Income Tax-Federal.docxVIP

Taxable income( Dallas no state and local income tax)(a)In general Taxable income is gross income less exemptions, deductions, and personal exemptions. Gross income for federal and most states is receipts and gains from all sources less cost of goods sold. Gross income includes all income from whatever source, and is not limited to cash received.Certain income, however, is subject to tax exemption at the federal and/or state levels. This income is reduced by tax deductions including most business and some nonbusiness expenses. The allowance of some nonbusiness deductions is phased out at higher income levels.The U.S. federal and most state income tax systems tax the worldwide income of citizens and residents.A federal foreign tax credit is granted for foreign income taxes. These credits are generally limited to the amount of tax on income from foreign (or other state) sources.Certain types of income are excluded from gross income (and therefore subject to tax exemption). The exclusions differ at federal and state levels. For federal income tax, interest income on state and local bonds is exempt, while few states exempt any interest income except from municipalities within that state. In addition, certain types of receipts, such as gifts and inheritances, and certain types of benefits, such as employer-provided health insurance, are excluded from income.(a)Corporations in general A tax is hereby imposed for each taxable year on the taxable income of every corporation. The tax is taxable income, as defined, times a specified tax rate. This tax may be reduced by credits, some of which may be refunded if they exceed the tax calculated.Under the U.S. system, individuals, corporations, estates, and trusts are subject to income tax. Partnerships are not taxed; rather, their partners are subject to income tax on their shares of income and deductions, and take their shares of credits.Corporations owned entirely by U.S. citizens or residents (S corporations) may elect to be t