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Tax341_ch3 tax formula etc

Tax341_ch3 tax formula etc - Tax Determination Personal...

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Tax Determination; Personal + Dependency Exemptions Gross Income Less exclusions (generally not reported on T/R) Includible gross income Tax Formula Includible Gross Income – Sec.61 Deductions for AGI AGI Less: greater of 1) total itemized aid 2) standard deduction Less: personal and dependency exemptions Taxable income x applicable tax rate (10% - 35%) Sec. 62 Deductions for AGI: 1) ordinary – necessary business exp. 2) ½ self-employment tax paid 3) alimony paid 4) certain IRA contributions 5) money expenses 6) forfeited interest penalty for premature withdrawals 7) capital losses AGI important for medical expenses (7.5% excess) + charitable contrib. (50% limit) over AGI Itemized Deductions 1) some personal expenses – e.g., medical, certain taxes + interest, char. contrib. 2) expenses for production or collection of income – e.g., bank fees 3) expenses for management of property held for production of income – e.g., tax prep fees, investment fees Standard Deduction amount specified by Congress depending on filing status supposed to be equal to poverty level to exempt a certain amount of income from tax 2 components: 1) basic standard deduction – see Table 2) additional std. ded. – see Table
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-for each taxpayer 65 or over or blind (e.g., H + W both over 65 = 2 addit’l std. ded. -not allowed for dependents standard deduction = greater of 1) standard deduction or 2) itemized deductions Personal + Dependency Exemptions allowed for taxpayer, spouse + each dependent 2000 = 2,800 2001 = 2,900 2002 = 3,000 2003= 3,050 2004 = 3,100 Special Rules A) Std Ded not allowed for: 1) married filing separate if either spouse itemizes 2) nonresident alien 3) T/R < 12 month period due to change in acctg period B) Personal exemption disallowed for dependents on their T/R if parents claim exempt. C) Dependent’s basic std deduction in 2003 is limited to greater of (1) $750 or (2) sum of individual’s earned income +$250, whichever is greater. For 2004 the $750 increases to $800 Personal Exemptions -for taxpayer + spouse when married filing joint -if separate, married taxpayer cannot claim exemption for his/her spouse unless spouse has no gross income + is not claimed as a dependent of another taxpayer -married status determined at year end (except for death)
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Tax341_ch3 tax formula etc - Tax Determination Personal...

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