Next, the federal taxable income is changed by adding back certain items ( e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others ( e.g., interest income from U.S. The starting point for the Illinois Partner ship Replacement Tax Return is federal taxable income, which is income minus deductions. Tax Rate Database to determine the replacement tax rate. This is the starting point for Illinois income tax purposes and where the income tax is paid. The partners must include this income in their federal adjusted gross income (for individuals) or federal taxable income (for other taxpayers). Generally, income from a partnership is passed on to the partners. The income tax is paid at the partner's level. Partnerships are subject to the Personal Property Tax Replacement Income Tax (replacement tax), but do not pay the Illinois income tax. The Illinois Income Tax is based, to a large extent, on the federal income tax code. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is imposed on every partnership earning or receiving income in Illinois.
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