University:
Central Arizona College
Course:
ACC121 | Income Tax Fundamentals
Academic year:

2023
Views:

128

Pages:

1
Author:

Lucas H.

Fundamentals of the U. S Income Tax. United States’ income tax system works under the structure of a progressive tax system whereby the tax rates for an individual increases as their gross income also rises. ● This system is under the internal revenue service (IRS), a federal agency of the department of the treasury. ● The important source of revenues for the federal government is by income taxes, these revenues help support a large number of public services and programs such as national defense and social security. The history of america income tax began in civil struggling time when the government decided to introduce income tax, which was temporary. However, the present day income tax as we see it started with the adoption of the 16th Amendment of the U. S. Constitution in 1913. ● This amendment allowed the Congress to lay and collect taxes on income without referring to the proportion among the several states or the population of the United States according to the actual enumeration. ● Over the years, there has been various enhancements to the income tax system with regard to the rates of tax, exemptions, deductions, and credits and other factors that consider economic structure and society. 1. Concepts of Income Tax Part I Gross Income: Gross income is therefore the total of all sources of income of an individual as well as that of an entity before any subtractions for the likes of other expenses or taxes have been made. ● This encompasses issues such as the remunerations, salaries, interests, and dividends as well as the other revenues. ● Relating to gross income is important to be understood because it forms the basis on which taxable income is arrived at. 2. Adjusted Gross Income (AGI): ● The following is the explanation of how Adjusted Gross Income is arrived at: Adjusted Gross Income = Gross Income – Certain Allowable Adjustments Some of the changes that can be made for the calculation of adjusted gross income are student loan interest expenses, retirement account contributions and other specified amounts. ● Because AGI is used to determine the tax payers’ status for most of tax deductions, this figure is important.

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