Week 5 Discussion - ACE 245 Discussion Section Week 5 Goals...

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7/17/2007 ACE 245 Discussion Section – Week 5 Goals: 1) Reinforce key tax concepts 2) Analyze income tax liability and decisions A. Using Key Tax Concepts 1. Who can use federal income tax form 1040EZ and 1040A in lieu of the regular federal 1040 tax form? 1040EZ is for single or married joint filers with no dependents, no portfolio income other than $1,500 or less in taxable interest, no adjustments to income (e.g., alimony), no tax credits other than the earned income credit, and TI < $100,000. 1040A may claim dependents, capital gains, certain adjustments to income, and more types of tax credits than allowed for the 1040EZ, but they may not itemize deductions or have TI > $100,000. Those with TI > $100,000 and/or who wish to itemize deductions or have access to a full range of adjustments and credits must file the regular 1040. 2. Which of the following is allowed as an itemized deduction from federal taxable income? a. Unreimbursed employee expenses up to 2% of AGI b. Principal paid on a mortgage loan c. Interest paid on an auto loan d. Medical costs exceeding 7.5% of AGI e. Separately-billed charges for water and sewer service 3. How much more or less in taxes are owed with a $500 tax credit versus a $500 tax deduction for a single taxpayer in the 15 percent marginal tax bracket with $16,000 of taxable income? (circle your answer) a. Credit - $425 less in taxes owed versus deduction b. Deduction - $425 less in taxes owed versus credit c. Deduction - $75 less in taxes owed versus credit d. Credit - $75 less in taxes owed versus credit e. Equal 4. If you are self employed, what FICA tax rate applies to your earned income? a. None – FICA is paid only by employees b. 7.65% for Social Security c. 2.9% for Medicare 1
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7/17/2007 d. 10.55% for Social Security and Medicare e. 15.3% for Social Security and Medicare 5. With respect to federal taxation of income, which feature(s) are unique to all “portfolio income”? a. Lower tax rates apply b. Losses can be offset against other current income c. Past losses can be carried forward to offset against current capital gains.
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This note was uploaded on 01/28/2009 for the course ACE 245 taught by Professor Braden during the Fall '07 term at University of Illinois at Urbana–Champaign.

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Week 5 Discussion - ACE 245 Discussion Section Week 5 Goals...

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