income tax in us

INCOME TAX IN THE

UNITED STATES

Section 1 USA TAX FOR Section 1 USA TAX FOR INDIVIDUALSINDIVIDUALS

Imposition of tax- Imposition of tax- imposed on each imposed on each individual as individual as described in sec 2.described in sec 2.

Taxable income- Taxable income- means adjusted gross means adjusted gross income, reduced by:income, reduced by:

a)the personal and a)the personal and dependency dependency deduction,deduction,

b)the family living b)the family living allowance,allowance,

c)the USA deductions, c)the USA deductions, includingincluding

-the homeowner -the homeowner deduction,deduction,

-the education deduction, -the education deduction, and and

-the philanthropic -the philanthropic transfer deduction.transfer deduction.

Adjusted gross income- Adjusted gross income- means gross income means gross income reduced by child support reduced by child support deductions and qualified deductions and qualified IRA(Individual Retirement IRA(Individual Retirement Account) deductions.Account) deductions.

Section 2 Persons liable Section 2 Persons liable for tax for individualsfor tax for individuals

Individuals only.Individuals only. Citizens and resident Citizens and resident

aliensaliens Nonresident aliensNonresident aliens Taxpayer- individual Taxpayer- individual

& in case of joint & in case of joint return, the husband return, the husband and the wife.and the wife.

Section 16 Kiddie taxSection 16 Kiddie tax

General rule- if a child General rule- if a child has a living parent and has a living parent and net unearned income & net unearned income & the child has not the child has not attained the age of 14 attained the age of 14 before the close of the before the close of the taxable year it will be taxable year it will be included in the taxable included in the taxable income of the parent.income of the parent.

Child’s share of allocable Child’s share of allocable parental tax.parental tax.

Eligible parent.Eligible parent. Net unearned income.Net unearned income.

Section 121Taxable YearSection 121Taxable Year

In general- the In general- the taxable year for all taxable year for all individuals subject individuals subject to tax shall be the to tax shall be the calendar year.calendar year.

Short taxable yearsShort taxable years

(i) Birth(i) Birth

(ii) Death.(ii) Death.

GROSS INCOME-sec 3GROSS INCOME-sec 3

Means all income from Means all income from whatever source derived by whatever source derived by a taxpayer during the a taxpayer during the taxable year including the taxable year including the following:following:

1. Compensation for 1. Compensation for services.services.

2. Fringe benefits.2. Fringe benefits.

3. Rents3. Rents

4. Alimony,child support4. Alimony,child support

5. Gains on the sale of 5. Gains on the sale of assets etc.assets etc.

EXCLUSION FROM GROSS EXCLUSION FROM GROSS INCOME-sec 4INCOME-sec 4

Gross income does not Gross income does not include:include:

1.1. Returns or benefits from Returns or benefits from previously taxed income-previously taxed income-

2.2. compensation for special compensation for special kinds of serviceskinds of services

3.3. gratuitous,charitable and gratuitous,charitable and government transfersgovernment transfers

4.4. tax-exempt bond interesttax-exempt bond interest5.5. compensation for injury compensation for injury

and sicknessand sickness6.6. benefits primarily for the benefits primarily for the

convenience of the convenience of the employer and certain employer and certain fringe benefitsfringe benefits

CONT……..CONT……..

7. Repayable receipts7. Repayable receipts

8. Certain income 8. Certain income earned abroadearned abroad

9. Proceeds from sale 9. Proceeds from sale of principal residenceof principal residence

10. Qualified 10. Qualified retirement retirement contributionscontributions

ALIMONY AND CHILD ALIMONY AND CHILD SUPPORT DEDUCTIONSSUPPORT DEDUCTIONS

sec 5sec 5 Alimony, child support payments paid Alimony, child support payments paid

during the taxpayer’s taxable year.during the taxpayer’s taxable year. means which is includible in the means which is includible in the

gross income of the recipient u/s 3.gross income of the recipient u/s 3.

USA DEDUCTIONSUSA DEDUCTIONSsec 8sec 8

sec 9- sec 9- home owner deductionhome owner deduction

Means deduction equal to the Means deduction equal to the amount of interest paid by the amount of interest paid by the taxpayer during the taxable taxpayer during the taxable year on acquisition year on acquisition indebtedness with respect to indebtedness with respect to any qualified residence of the any qualified residence of the taxpayer.taxpayer.

Acquisition indebtednessAcquisition indebtedness1. Means incurred in acquiring, 1. Means incurred in acquiring,

construction or improving the construction or improving the residence.residence.

2. Refinance any indebtedness 2. Refinance any indebtedness described above.described above.

LIMIT:LIMIT:

The aggregate amount The aggregate amount treated as acquisition treated as acquisition indebtedness shall not indebtedness shall not exceed exceed $1000000($500000 for $1000000($500000 for married individual filing married individual filing separately)separately)

QUALIFIED RESIDENCEQUALIFIED RESIDENCE

means the principal means the principal residence of the residence of the taxpayer.taxpayer.

EDUCATION DEDUCTION-EDUCATION DEDUCTION-sec 10sec 10

means deductions equal to means deductions equal to the sum of the qualified the sum of the qualified educational expenses for educational expenses for each eligible studenteach eligible student

ELIGIBLE STUDENT:ELIGIBLE STUDENT:Means:Means:1.1. TaxpayerTaxpayer2.2. taxpayer’s spouse if taxpayer’s spouse if

filed jointlyfiled jointly3.3. dependent of the dependent of the

taxpayer.taxpayer.

LIMITATION:LIMITATION:The max. education The max. education

deduction in a deduction in a taxable year is taxable year is $12000( $6000 in $12000( $6000 in the case of the case of married married individuals filing individuals filing returns returns separately)separately)

PHILANTROPHIC PHILANTROPHIC TRANSFER DEDUCTION TRANSFER DEDUCTION

sec 11sec 11 Shall be the amount of Shall be the amount of

charitable contributions charitable contributions made by the taxpayer made by the taxpayer in the taxable year.in the taxable year.

Only to the extent that Only to the extent that such contributions do such contributions do not exceed 50% of the not exceed 50% of the taxpayer’s AGItaxpayer’s AGI

carry over- if exceeds carry over- if exceeds amt allowed as amt allowed as deduction excess deduction excess carried over a period of carried over a period of 5 year5 year

US TAX RATES

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 JOINT 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

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 $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

UNMARRIED INDIVIDUALS

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

HEADS OF HOUSEHOLDS

GUIDING PRINCIPLES OF USA

TAX SYSTEMSNational 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 Gross profits

Annual accounting period

Calendar year

fiscal year

GAIN OR LOSS ON THE GAIN OR LOSS ON THE SALE OF AN ASSET-SEC.71SALE OF AN ASSET-SEC.71

Gross Income = amount Gross Income = amount realized from the realized from the disposition of property – disposition of property – taxpayer’s adjusted basis taxpayer’s adjusted basis in the property.in the property.

Amount realized is the Amount realized is the sum of money received sum of money received plus the fair market value plus the fair market value of the property received.of the property received.

Mark able contract means Mark able contract means any regulated futures any regulated futures contract, any foreign contract, any foreign currency contract etc…currency contract etc…

LIMITATION ON LOSSES LIMITATION ON LOSSES FROM CAPITAL FROM CAPITAL TRANSACTIONSTRANSACTIONS

No loss on personal No loss on personal use property.use property.

Losses from sales of Losses from sales of exchanges of capital exchanges of capital assets in a taxable assets in a taxable year shall be allowed.year shall be allowed.

Capital loss Capital loss carryoverscarryovers

Capital assetsCapital assets RecaptureRecapture

TAX ON NON RESIDENT TAX ON NON RESIDENT ALIEN INDIVIDUALSALIEN INDIVIDUALS

Non-business Non-business incomeincome

- income other than - income other than certain gainscertain gains

Capital gains of Capital gains of certain alienscertain aliens..

CONCLUSIONCONCLUSION

In the United States, In the United States, income tax codes are income tax codes are often legislatures’ often legislatures’ favored policy favored policy instrument for instrument for encouraging numerous encouraging numerous undertakings deemed undertakings deemed socially useful.socially useful.

Special tax rebates Special tax rebates granted for any granted for any purposepurpose..

INDIAN BUDGET 2008-INDIAN BUDGET 2008-20092009

Provisions for taxationProvisions for taxation

Increase limit of Sec 80 Increase limit of Sec 80 CC

Benefit from home loanBenefit from home loan

Standard deductionStandard deduction

Realign tax slabsRealign tax slabs

EXAMPLE OF A TAX EXAMPLE OF A TAX COMPUTATIONCOMPUTATION

Income tax:Income tax: $40,000 (adjusted gross income) $40,000 (adjusted gross income)

$7,825 × 0.10 = $782.50 $7,825 × 0.10 = $782.50 ($31,850 - $7,825) × 0.15 = ($31,850 - $7,825) × 0.15 =

$3,603.75 $3,603.75 ($40,000 - $31,850) × 0.25 = ($40,000 - $31,850) × 0.25 =

$2,037.50 $2,037.50 Total income tax = $6,423.75 (16.06% of Total income tax = $6,423.75 (16.06% of

income) income)