With respect to the Income tax formula, which of the following statements is correct?
With respect to the Income tax formula, which of the following statements is correct?
Multiple Choice
- a. The simplified Income tax formula is only applicable to taxpayers with taxable income less than $100,000.
- b. Tax lability is determined by applying an appropriate tax rate to total income.
- c. Certain deductions from income are permitted before calculating tax liability.
- d. Tax payments are ignored when calculating the tax refund or tax due with the return.
The correct statement is: C. Certain deductions from income are permitted before calculating tax liability.
Explanation:
The income tax formula generally involves calculating taxable income first, which is done by subtracting certain allowed deductions from gross income. Once taxable income is determined, the appropriate tax rate is applied to calculate the tax liability. The other options are incorrect because:
- The simplified income tax formula is not solely applicable to taxpayers with taxable income less than $100,000; its applicability depends on various factors and specific tax laws.
- Tax liability is determined by applying the appropriate tax rate to taxable income, not total income (as total income would include amounts that are later deducted).
- Tax payments are crucial in calculating the tax refund or tax due, as they are credited against the calculated tax liability.
ACCT M50 PRINCIPLES OF INCOME TAXATION PRACTICE EXAM FREE SOLVED ANSWERS