Chapter 4, Problem 1DQ

How are realized income, gross income, and taxable income similar, and how are they different?

To determine

Explain the difference and similarity between realized income, gross income and taxable income.

Explanation of Solution

Realized income is largely defined than gross income. Gross income is largely defined than taxable income.

Gross income includes all realized income that taxpayer are not allowed to exclude from gross income are not permitted to defer to a later year. Gross income should be reported in tax returns and tax pays.

Following are the formula to compute gross income:

$\text{Taxable income}=\left(\begin{array}{l}\text{Gross income}\\ -\left(\begin{array}{l}\text{Allowable deductions }\\ \text{for and from AGI}\end{array}\right)\end{array}\right)$

To compute the tax due before applicable credits taxable income is the base. Income that are listed in the gross income is considered as taxable income because gross income is income that are taxable and causes increase in the taxes which has to be paid by the taxpayer.