Income Tax Fundamentals Chapter 1|2023 LATEST UPDATE|GUARANTEED SUCCESS

Form 1040 U.S. Individual Income Tax Return For federal income tax purposes, a sole proprietor must prepare a personal income tax Form 1040 U.S. Individual Income Tax Return and report the income or loss from the sole proprietorship on his or her personal income tax form. Corportation a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law. Partnership Partnerships are conduit, reporting entities, that engage in some type of business or financial activity, and are not subject to taxation. Various items of partnership income, expenses, gains, and losses flow through to the partners and are reported on their respective individual income tax returns. Gross Income All income from whatever source derived except that which is specifically excluded by tax law. Gross income does not include income such as interest on municipal bonds. In the case of a manufacturing or merchandising business, gross income means gross profit (i.e., gross sales or gross receipts less cost of goods sold). Adjusted Gross Income (AGI) A determination unique to individual taxpayers used as the basis to calculate limitations on the amount of certain expenses which may be deductible, including medical expenses, charitable contributions, certain personal casualty losses, and certain other itemized deductions. Generally, AGI represents gross income minus specific deductions such as certain trade or business expenses (deductions for AGI) but before itemized deductions or the standard deduction (deductions from AGI). Standard Deduction Taxpayers can deduct the larger of the standard deduction or their itemized deductions in calculating taxable income. An extra standard deduction amount is allowed for elderly and blind taxpayers. The standard deduction amounts are set by the IRS and may change annually. Exemptions Legal allowances that reduce the amount of income taxes subtracted from your gross income A qualifying widower A tax filing status available to widows or widowers for two years after their spouse's death. To claim this status, the taxpayer must also have a dependent child who lives in the household and for which the taxpayer pays over half the cost of maintaining the household.