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:

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

Financial Gifts Inheritances

,

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