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Essay On The Federal Tax System

579 Words3 Pages

The federal tax system is one of the most complex systems out there. There are many different types of elements that are involved in the taxation of individuals. One of the main elements under the taxation of individuals is gross income. Throughout this paper the different types of income will be highlights and explained. One should have a great grasp of what gross income is and how it relates to tax after this paper is complete. The federal income tax is levied on an individual’s taxable income, which is adjusted gross income (AGI) less deductions and exemptions. Tax rates, based on filing status (e.g., married filing jointly or single individual) determine the level of tax liability. Tax rates in the United States are progressive, such …show more content…

Your gross income is the amount of money that you make before taxes. Gross income includes all realized income from whatever source derived. Realized income is generated in a transaction with a second party in which there is a measurable change in property rights between parties. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident. There are many different things that go into income such as wages, interest received, dividends, gross profit from sale of inventory and gains on property. After you add up all of the income you can then figure out the amount of tax deduction. Certain tax provisions allow taxpayers to permanently exclude specific types of realized income from gross income and other provisions allow taxpayers to defer including certain types of realized income items in gross income until a subsequent year. There are a couple of different categories that one might assume is gross income but turns out not to be and they are, receipt by taxpayer of principal on a debt owed to her or him, return of capital from an investment, and finally any unrealized increase in

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