April 07 mgmt127a

# April 07 mgmt127a - April 7 2008 MGMT 127A It is better to...

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April 7, 2008 MGMT 127A It is better to have an adjustment deduction, because it will definitely save you taxes. Itemized may or may not benefit you. (If standard deduction is greater than itemized amount). Effective cash savings/benefit may not exist with itemized deductions. Most business and investment expenses are allowed, but itemized deductions are usually subject to a constraint. Example Medical expenses must exceed 7.5% of AGI Casualty losses must excess 10% of AGI plus \$100 Job costs/Employee costs are allowed when they exceed 2% of AGI If you make \$50,000, you must have employee/job costs in excess of 1000 (2% of AGI) to be able to take a deduction. A for AGI deduction not only affects the bottom line, but it also affects the fence that people must jump over (AGI limitations). If AGI is reduced, the n the amount of AGI that needs to be exceeded for medical expenses, casualty loss, etc. is less than it would have been without an AGI reduction. At the margin, a for AGI deduction allows more expenses to exceed the AGI fence Example AGI of \$200,000 Medical Bills \$15,000 \$200,000 x 7.5% = \$15,000 (You cannot claim a deduction) But what if you had a \$100 for AGI deduction that you forgot to add. This lowers AGI by \$100 to \$199,900. \$199,900 x 7.5% = \$14,992.50 \$15,000-\$14,992.50 = \$7.50 Your bottom line is reduced by \$100 + \$7.50 = \$107.50 Therefore, your taxable income is less by \$107.50 Exemptions Take adjustment deductions, itemized deductions, then exemptions. Exemptions are equal to about \$3,000 per person Two types of Exemptions Personal Exemption- For the taxpayer Dependent Exemption - For the people you support If you are single, you get 1 personal exemption. If you are MFJ, then you get 2 personal exemptions. You cannot claim an exemption if someone else is claiming you as a dependent on their return Parents would probably get a greater benefit if they claimed you rather than you claiming yourself. Example 3000 x 30% = \$900 tax savings, which is more than you would save in your 10% or 20% bracket.

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Dependent exemption- you get 1 for every person you support—that is, you provide 50% of their living costs.
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