Week 1 Homework Assingment Essay

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ACCT553 Week 1 Homework _________________________________________________________ Please provide your answer to each question in the space provided below. When finished, submit to the DropBox. Chapter 1 (5 pts) 1. Briefly discuss the purpose of the Sixteenth Amendment. The 16th amendment gave the authority to congress government to levy and collect income tax on individual, corporation and other income producing entities. This amendment was adopted in 1909, when over ¾ of the states ratified the amendment. The congress has passed this amendment to make sure that the government had the funds to continue running the country from the collected direct or indirect taxes. Chapter 2 (5 pts) 2. Explain the two "safe harbors" available to an Individual taxpayer to avoid a penalty for underpayment of estimated tax. The federal tax law provide two safe harbors to individual taxpayers that can help to avoid penalty for underpayment if the payment of estimated tax are at least as large as any one of the following: 1} An amount equal to 90% of the tax for the taxable year computed by annualizing the taxable income received for the month in the taxable year ending before the month in which the instalment is required to be paid. 2} 90% of the tax shown on the return or 100% of the tax shown on the return of the individual for the preceding taxable years (assuming it showed a tax liability and covered a taxable year of 12 months). Chapter 3 (5 pts) 3. Explain the distinction between an "above the line" deduction (i.e. FOR AGI) and a below the line deduction (i.e. FROM AGI). Which one is more valuable? The line is adjusted gross income (AGI). All deductions are classified as FOR AGI or FROM AGI. If we deduct FOR AGI from Gross income which gives us AGI. Further if we deduct FROM AGI from AGI it will provide us Taxable income. FOR AGI deduction are also
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