08 Nov Explain formula for individuals income tax and business entities Arrange relative tax liability by filing status from lowest to highest? Contrast concepts of Income from accounting ,
Q1. Explain formula for individual’s income tax and business entities. (five marks)
Answer:
Q2. Arrange relative tax liability by filing status from lowest to highest? (2.5 marks)
Answer:
Q3. Contrast concepts of Income from accounting , economic and tax perspectives.( use your own words ) (five marks)
answer
Q4. Idinify Items that are not Income under US income tax law. ? (2.5 marks)
Answer:
Q1. Explain formula for individual’s income tax and business entities. (five marks) Answer:
i. Find the Adjusted Gross Income
All earnings are included in gross income which comprises of salary, interests, etc. A person's AGI influences whether or not they are eligible for various tax breaks and deductions. Adjusted Gross Income = Gross Income – Deductions for Adjusted Gross Income
ii. Find the Income Tax Income Tax = Adjusted Gross Income – Deductions from Adjusted Gross Income (Itemized or standard deductions) Itemized deductions include medical expenses, charitable donations, taxes and other miscellaneous deductions. These lowers ones adjusted gross income (AGI) and the taxable income.
iii. iii. Find the Gross Tax Liability Gross Tax Liability = Taxable Income x Tax Rate
iv. iv. Tax Payable Tax Payable (Tax Due) = Gross Tax Liability – Tax Credits and Pre-payments
Q2. Arrange relative tax liability by filing status from lowest to highest? (2.5 marks) Answer:
The filing status determines the rate at which income is taxed. The five filing statuses are:
• single
• married filing jointly
• married filing separately
• head of household
• qualifying widow(er) with dependent child
Some taxpayers can qualify for more than one filing status. Usually, taxpayers choose the filing status that results in the lowest tax.
Q3. Contrast concepts of Income from accounting , economic and tax perspectives.( use your own words ) (five marks)
Answer
Income from accounts perspectives: When income is calculated as per accounting standard followed by that country. for e.g. income is calculated to show true and fair presentation of financial statement
Income from tax perspective: Income is calsulated as per taxation law of country. It is calculated to deposit Income tax. In this income as per accounting is taken and adjustments are made in that income as per taxation law of that country. For e.g. Method of calculating of Depreciation maybe differenct as per accounting standard or Income tax law.
Income from econmics Perpective: This is calculated to check return on investment. It is calculated to check how much we have earned from our capital investment.
Q4. Idinify Items that are not Income under US income tax law. ? (2.5 marks)
Answer: .
Disability Insurance Payments. …
Employer-Provided Insurance. …
Health Savings Accounts (HSAs) …
Life Insurance Payouts. …
Earned Income in Eight States
Corporate Income Earned in Six States
Sale of a Principal Residence
Q1 – Explain formula for individual’s income tax and business entities.
Q2 – Arrange relative tax liability by filing status from lowest to highest?
Q3 – Contrast concepts of Income from accounting , economic and tax perspectives
Q4- Identify Items that are not Income under US income tax law.
The slides following chapter 4 – slide 3 go into more detail.
All the best.
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