Adjusted Gross Income: Analysis of For and From AGI Deductions - Essay Sample

Introduction

Adjusted gross income can be termed as a measure of income, which is calculated from one's gross income and used to determine how much of his/her income is taxable (James, 2012). This paper shall present the analysis of deductions that are for and those who are from AGI, an evaluation of how for and from AGI deductions affect tax return and an identification of what disallowed provisions are and how they affect tax return.

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Analysis of Deductions That Are for and From AGI

Deductions are a reduction that decreases the tax liability of a person by lowering her taxable income. They are common expenses that are incurred by a taxpayer in the period against the application or those that subtracted from her gross income to figure out the amount of tax owed (James, 2012). Deductions can be of two categories, such as deductions for and from adjusted gross income. Deduction for AGI is a deduction which the w4p allows taxpayers to subtract from their total income to result in AGI for the taxable period.

The deduction is outlined in section 62 of the Internal Revenue Code. Deduction for AGI may be more valuable to taxpayers with high income than deductions from AGI (James, 2012). Deductions from the AGI can also be termed as itemized deductions, which are expenditures on suitable products, services, or contributions that can be subtracted from AGI to reduce a person's tax bill. These deductions allow taxpayers who are qualified to pay less in taxes than if they could have opted to take the quality deduction (Pizzacalla, 2014).

Deductions from the AGI, which may sometimes be subject to limits, include expenses such as charitable gifts, mortgage interests, and unreimbursed medical expenses. They are known as allowable itemized deductions. They reduce a person's taxable income, with the real tax relief subjected to the tax bracket in which that income places him/her.

The AGI significantly influences the eligibility of an individual to claim credits and deductions that are available within the tax return (James, 2012). As such, when AGI reduces, there is increased deductions and credits that can be received. Concisely, the Adjusted Gross Income relates to the gross income less than the income adjustments (Pizzacalla, 2014).

Disallowed Provisions and Their Effects on Tax Return

Disallowed provisions are the expenses that are not incurred exclusively and wholly for trade purposes and business. They include; clothes other than uniform, council house returns, donations for charities as well as entertainment (James, 2012). Provisions or expenses could be disallowed on the basis that they do not benefit a company. The disallowed provisions are often indicated within the tax return form, thus indicating the various permitted expenditure (Pizzacalla, 2014).

In the computation of the gains and the profits for any profession or the business, some expenditures are often disallowed. This implies that the income tax department does not permit the benefits of such expenditures. The fundamental reasons for the disallowance of expenditure could be classified into two, i.e., the fact that the expenditures do not relate to professional or business conduct (Pizzacalla, 2014). The other reason for the disallowed provision is that the tax amount needed for the deduction on various expenditures are never deduced while making certain payments (James, 2012). It is essential to note that any expense that is disallowed often attract some level of tax rates, penalties, and interests.

References

James, S. (2012). Adjusted gross income. In A Dictionary of Taxation, Second Edition. Edward Elgar Publishing Limited. Retrieved from https://www.elgaronline.com/view/nlm-book/9781849801225/a1-sec30.xml

Pizzacalla, M. (2014). Trust distributions: Bad debt deduction disallowed. Taxation in Australia, 49(4), 197.