Question

Which of the following is true? a. Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income. b. Under the Federal income tax formula for individuals, a choice must be made between claiming deductions for AGI and itemized deductions. c. Under the Federal income tax formula for individuals, the choice must be made between claiming deductions for AGI and the standard deduction. d. Under the Federal income tax formula for corporations, the determination of adjusted gross income (AGI) precedes that of taxable income.

Answer 1

The adjusted gross income is for the individual tax return and not for the company as company uses the net income for the tax determination purpose. So here the option D with Under the Federal income tax formula for corporations, the determination of adjusted gross income (AGI) precedes that of taxable income is not accurate.

Further the deductions from the gross income to arrive at the AGI and itemized and standard deduction are different as gross income is adjusted for the specific deduction which are over and above the standard deduction or itemized deductions there is no choice as such to be made for the deductions for AGI to standard or itemized deductions so option B and C is also not correct.

Here the adjusted Gross Income or say AGI is before the taxable income as standard deduction or itemized deductions are reduced from the AGI so as to arrive at the taxable income so AGI precedes that of taxable income.

Thus the correct Option is-------------A i.e Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income.