Definitions and Regs Flashcards
Gross Income (§61)
All income from whatever source derived.
*The form of compensation does not matter.
Adjusted Gross Income (§62)
This is gross income minus deductions.
Above the Line Deductions are ___…
…Used to determine AGI
- business expenses (listed in §62)
Below the Line Deductions are used ___…
…after AGI is determined
- other expenses. If this is greater than standard deduction, then itemize (§63) and don’t take the standard deduction.
Standard Deduction is ___…
…a dollar amount set by Congress that a TP may elect to use in lieu of itemizing their personal deductions.
*TP is entitled to deduct the full amount specified regardless of what personal expenses the taxpayer actually incurred.
Personal Exemptions set out in (§151) are
deductions allowed in addition to standard and itemized deductions for each taxpayer or dependent included on the tax return that meets the requirements set out in §151 and §152.
Taxable Income is ___…
…the income after standard deductions or itemized
deductions are taken from AGI.
Tax Credit vs. Tax Deduction
A credit reduces tax liability dollar for dollar and the
deduction reduces the taxable income in relation to tax bracket.
Rate Scale
Graduating progressive statutorily provided brackets for calculating tax liability from taxable income
- Personal Income is a Graduating Progressive Tax Rate with a Max Marginal Tax Bracket of 39.6%
- Corporate Income is a Disappearing Graduated Tax Rate with a Max Tax Bracket of 35%
Witholding Tax is___…
…the amount taxes that an employer withholds from an employees pay and deposits with the Treasury Department on behalf of the employee throughout the year.
Tax Basis is the___…
… cost or value of an asset when acquired by the TP that is used in calculating the capital gain or loss upon disposition.