For tax purposes, “gross income” is all the money a person receives in a given y
ID: 1193377 • Letter: F
Question
For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The difference between the two is the result of many exemptions and deductions. To see how they work, suppose you made $50,000 last year in wages, $10,000 from investments, and were given $5000 as a gift by your grandmother. Also assume that you are a single parent with one small child living with you.Next, assume you paid $700 in interest on your student loans last year, put $2000 into a health savings account (HSA), and deposited $4000 into an individual retirement account (IRA). These expenditures are all tax exempt, meaning that any money spent on them reduces taxable income dollar-for-dollar. Knowing that fact, what is your taxable income now? $Spell check d. Next, you can either take the so-called standard deduction or apply for itemized deductions (which involve a lot of tedious paperwork). You opt for the standard deduction that allows you as head of your household to exempt another $8500 from your taxable income. Taking that into account, what is your taxable income? $Spell check For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The difference between the two is the result of many exemptions and deductions. To see how they work, suppose you made $50,000 last year in wages, $10,000 from investments, and were given $5000 as a gift by your grandmother. Also assume that you are a single parent with one small child living with you.
Next, assume you paid $700 in interest on your student loans last year, put $2000 into a health savings account (HSA), and deposited $4000 into an individual retirement account (IRA). These expenditures are all tax exempt, meaning that any money spent on them reduces taxable income dollar-for-dollar. Knowing that fact, what is your taxable income now? $Spell check d. Next, you can either take the so-called standard deduction or apply for itemized deductions (which involve a lot of tedious paperwork). You opt for the standard deduction that allows you as head of your household to exempt another $8500 from your taxable income. Taking that into account, what is your taxable income? $Spell check For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The difference between the two is the result of many exemptions and deductions. To see how they work, suppose you made $50,000 last year in wages, $10,000 from investments, and were given $5000 as a gift by your grandmother. Also assume that you are a single parent with one small child living with you.
Next, assume you paid $700 in interest on your student loans last year, put $2000 into a health savings account (HSA), and deposited $4000 into an individual retirement account (IRA). These expenditures are all tax exempt, meaning that any money spent on them reduces taxable income dollar-for-dollar. Knowing that fact, what is your taxable income now? $Spell check d. Next, you can either take the so-called standard deduction or apply for itemized deductions (which involve a lot of tedious paperwork). You opt for the standard deduction that allows you as head of your household to exempt another $8500 from your taxable income. Taking that into account, what is your taxable income? $Spell check
Explanation / Answer
Gross Income = 50000 + 10000 + 5000 = 65000 $
New Taxable income after, assuming you paid $700 in interest on your student loans last year, put $2000 into a health savings account (HSA), and deposited $4000 into an individual retirement account (IRA) = (65000 - 700 - 2000 -4000)$ = 58300 $
After opting for the standard deduction that allows you as head of your household to exempt another $8500 from your taxable income. So, new taxable income = 58300-8500 = 49800 $