Most states tax capital gain and dividend income in the same manner as other investment income. For example, many states do not allow the additional first year bonus depreciation deduction. Many require that depreciation deductions be computed in manners different from at least some of those permitted for federal income tax purposes. All states taxing business income allow deduction for most business expenses. Most states provide for modification of both business and non-business deductions. States uniformly allow reduction of gross income for cost of goods sold, though the computation of this amount may be subject to some modifications. Many states provide tax exemption for certain other types of income, which varies widely by state. Most states also exempt income from bonds issued by that state or localities within the state as well as some portion or all of Social Security benefits. States are prohibited from taxing income from federal bonds or other federal obligations. Gross income generally includes all income earned or received from whatever source with some exceptions.
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