Imposition of tax- imposed on each individual as described in sec 2.
Taxable income- means adjusted gross income, reduced by:
a)the personal and dependency deduction,
b)the family living allowance,
c)the USA deductions, including
-the homeowner deduction,
-the education deduction, and
-the philanthropic transfer deduction.
Adjusted gross income- means gross income reduced by child support deductions and qualified IRA(Individual Retirement Account) deductions.
Section 2 Persons liable for tax for individuals
Citizens and resident aliens
Taxpayer- individual & in case of joint return, the husband and the wife.
Section 16 Kiddie tax
General rule- if a child has a living parent and net unearned income & the child has not attained the age of 14 before the close of the taxable year it will be included in the taxable income of the parent.
Child’s share of allocable parental tax.
Net unearned income.
Section 121Taxable Year
In general- the taxable year for all individuals subject to tax shall be the calendar year.
Short taxable years
GROSS INCOME-sec 3
Means all income from whatever source derived by a taxpayer during the taxable year including the following:
1. Compensation for services.
2. Fringe benefits.
4. Alimony,child support
5. Gains on the sale of assets etc.
EXCLUSION FROM GROSS INCOME-sec 4
Gross income does not include:
Returns or benefits from previously taxed income-
compensation for special kinds of services
gratuitous,charitable and government transfers
tax-exempt bond interest
compensation for injury and sickness
benefits primarily for the convenience of the employer and certain fringe benefits
7. Repayable receipts
8. Certain income earned abroad
9. Proceeds from sale of principal residence
10. Qualified retirement contributions
ALIMONY AND CHILD SUPPORT DEDUCTIONS sec 5
Alimony, child support payments paid during the taxpayer’s taxable year.
means which is includible in the gross income of the recipient u/s 3.
USA DEDUCTIONS sec 8
sec 9- home owner deduction
Means deduction equal to the amount of interest paid by the taxpayer during the taxable year on acquisition indebtedness with respect to any qualified residence of the taxpayer.
1. Means incurred in acquiring, construction or improving the residence.
2. Refinance any indebtedness described above.
The aggregate amount treated as acquisition indebtedness shall not exceed $1000000($500000 for married individual filing separately)
means the principal residence of the taxpayer.
EDUCATION DEDUCTION-sec 10
means deductions equal to the sum of the qualified educational expenses for each eligible student
taxpayer’s spouse if filed jointly
dependent of the taxpayer.
The max. education deduction in a taxable year is $12000( $6000 in the case of married individuals filing returns separately)
PHILANTROPHIC TRANSFER DEDUCTION sec 11
Shall be the amount of charitable contributions made by the taxpayer in the taxable year.
Only to the extent that such contributions do not exceed 50% of the taxpayer’s AGI
carry over- if exceeds amt allowed as deduction excess carried over a period of 5 year
US TAX RATES
MARRIED INDIVIDUALS FILING JOINT RETURNS If taxable income is over-- But not over-- The tax is: $0 $15,650 10% of the amount over $0 $15,650 $63,700 $1,565.00 plus 15% of the amount over 15,650 $63,700 $128,500 $8,772.50 plus 25% of the amount over 63,700 $128,500 $195,850 $24,972.50 plus 28% of the amount over 128,500 $195,850 $349,700 $43,830.50 plus 33% of the amount over 195,850 $349,700 no limit $94,601.00 plus 35% of the amount over 349,700
MARRIED INDIVIDUALS FILING SEPARATE RETURNS If taxable income is over-- But not over-- The tax is: $0 $7,825 10% of the amount over $0 $7,825 $31,850 $782.50 plus 15% of the amount over 7,825 $31,850 $64,250 $4,386.25 plus 25% of the amount over 31,850 $64,250 $97,925 $12,486.25 plus 28% of the amount over 64,250 $97,925 $174,850 $21,915.25 plus 33% of the amount over 97,925 $174,850 no limit $47,300.50 plus 35% of the amount over 174,850
UNMARRIED INDIVIDUALS If taxable income is over- But not over-- The tax is: $0 $7,825 10% of the amount over $0 $7,825 $31,850 $782.50 plus 15% of the amount over 7,825 $31,850 $77,100 $4,386.25 plus 25% of the amount over 31,850 $77,100 $160,850 $15,698.75 plus 28% of the amount over 77,100 $160,850 $349,700 $39,148.75 plus 33% of the amount over 160,850 $349,700 no limit $101,469.25 plus 35% of the amount over 349,700
HEADS OF HOUSEHOLDS If taxable income is over-- But not over-- The tax is: $0 $11,200 10% of the amount over $0 $11,200 $42,650 $1,120.00 plus 15% of the amount over 11,200 $42,650 $110,100 $5,837.50 plus 25% of the amount over 42,650 $110,100 $178,350 $22,700.00 plus 28% of the amount over 110,100 $178,350 $349,700 $41,810.00 plus 33% of the amount over 178,350 $349,700 no limit $98,355.50 plus 35% of the amount over 349,700
GUIDING PRINCIPLES OF USA TAX SYSTEMS
National wealth & well-being depend on the work, skill,saving & investments of people.
Business are people & their capital working together
Capital makes people more productive
Everyone benefits from a growing stock of national saving which in turn allows for a growing stock of physical & human capital
TAXABLE YEAR FOR A BUSINESS ENTITY
Annual accounting period
GAIN OR LOSS ON THE SALE OF AN ASSET-SEC.71
Gross Income = amount realized from the disposition of property – taxpayer’s adjusted basis in the property.
Amount realized is the sum of money received plus the fair market value of the property received.
Mark able contract means any regulated futures contract, any foreign currency contract etc…
LIMITATION ON LOSSES FROM CAPITAL TRANSACTIONS
No loss on personal use property.
Losses from sales of exchanges of capital assets in a taxable year shall be allowed.
Capital loss carryovers
TAX ON NON RESIDENT ALIEN INDIVIDUALS
- income other than certain gains
Capital gains of certain aliens .
In the United States, income tax codes are often legislatures’ favored policy instrument for encouraging numerous undertakings deemed socially useful.