Standard deduction is defined in §63(c)(1) as
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approach Effect of AGI on the medical deduction Filing status: surviving spouse versus married filing separate Additional standard deductions: single and married amounts Standard deduction and adjustment for inflation Additional standard deduction of a dependent Itemized deductions versus standard deduction Basic and additional standard deductions Itemized deductions or standard deduction Itemized deductions or standard deduction Itemized deductions or standard deduction Standard deduction for resident
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(Are not taxed twice) True. The income of an S corporation is generally subject to just one level of tax. 4) Taxpayers have the choice of claiming either the personal and dependency exemption or the standard deduction. False. The standard deduction vs. itemized deduction. 5) An individual who is claimed as a dependent by another person is not entitled to a personal exemption on his or her own return. True. 6) All of the following items are generally excluded from income except
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withdrawals from a Regular IRA are included in gross income and are taxed as such. Also‚ there is a 10% early distribution penalty if you withdrawal funds from a Regular IRA before the age of 59 and 1/2. Of course there are restrictions on your deductions according to factors such as filing status‚ income‚ and if you are covered by a retirement plan at work. If you are not covered by a retirement plan at work‚ then you can take a
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and possible “decoupling” from this approach: “Decoupling” is when they erode certain recent tax reductions passed by congress because that state wants to retain their state revenue. b. Deductibility of federal income taxes. Most states allow a deduction for personal and dependency exemptions. c. Credit for taxes paid to other states. Most states tax those who regularly conduct business in the state. 29. Contrast FICA and FUTA as to the following: a. Purpose of the tax. FICA is a measure of retirement
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