Acct 3510 Chapter 7 Notes

Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes.

Any personal expenditures not specifically allowed as itemized deductions by the tax law are nondeductible.

How does the alternative minimum tax system differ from the regular tax system? How is it similar? Why did Congress implement the alternative minimum tax system? The starting point for computing alternative minimum taxable income is regular taxable income. What are some adjustments and preferences to regular taxable income to compute alternative minimum taxable income?

is generally applied to taxpayers. In particular, explain how the Code’s definition of income is different than other potential definitions of income, such as the economic concept of income, and use an example to illustrate the difference between the two systems. Explain how the Code approaches whether or not particular items should be included in income and how

According to AASB 112, main principal of tax effect is to recognize deferred tax asset or deferred tax liability if it is probable that future recovery or settlement of asset or liability makes future tax payments larger or smaller. Requirements are to separately disclose main parts of tax expense, aggregate current and deferred tax relating to items recognized directly in equity, information demonstrating a relationship between tax expense & company’s accounting profit, and certain information relevant to temporary differences and deferred tax assets.

Tax deductions reduce taxable income; their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Tax credits directly reduce a person’s tax liability and hence have the same value for all taxpayers with tax liability at least equal to the credit. In addition, some credits are refundable; they are not limited by the taxpayer’s tax liability.

4) Explain the differences between statutory and ordinary income. Give examples of either category in your answer.

c. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?

Identify one major exclusion and one tax credit. Find the relevant Internal Revenue Code Section that provides for the exclusion or credit using IRS.GOV, copy the first paragraph, including the Code Section, and paste it into your post. Please answer this question for each: Did Congress enact this exclusion or credit for a social or economic purpose? Or both? For your third post this week, identify one of your colleagues' posts and respond to their observations with a concurrence or not; either way, support your position. Discuss which provides a greater tax advantage to the taxpayer, deductions or tax credits.

| C.  When the total is less that the designated percentage of your gross income.

Competency 302.2.1: Current Tax System. The student understands the nature, purpose, and scope of the current U.S. tax system.

ss4, -5, -10, -15 - Shows how to calculate tax, and who should pay tax

Thus, a capital expenditure which is related only to the sick person and is not related to permanent improvement or betterment of property, if it otherwise qualifies as an expenditure for medical care, shall be deductible; for example, an expenditure for eye glasses, a seeing eye dog, artificial teeth and limbs, a wheel chair, crutches, an inclinator or an air conditioner which is detachable from the property and purchased only for the use of a sick person, etc. Moreover, a capital expenditure for permanent improvement of property may qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property, if the particular expenditure is related directly to medical care. Such a situation could arise, for example, where a taxpayer is advised by a physician to install an elevator in his residence so that the taxpayer's wife who is afflicted with heart disease will not be required to climb stairs. If the cost of installing the elevator is $1,000 and the increase in the value of the residence is determined to be only $700, the difference of $300, which is the amount in excess of the value enhancement, is deductible as a medical expense. If, however, by reason of this expenditure, it is determined that the value of the residence has

The alternative minimum tax is implemented in order to ensure that individuals and corporations which have substantial income must pay the regular income tax plus the excess, the AMT, when the tentative alternative minimum tax is greater than the regular tax. There are several reasons for which a corporation is likely to pay an AMT: a). A high level of investment in fixed assets, such as buildings, equipment etc., and b). low taxable income due to a strong foreign competition, a low-margin industry or other factors; c). investment at low real interest

(ii) It is expected that a relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme- purchases from such entities will cost less for the consumers;