April 2mgmt127a

April 2mgmt127a - April 2 2008 MGMT 127 A Basic individual...

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April 2, 2008 MGMT 127 A Basic individual tax format: Start with gross income (basically revenue) Two different types of deductions: Top group of deductions and bottom group of deductions Adjustment Deductions (Top) AGI= Gross Income – Adjustments Deductions that get you to AGI are known as “for AGI deductions” Itemized Deductions (Bottom) For AGI adjustments and itemized deductions are separated by AGI. When you get to itemized deductions, you can either add up all of your deductions, or you can take a guaranteed lump sum known as the standard deduction . Compare the two and take the greater of the two. How much is the standard deduction? The amount of standard deduction is based on filing status. It is indexed by the cost of living. Single - $5,000 standard deduction (Only requirement is that you are alive)
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Married Filing Jointly - $10,000 standard deduction Example: Charitable contributions are itemized deductions. Say for example, you gave a $4,000 charitable contribution and your filing status is single. Did this contribution save you any tax? This saves you NO tax because the standard deduction ($5,000) is larger than the contribution of $4,000. So you would take the standard deduction. For AGI adjustments definitely lowers your tax, but itemized deductions may or may not save you tax depending on what else you have going on. For AGI deductions will definitely reduce your bottom line, but itemized deductions will only help if they are in excess of $5,000. If you have a choice, you will definitely take adjustment deduction over itemized deduction. Exemptions Filer of Tax = one exemption= $3,000 Married = two exemptions= $6,000 You get an addition exemption for each member of the family. Therefore a family of four would have exemptions of $12,000. This takes you to the bottom line.
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