FTax IRGTB ch03 p001-020

FTax IRGTB ch03 - Taxable Entities Tax Formula Introduction to Property Transactions Solutions to Tax Research Problems 3-56 The purpose for this

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Unformatted text preview: Taxable Entities; Tax Formula; Introduction to Property Transactions Solutions to Tax Research Problems 3-56 The purpose for this problem is to allow one to gain an appreciation for the organization of the Internal Revenue Code and the differing authorities for taxing income, deductiong items, and classifying them. The specific questions are answered as follows: a. Congress defined the word “ income ” in § 61(a) by using the word “ income. ” The section states that “ income ” includes income from all sources. This definition is enhanced by listing numerous examples, such as salaries and wages, commissions, interest, dividends, and alimony. b. Under § 63, the deductions allowed by 151-152 are properly deducted from A.G.I. in arriving at taxable income. The only other deductions from A.G.I. are the larger of the itemized deductions or the appropriate standard deduction. c. Ordinary and necessary expenses incurred in the operation of a trade or business are deductible under the authority of § 162. Section 62 defines A.G.I. by specifying which deductions are allowable in calculating A.G.I. It specifies that the trade or business expenses of a self-employed person shall be allowed as deductions for adjusted gross income. Only reimbursed expenses of an employee are deductible for A.G.I. Other employee business expenses are miscellaneous itemized deductions. d. Alimony is deductible within limits, as will be demonstrated in Chapter 7. The deductible amount is allowable for A.G.I. under § 62, as explained for trade or business expenses above. It is important to realize that the authority for the deduction and the authority for the classification thereof are separate. Note: The sections that classify income and deduction items, §§ 61-68, are the basis for the “ tax formula ” developed in this chapter. 3 3-1 Taxable Entities; Tax Formula; Introduction to Property Transactions Test Bank True or False 1. A single taxpayer will pay the same amount of tax (or less) as a head of household when their taxable incomes are equal. 2. The income of a child under age 19 is taxed to the parent. 3. Citizens and residents of the United States generally are taxed on income earned in a foreign country. 4. The sole proprietorship business of an individual taxpayer is treated as a separate entity for tax purposes. 5. F operates his computer repair business as a sole proprietorship. His sole proprietorship ’ s taxable income is subject to tax using the corporate tax rates since it is a business. 6. B and D are beneficiaries of a trust that distributed $6,000 out of its taxable earnings to each of them in 20X0. The trust had $11,000 of taxable net income in 20X0. The trust is not required to pay income tax for 20X0....
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This note was uploaded on 02/05/2012 for the course ACCT 112 taught by Professor Smith during the Spring '11 term at Adrian College.

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FTax IRGTB ch03 - Taxable Entities Tax Formula Introduction to Property Transactions Solutions to Tax Research Problems 3-56 The purpose for this

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