[TAX] CONCEPT OF INCOME - CONCEPT OF INCOME Income increase...

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CONCEPT OF INCOME Income- increase in net worth * Net worth = total assets – total liabilities TAXABLE INCOME USING NET WORTH METHOD Net worth, end xx Net worth, beg (xx) Increase (decrease in net worth) xx Nondeductible items xx Nontaxable items (xx) Personal exemptions-for individuals (xx) NET TAXABLE INCOME XX Return OF Capital vs. Return ON Capital Return OF Capital- COST (capital/original investment) Return ON Capital- INCOME (gain/interest realized) Revenue vs. Income Revenue- funds accruing to the treasury of the government Income- earnings of an individual, partnership, corporation, etc. CHARACTERISTICS OF TAXABLE INCOME 1. There must be gain or profit- value received in cash or its equivalent 2. The gain must be realized or received- may be actual or constructive; increase in value of property is ≠ income rather an unrealized increase in capital invested 3. The law/treaty does not exclude the gain from taxation SOURCES OF TAXATION SOURCE Income Taxpayers RC/DC NRC/ALIENS/FC WITHIN Taxable
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