{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch03 - 31 Chapter 3 Individual TaxationAn Overview SUMMARY...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
© 2011 CCH. All Rights Reserved. Chapter 3 31 Chapter 3 Individual Taxation—An Overview SUMMARY OF CHAPTER A basic understanding of the method used to calculate the tax liability is a necessity in the study of federal income taxation. The basic tax formula for individuals is as follows: Gross Income Deductions for Adjusted Gross Income = Adjusted Gross Income Greater of Itemized Deductions or Standard Deduction Personal Exemptions = Taxable Income × Tax Rate = Taxable Liability Tax Credits and Prepayments = Net Tax Due or Refund Components of the Tax Formula ¶3001 Gross Income Gross income includes all items of income from whatever source unless speci fi cally excluded. Examples of gross income include compensation for services, interest, rents, royalties, dividends, and annuities. An individual’s income from business is included in gross income after deducting the cost of goods sold. ¶3015 Deductions for Adjusted Gross Income To arrive at adjusted gross income, all deductions speci fi cally allowed by law are subtracted from gross income. Some of the items allowed as deductions for adjusted gross income include (1) trade or business expenses, such as advertising, depreciation, and utilities, (2) moving expenses, (3) reimbursed employee expenses, such as travel, transportation, and entertainment expenses, and (4) losses from the sale or exchange of property. ¶3025 Adjusted Gross Income In the tax formula there are deductions for adjusted gross income and then deductions from adjusted gross income. It is important to take these deductions in the proper categories. Adjusted gross income is an important subtotal because certain other items are based on the amount of adjusted gross income. ¶3035 Itemizing v. Standard Deduction Itemized deductions allowed as a deduction include: medical expenses, state and local income taxes, property taxes, mortgage interest, charitable contributions, personal casualty losses, and miscellaneous employee expenses. The standard deduction is a fi xed amount based on the fi ling status of the taxpayer and is adjusted annually for in fl ation. Taxpayers subtract the larger of their itemized deductions or the standard deduction. For 2011, the standard deduction amounts are $11,600 for married taxpayers fi ling jointly and surviving spouses, $5,800 for single taxpayers, $8,500 for heads of households, and $5,800 for married taxpayers fi ling separately. ¶3045 Personal Exemptions Individual taxpayers can reduce their income tax liability by properly claiming exemptions for themselves, their spouses, and their dependents. For 2011, taxpayers are allowed a $3,700 deduction for each personal exemption.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
32 CCH Federal Taxation—Comprehensive Topics Chapter 3 © 2011 CCH. All Rights Reserved. ¶3055 Tax Rates Tax liability is either derived from the appropriate column of the Tax Tables or is computed from the appropriate line in the Tax Rate Schedules. The tax rate schedules include six tax brackets in 2011—10, 15, 25, 28, 33, and 35 percent.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern