Question

In: Accounting

Q1. Under US, income tax law deductions are Classifying into Deductions for and deductions from adjusted...

Q1. Under US, income tax law deductions are Classifying into Deductions for and deductions from adjusted gross income. Discuss in detail the items of each kind.

Q2. Explain the different concepts of income from accounting, economics and taxation perspectives (DO NOT copy from the slides). .

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Q3. Calculate the taxable income for each case below:

1- A taxpayer who is 30 old and single, has adjusted gross income of $60,000 and itemized deductions of $4,000. In 2013.

2- A single taxpayer provided the following information for 2013: Salary $90,000 Interest on local government bonds (qualifies as a tax exclusion) 5,000 Allowable itemized deductions 10,000

3- A taxpayer, who is single and age 44, received $60,000 of gross income and had $5,000 of deductions for AGI and $5,000 of itemized deductions.

Solutions

Expert Solution

Answer 2 : Income from accounts perspectives : When income is calculated as per accounting standard followed by that country. for e.g. income is calculated as per IFRS. It is calculated to show true and fair presentation of financial statement.

Income from tax perspective: Income is calculated 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.

Answer 3

1. Taxable income = Adjusted gross income - Itemized deductions

= $60000-$4000= $56000

2. Gross salary= $90,000

Add: Interest on local government bonds= Nil (as this is exempted icome)

Less: Itemized deductions = $10,000

Taxable income= $80,000

3. If a taxpayer chooses to itemize deductions, then deductions are only taken for any amount above the standard deduction limit. In this cases itemize deductions and standard deduction are same. So you can opt anyone deduction

Taxable income = Adjusted gross income - Itemized deductions

= $60000-$5000

$55,000

ekkarill92 answered 1 year ago
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