Q.What steps must be taken to compute taxable income?
A. 1. Determine total income.
2. Determine total adjustments to income.
3. Subtract total adjustments from total income to arrive at adjusted gross
income (AGI).
4. Subtract standard deduction or itemized deductions from AGI.
5. Subtract total exemptions to arrive at taxable income.
It is a big deal that you do the calculations in the appropriate order otherwise you will get an inaccurate picture and might be reporting the wrong figures at tax time. If you take a look at the Federal income tax forms you will see that the flow proceeds pretty much the way I have described them above. The income must be determined before getting the calculation for the deductions and exemptions.
More tax questions and answers in my next post after midnight tonight.
Hope you are having a great weekend.
Kim Isaac Greenblatt
Steps To Compute Taxable Income
Tags: Business