Income Concepts

Income concepts are of following types:

• Concept of All-inclusive income – This is the broadest concept of income among all. In this type of concept total income that is received comes under taxable clause unless few particular provisions are found or discovered in laws of tax which excludes questionable item from the taxation. Receipt of income could be in the form of cash, services, property, etc. Laws of tax, thus, begin with suggestions that tax is imposed on all items which have value.
• Concept of Legislative-grace – Exclusions have base upon Concept of Legislative-grace. The said concept expresses that relief on any sort of tax is provided to the taxpayer is outcome of particular Congress’s acts which has to be interpreted and applied strictly. One must note the point that taxes imposed on the income which is received may take various forms. Income could be excluded, from the tax, temporarily or can be held over for the taxation to be charged in future.
• Concept of capital-recovery – After it is set that taxable-income’s item is received then next step determines income’s amount which is included in taxable-income’s calculation. It is stated by this concept that any incomes are not taxed till the receipt of all the capital which is invested previously in asset.
• Concept of realization – It is stated by the said concept the law recognizes no income for the purpose of tax till it is realized through taxpayer. Realization, in many cases occurs at the time when transaction of arm’s-length occurs. i.e. sales of goods, rendering services etc.
• Concept of wherewithal-to-pay – The system of income tax is based philosophically upon concept of ability to pay. Concept of wherewithal-to-pay is used to distinguish between principles of general-ability-to-pay and applications of income-recognition. It expresses that the income must be identified and the taxpayer can pay the tax when he has full resources for paying tax.

Questions:

• What are the concepts included in income concept?
• Describe all the concepts in detail.