Taxation for Decision Makers, 2012 Edition

chapter 11

Income Taxation of Individuals

CHAPTER OUTLINE

Setting the Stage—An Introductory Case

The Individual Tax Model

Personal and Dependency Exemptions

Filing Status

Standard Deduction

Itemized Deductions

Net Operating Loss

Computing the Tax

Tax Credits

Payment of Income Tax

Expanded Topics—Additional Taxes

Revisiting the Introductory Case

Summary

Key Terms

Test Yourself

Problem Assignments

Answers to Test Yourself

The individual tax model differs significantly from the corporate tax model due to the intermediate income concept of adjusted gross income. A number of unique features are also applicable to the determination of an individual's gross tax liability. These include the taxpayer's filing status, personal and dependency exemptions, the standard deduction, deductions for adjusted gross income, and deductions from adjusted gross income. Because many of the taxpayer's deductions are for personal expenses, the deductions may be limited to amounts that exceed specific minimums. Other deductions cannot exceed certain maximums.

Higher-income taxpayers face increases in their effective tax rates due to the income limitations affecting certain other deductions and credits. Examples include the income phaseout rules that reduce or eliminate the deduction for student loan interest and reduce or eliminate the child tax credit and the credits for undergraduate and graduate education.

A taxpayer's filing status determines the allowable standard deduction and the tax rate schedule ...