Chapter 4 v2 - INCOME TAXATION: Chapter 4 INCOME An...

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1 An Overview of the An Overview of the Individual Income Tax Individual Income Tax System System Determination of Income Determination of Income Tax Liability Tax Liability INCOME TAXATION: Chapter 4 INCOME TAXATION: Chapter 4
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2 Tax Formula for Individuals Tax Formula for Individuals Income (broadly conceived) - Exclusions = Gross Income - Deductions for AGI = AGI - the larger of: (a) itemized deductions or (b) the standard deduction - personal & dependency exemptions = Taxable Income Tax on Taxable Income less Credits and Prepayments = Taxes payable or refund due
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3 Exclusions Exclusions What is an exclusion? Examples Gross Income What is Gross Income? How is it reported?
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4 *See Form 1040 Pg. 1 Deductions for AGI Deductions for AGI Examples: Alimony paid Deductions related to a trade or business of a self- employed person, i.e., proprietorships Deductions related to property held for production of income, rents, royalties Losses on sale or exchange of property Retirement Plan Contributions (i.e., IRAs) Moving expenses Many others
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5 **See Schedule A, Form 1040 Deductions from AGI Deductions from AGI (Use larger of standard deduction or itemized deductions) (Use larger of standard deduction or itemized deductions) ITEMIZED DEDUCTIONS Certain medical expenses Income and property taxes (including sales taxes) Interest paid/incurred, except: NO personal interest other than for a primary or secondary residence Charitable contributions Casualty and theft losses Miscellaneous deductions Unreimbursed travel, transportation, outside business expenses (salespersons), most employee business expenses,…others
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6 No cutback for medical, gambling losses, investment interest deductions, and
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This note was uploaded on 06/06/2011 for the course ACE 346 taught by Professor Peter during the Spring '11 term at University of Illinois, Urbana Champaign.

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Chapter 4 v2 - INCOME TAXATION: Chapter 4 INCOME An...

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