Federal Taxation -- Chapter 2 Questions
& Answers 100% Accurate!
individual tax formula - ANSWERSincome
<exclusions>
---------------
gross income
<deductions FOR AGI>
-------------
adjusted gross income
deductions FROM AGI:
<itemized or standard deduction>
<personal and dependency exemptions>
------------
taxable income
x tax rate or rates (from tax table or schedule)
-------------
gross tax
<credits and prepayments>
-----------------
net tax payable or refund due
income - ANSWERSincludes both taxable and nontaxable income.
meaning is close to that of the term revenue. However, it does not include a return of
capital. In case of sale of property, only the gain, not the entire sales proceeds, is
viewed as income.
exclusion - ANSWERSnot all income is taxable. An exclusion is any item of income that
the tax law says is not taxable. Exclusions on page 2-3
gross income - ANSWERSincome reduced by exclusions.
page 2-4
deductions for adjusted gross income - ANSWERStrade and business deductions
losses from sale or exchange of property
deductions attributable to rents and royalties
contributions to IRAs
one-half of self-employment taxes paid
alimony
moving expenses
jury duty pay remitted to an individual's employer
interest on education loans
contribution to medical savings account
, adjusted gross income - ANSWERSmeasure of income that falls between gross income
and taxable income
itemized deductions and standard deduction - ANSWERScharitable contributions and
medical expenses. itemize expenses related to production or collection of income,
management of property held for the production of income,
personal and dependency exemptions - ANSWERSpersonal exemption generally is
allowed for each taxpayer and his or her spouse and an additional dependency
exemption is permitted for each dependent.
taxable income - ANSWERSis adjusted gross income reduced by deductions FROM
AGI. It is the amount of income that is taxed.
tax credits - ANSWERSwhich include prepayments, are amounts that can be subtracted
from the gross tax to arrive at the net tax due or refund date. Credits may be classified
as either refundable or nonrefundable tax credits
refundable tax credits - ANSWERSallowed to reduce a taxpayer's tax liability to zero,
and, if some credit still remains, are refundable (paid) by the government to the
taxpayer. Prepayments of tax, which are amounts paid to the government during the
year through means such as withholding from wages, and selected other items are
classified as refundable tax credits.
nonrefundable tax credits - ANSWERSare allowances that have been created by
Congress for various social, economic, and political reasons such as the child and
dependent care credits. nonrefundable tax credits can be subtracted from the tax and
may reduce the tax liability to zero. However, if the nonrefundable credits exceed the
tax liability, none of the excess will be paid to the tax payer.
itemized deductions - ANSWERSclaimed only if the total of such expenses exceeds the
standard deduction.
itemized deduction floors - ANSWERS*medical expenses: only medical expenses over
7.5% of AGI are deductible...Increases to 10% in 2013.
**casualty loses: only casualty losses in excess of 10% of AGI are deductible.
**miscellaneous itemized deductions: only miscellaneous itemized deductions in excess
of 2% of AGI are deductible.
standard deduction - ANSWERSgenerally increases each year because it is indexed to
the rate of inflation. rules 2-11
Loss of the standard deduction - ANSWERS*** individual filing a return for a period less
than twelve months because of a change in accounting period.
& Answers 100% Accurate!
individual tax formula - ANSWERSincome
<exclusions>
---------------
gross income
<deductions FOR AGI>
-------------
adjusted gross income
deductions FROM AGI:
<itemized or standard deduction>
<personal and dependency exemptions>
------------
taxable income
x tax rate or rates (from tax table or schedule)
-------------
gross tax
<credits and prepayments>
-----------------
net tax payable or refund due
income - ANSWERSincludes both taxable and nontaxable income.
meaning is close to that of the term revenue. However, it does not include a return of
capital. In case of sale of property, only the gain, not the entire sales proceeds, is
viewed as income.
exclusion - ANSWERSnot all income is taxable. An exclusion is any item of income that
the tax law says is not taxable. Exclusions on page 2-3
gross income - ANSWERSincome reduced by exclusions.
page 2-4
deductions for adjusted gross income - ANSWERStrade and business deductions
losses from sale or exchange of property
deductions attributable to rents and royalties
contributions to IRAs
one-half of self-employment taxes paid
alimony
moving expenses
jury duty pay remitted to an individual's employer
interest on education loans
contribution to medical savings account
, adjusted gross income - ANSWERSmeasure of income that falls between gross income
and taxable income
itemized deductions and standard deduction - ANSWERScharitable contributions and
medical expenses. itemize expenses related to production or collection of income,
management of property held for the production of income,
personal and dependency exemptions - ANSWERSpersonal exemption generally is
allowed for each taxpayer and his or her spouse and an additional dependency
exemption is permitted for each dependent.
taxable income - ANSWERSis adjusted gross income reduced by deductions FROM
AGI. It is the amount of income that is taxed.
tax credits - ANSWERSwhich include prepayments, are amounts that can be subtracted
from the gross tax to arrive at the net tax due or refund date. Credits may be classified
as either refundable or nonrefundable tax credits
refundable tax credits - ANSWERSallowed to reduce a taxpayer's tax liability to zero,
and, if some credit still remains, are refundable (paid) by the government to the
taxpayer. Prepayments of tax, which are amounts paid to the government during the
year through means such as withholding from wages, and selected other items are
classified as refundable tax credits.
nonrefundable tax credits - ANSWERSare allowances that have been created by
Congress for various social, economic, and political reasons such as the child and
dependent care credits. nonrefundable tax credits can be subtracted from the tax and
may reduce the tax liability to zero. However, if the nonrefundable credits exceed the
tax liability, none of the excess will be paid to the tax payer.
itemized deductions - ANSWERSclaimed only if the total of such expenses exceeds the
standard deduction.
itemized deduction floors - ANSWERS*medical expenses: only medical expenses over
7.5% of AGI are deductible...Increases to 10% in 2013.
**casualty loses: only casualty losses in excess of 10% of AGI are deductible.
**miscellaneous itemized deductions: only miscellaneous itemized deductions in excess
of 2% of AGI are deductible.
standard deduction - ANSWERSgenerally increases each year because it is indexed to
the rate of inflation. rules 2-11
Loss of the standard deduction - ANSWERS*** individual filing a return for a period less
than twelve months because of a change in accounting period.
