ch16tax1 - Taxation of Business Entities Chapter 16 and 17...

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Chapter 16 and 17 Taxation of Individuals Taxation of Business Entities
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Outline Review of Individual Tax Formula and Gross Income Inclusions and Exclusions Standard Deduction vs. Itemized Deductions Personal and Dependency Exemptions Kiddie Tax Filing Status Specific Inclusion and Exclusion Rules applicable to Individuals Itemized Deductions Tax Credits for Individuals Employment-Related Expenses
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Tax Formula Income (broadly conceived) $x,xxx Less: Exclusions (x,xxx) Gross Income $x,xxx Less: Deductions for AGI (x,xxx) Adjusted Gross Income (AGI) $x,xxx Less: The greater of total itemized deductions or the standard deduction (x,xxx) (x,xxx) Taxable Income $x,xxx
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Components of the Tax Formula Income A partial list of gross income items is provided in Exhibit 16-2 Exclusions - common items listed in Exhibit 16-1 See lines 7-21 of 1040 Deductions for Adjusted Gross Income include (“Above the line deductions”; see lines 23-35 of 1040): 1/2 of self-employment tax paid Alimony paid Payments to qualified retirement plans (lines 28, and 32) Certain IRA payments Ordinary and necessary business expenses Continued on next slide
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FOR AGI Deductions (cont.) Educator Expense (for 2009) - $250 Health Savings Account (16-40 thru 16-41) For taxpayers with high-deductible health insurance plans, allows them to pay for out-of-pocket expenses with before tax dollars SE Health Insurance deduction (17-42) Moving Expenses – job related (17-25 thru 17- 27) Student Loan Interest – max $2,500 (16-44) Subject to phase out: MAGI > $60,000 ($120,000 MFJ) Tuition and Fees Deduction (currently set to expire in 2009; 17-30 thru 17-31) Max deduction = $4,000 Eligibility depends on MAGI Available for 2009
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Components of the Tax Formula – Adjusted Gross Income (AGI) Important subtotal that serves as: Basis for computing percentage limitations for certain itemized deductions Medical expenses (7½% of AGI Floor) Personal Casualty Loss deduction (10% of AGI Floor) Charitable Contribution (50% of AGI Ceiling) Basis for determining the phase-out of: Itemized deductions Personal and dependency exemptions Child Credit and Education Credits Small Landlord Deduction Basis for determine eligibility for certain items: Roth IRA Traditional IRA Earned income Credit
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Components of the Tax Formula Itemized Deduction vs. Standard Deduction Taxpayers are allowed to deduct the greater of total itemized deductions (less phase-out amount) or the standard deduction Itemized Deductions include certain personal expenses: medical expenses, interest, taxes, charitable contributions, personal casualty losses, and certain other miscellaneous expenses (see Schedule A ) The Standard Deduction includes three possible components: Basic Standard Deduction Additional Standard deduction – over 65 and/or blind Property Tax Deduction – for 2008 and 2009 only
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This note was uploaded on 08/25/2010 for the course TAX 4001 taught by Professor Hampton,m during the Fall '08 term at University of Central Florida.

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ch16tax1 - Taxation of Business Entities Chapter 16 and 17...

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