The document outlines key aspects of the US individual income tax system. It discusses tax rates and taxable income calculations for individuals, including standard deductions, exemptions, and tax credits. It also covers taxation of capital gains and losses, as well as special tax provisions for homeowners, students, charitable donations, and more. Tax rates are provided for single, married, head of household, and other filing statuses.

1. INCOME TAX IN THE UNITED STATES

2. Section 1 USA TAX FOR INDIVIDUALS 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,

3. 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.

4. Section 2 Persons liable for tax for individuals Individuals only. Citizens and resident aliens Nonresident aliens Taxpayer- individual & in case of joint return, the husband and the wife.

5. 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. Eligible parent. Net unearned income.

6. Section 121Taxable Year In general- the taxable year for all individuals subject to tax shall be the calendar year. Short taxable years (i) Birth (ii) Death.

7. 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. 3. Rents 4. Alimony,child support 5. Gains on the sale of assets etc.

8. 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

9. CONT…….. 7. Repayable receipts 8. Certain income earned abroad 9. Proceeds from sale of principal residence 10. Qualified retirement contributions

10. 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.

11. 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. Acquisition indebtedness 1. Means incurred in acquiring, construction or improving the residence. 2. Refinance any indebtedness described above.

12. LIMIT: The aggregate amount treated as acquisition indebtedness shall not exceed $1000000($500000 for married individual filing separately) QUALIFIED RESIDENCE means the principal residence of the taxpayer.

13. EDUCATION DEDUCTION-sec 10 means deductions equal to the sum of the qualified educational expenses for each eligible student ELIGIBLE STUDENT: Means: Taxpayer taxpayer’s spouse if filed jointly dependent of the taxpayer.

14. LIMITATION: The max. education deduction in a taxable year is $12000( $6000 in the case of married individuals filing returns separately)

15. 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

16. US TAX RATES

17. 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

18. 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

19. 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

20. 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

21. 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

22. TAXABLE YEAR FOR A BUSINESS ENTITY Gross profits Annual accounting period Calendar year fiscal year

23. 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…

24. 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 Capital assets Recapture

25. TAX ON NON RESIDENT ALIEN INDIVIDUALS Non-business income - income other than certain gains Capital gains of certain aliens .

26. CONCLUSION In the United States, income tax codes are often legislatures’ favored policy instrument for encouraging numerous undertakings deemed socially useful. Special tax rebates granted for any purpose .

27. INDIAN BUDGET 2008-2009 Provisions for taxation Increase limit of Sec 80 C Benefit from home loan Standard deduction Realign tax slabs

29. EXAMPLE OF A TAX COMPUTATION Income tax: $40,000 (adjusted gross income) $7,825 × 0.10 = $782.50 ($31,850 - $7,825) × 0.15 = $3,603.75 ($40,000 - $31,850) × 0.25 = $2,037.50 Total income tax = $6,423.75 (16.06% of income)