students2009-Ch04 - Chapter 4 Exemptions Filing Status...

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1 Chapter Chapter 4 4 Exemptions Filing Status Determination of Tax Filing Requirements Child credit Prepayment and estimated taxes Penalties for failure to file and to pay Statute of Limitations
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2 Tax Formula Tax Formula Adjusted gross income (A.G.I.) $xx,xxx –Deductions from: Greater of: Standard deduction or Itemized deductions : Miscellaneous itemized > 2% AGI +Other itemized Total itemized –2% cutback Remaining itemized deductions (x,xxx) Personal and Dependent Exemptions ( x,xxx) Taxable income $xx,xxx x Rates xx x % Gross tax $ x,xxx –Credits ( Child Credit , etc.) x,xxx) –Prepayments (Estimated Taxes) ( x,xxx) Tax due (or refund) and Penalties $ x,xxx Subjects of Chapter 4
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Why do we have exemptions ?
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Exemption $3,650 Std deduction 5,700 Total $9,350 Family of 4 Exemptions (4) $14,600 Std deduction 11,400 Total $26,000 2009 Amounts
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6 Who’s Rich According to 2007 Statistics of Income Number of individual returns 2007 141,070,971 $66,532 25% Top $410,096 1% Top $113,018 10% Top $32,879 50% Median AGI Percent 2007
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7 Personal & Dependency Exemptions Personal & Dependency Exemptions Amount $3,650 per exemption in 2009 Indexed annually for inflation 4 x $3,650 = $14,600 So how much are these kids worth?
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Could these celebrities benefit from the deduction for exemptions?
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9 Exemptions Phase Exemptions Phase - - Out Out Exemptions are ALMOST phased-out for high-income earners Phase-out due to expire after 2009
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10 Exemptions Phase Exemptions Phase - - Out Out Phase-out: Total exemption deduction reduced by 2% for each $2,500 (or fraction thereof) by which AGI exceeds these thresholds; for 2008-09 reduce reduction by 1/3: Tentative A.G.I. – THRESHOLD REDUCTION OF $2,500 X 2% = ALL EXEMPTIONS X 1/3 Phase-out Filing Status 2009 Threshold MFJ $250,200 HH 208,500 S 166,800 MFS 125,100 *Phase-out is 100% when income exceeds the threshold by more than $122,500 ($122,501/$2,500 = 50 rounded up x 2% = 98%) but only 1/3
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Problem 4-34(b) X 1/3 Reduction of reduction 195 Final reduction $584 Tentative reduction $14,600 Exemptions (4 x $3,650) (2009) 4% Total tentative percentage reduction x 2% 2% reduction for each increment 2 4,500/2,500 = 1.72 so round up Increments of $2,500 over threshold $ 4,300 Excess (250,200) Threshold given for joint returns $254,500 AGI Exemption deduction is $14,405 ($14,600 - $195)
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Problem 4 Problem 4 - - 34(c) 34(c) X 1/3 Reduction of reduction $ 4,672 Final reduction $14,016 Tentative reduction $14,600 Exemptions (4 x $3,650) 96% Total tentative percentage reduction x 2% 2% reduction for each increment 48 119,800 /2,500 = 47.92 Increments of $2,500 over threshold $ 119,800 Excess ( 250,200 ) Threshold given for joint returns $370,000 AGI Exemption deduction is $9,928 ($14,600 - $4,672)
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Problem 4 Problem 4 - - 34(c) 34(c) X 1/3 Reduction of reduction $ 4,667 Final reduction $14,000 Tentative reduction $14,000 Exemptions (4 x $3,650) 100% Total tentative percentage reduction x 2% 2% reduction for each increment 53 130,050/2,500 = 52.02 Increments of $2,500 over threshold $ 119,800 Excess ( 250,200 ) Threshold given for joint returns $370,000 AGI Exemption deduction is $9,333 ($14,000 - $4,667)
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14 Exemptions Phase Exemptions Phase - - Out Example Out Example Example H and W are married and file a joint return. They claim exemptions for themselves and their two children, S and D. Compute the amount of their deduction for exemptions if their A.G.I. is $340,450 A.G.I. – THRESHOLD REDUCTION OF $2,500 X 2% = ALL EXEMPTIONS $340,450 - $250,200 = $90,250 = 36.1
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students2009-Ch04 - Chapter 4 Exemptions Filing Status...

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