ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Both the terms ‘tax deduction’ and ‘tax exemption’ refer to a lowering of taxable income; they are forms of tax relief or tax breaks provided by the government. However, tax exemptions may also include complete relief from taxes, reduced rates and tax on only a portion of income.

Detailed explanation-2: -Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you return and in some cases may be lower. Refer to the 1040 instructions (Schedule 1)PDF for more information.

Detailed explanation-3: -Generally, tax is calculated by multiplying the applicable tax rate with the taxable income. Though it seems simple, it consists of several steps, including calculating gross salary, calculating deductions and exemptions, calculating tax payable, deducting tax already paid, etc.

Detailed explanation-4: -It is equal to the total income you report that’s subject to income tax-such as earnings from your job, self-employment, dividends and interest from a bank account-minus specific deductions, or “adjustments” that you’re eligible to take.