Chapter 2 Determination of tax
Chapter 2 Determination of Tax
Learning objectives Use the tax formula to compute an individual's taxable income Determine the amount allowable for the standard deduction Determine the amount and the correct number of personal and dependency deductions
Learning Objectives • Use the tax formula to compute an individual’s taxable income • Determine the amount allowable for the standard deduction • Determine the amount and the correct number of personal and dependency deductions
Learning objectives Determine the amount of child credit Determine the filing status of individuals Explain the tax formula for corporations Explain the basic concepts of property transactions
Learning Objectives • Determine the amount of child credit • Determine the filing status of individuals • Explain the tax formula for corporations • Explain the basic concepts of property transactions
mula for Individual Income Tax NCOME FROM WHATEVER SOURCE DERIVED minus eXCLUSIONS= GRoSs INCOME minus DEDUCTIONS FOR ADJUSTED GROSS INCOME adJUSTEd GROSS INCoME- deduct Greater OF ITEMIZED OR STANDARD DEDUCTION and PERSONAL AND DEPENDENCY EXEMPTIONS= TAXABLE INCOME TAXABLE INCOME timeS TAX RATE (tax table or schedule)= GRoss TAX minus CREDITS AND PREPAYMENTS= NET TAX PAYABLE OR REFUND DUE
Formula For Individual Income Tax • INCOME FROM WHATEVER SOURCE DERIVED minus EXCLUSIONS= GROSS INCOME minus DEDUCTIONS FOR ADJUSTED GROSS INCOME= ADJUSTED GROSS INCOME - deduct GREATER OF ITEMIZED OR STANDARD DEDUCTION and PERSONAL AND DEPENDENCY EXEMPTIONS= TAXABLE INCOME. TAXABLE INCOME times TAX RATE (tax table or schedule) = GROSS TAX minus CREDITS AND PREPAYMENTS= NET TAX PAYABLE OR REFUND DUE
Formula for individual Income Tax Income from whatever source derived XXXXXX Minus: Exclusions (xxx) Gross Income Minus: Deductions for Adjusted Gross Income (xXX) Adjusted Gross Income(AGi) s x, XXX Minus: Deductions from adjusted gross income Greater of itemized deductions or the standard deduction (xX) Personal and dependency exemptions Taxable income XXXX Times: Tax rate or rates(from tax table or schedule) Gross tax Minus: Credits and prepayments (x) Net tax payable or refund due
Formula For Individual Income Tax Income from whatever source derived Minus: Exclusions Gross Income Minus: Deductions for Adjusted Gross Income Adjusted Gross Income(AGI) Minus: Deductions from adjusted gross income: Greater of itemized deductions or the standard deduction Personal and dependency exemptions Taxable Income Times: Tax rate or rates (from tax table or schedule) Gross tax Minus: Credits and prepayments Net tax payable or refund due $ xxx,xxx (xxx) $ xx,xxx (xxx) $ x,xxx (xx) (xx) $ x,xxx .xx $ xx (x) $ xx
Definitions ·| ncome Exclusion Gross income Deductions for adjusted gross income(AGl) Adjusted gross income (AGl) · Deductions from aG
Definitions • Income • Exclusion • Gross income • Deductions for adjusted gross income (AGI) • Adjusted gross income (AGI) • Deductions from AGI
Definitions Itemized or standard deductions Personal and dependency exemptions Taxable income Tax rates and gross tax Credits and prepayments
Definitions • Itemized or standard deductions • Personal and dependency exemptions • Taxable income • Tax rates and gross tax • Credits and prepayments
temized deductions Qualifying medical expenses, taxes, investment and residential interest, charitable contributions personal casualty and theft losses, miscellaneous if greater than standard deduction Some items limited by varying percentages of adjusted gross income Maximum reduction in such itemized deductions is 80% of total itemized deductions
Itemized Deductions • Qualifying medical expenses, taxes, investment and residential interest, charitable contributions, personal casualty and theft losses, & miscellaneous if greater than standard deduction • Some items limited by varying percentages of adjusted gross income • Maximum reduction in such itemized deductions is 80% of total itemized deductions
Standard Deduction · Varies based on: Filing status Age Vision Used when greater than Itemized Loss of the standard deduction
Standard Deduction • Varies based on: – Filing status – Age – Vision • Used when greater than Itemized • Loss of the Standard Deduction
Personal Exemptions Unless claimed as dependent on another return each allowed one Additional allowed for spouse on joint return or separate return if no gross income/not dependent of another
Personal Exemptions • Unless claimed as dependent on another return, each allowed one • Additional allowed for spouse on joint return or separate return if no gross income/not dependent of another