Reflection on Chapter 4 Taxation

Reflection on Chapter 4 Taxation

REFLECTION ON CHAPTER 4: TAXATION 3

Reflectionon Chapter 4: Taxation

Reflectionon Chapter 4: Taxation

Chapter4 provides very insightful information about taxation, especially theclassification taxable and non-taxable income. With the basis of therealization principle, the chapter and the audio lecture give a clearunderstanding of what taxable income entails. One of the mostsignificant points to note is that taxable income is matched with thefiscal year of the government. I related this to the matching conceptof accounting, and so was able to understand it better that taxableincome is recognized in the year it was received.Anothersignificant aspect of taxation is that income can be recognizedeither in the form of cash or in-kind. This is contrary to the commonknowledge that only cash incomes can be taxed by the taxman. It iseven more interesting to realize from the chapter that even gifts aretaxable if they do not qualify under the exceptions that are set bythe taxman. The chapter gave me understanding of the taxation of thesocial security benefits. It is interesting to know that up to 85% ofthe social security benefits are taxable with two methods ofcalculating its taxable income (Hoffman et al, 2015).Moreover,the chapter opened me to understand the different methods ofcalculating taxable income for individuals and business units. I wasparticularly interested in understanding the taxation of individuals,but also realized that partnerships are not considered to be separateentities. Unlike corporations, partnership income is taxed on theindividual partners and not as a separate unit. I was particularlyinterested in this information so that I could understand how myuncle is considered in taxation because he runs a partnershipbusiness with his three friends. However, I will explore moreinformation about the taxation of both employment income andpartnership income, since he earns both. Reference

Hoffman,J., Smith, J., Hoffman, H., et al, (2015). South-WesternFederal Taxation: Individual Income Taxes, 2016 Edition.New York: Cengage Learning