Problem Set #3

Problem Set#3 - Daniel Paterson ACIS 3314 12:30 Chapter 4 1 Realized income is income generated in a transaction with a second party in which there

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Daniel Paterson ACIS 3314 12:30 Chapter 4 1. Realized income is income generated in a transaction with a second party in which there is a measureable change in property rights between parties. Gross income is realized income reduced for any excluded or deferred income. Taxable income is then derived from gross income by subtracting out any deductions or exemptions. 4. For AGI deductions are used for calculating AGI or come before AGI in the tax formula. For AGI reductions are more valuable because they always reduce gross income and therefore reduce taxable income dollar for dollar. From AGI deductions are used to determine taxable income. Deductions from AGI include itemized deductions, standard deductions, and exemptions. 6. Individuals have the choice of deducting their itemized deductions or deducting a fixed amount called the standard deduction amount. They generally deduct the higher of the two. 13. The rules for determining who qualifies as a dependent as a qualifying child and who qualifies as a dependent as a qualifying relative do overlap to some extent. The main differences between the two are (1) the relationship requirement is more broadly defined for qualifying relatives than qualifying children, (2) qualifying children are subject to age restrictions while qualifying relatives are not, (3) qualifying relative are subject to a gross income test while qualifying children are not, and (4) taxpayers need not provide more than half a qualifying child’s support (though the child cannot provide more than half of his/her own support), but must provide more than half the support of a qualifying relative. Also, in order to be a qualifying relative you cannot be a qualifying child. 15. There is a possibility for Isabella to claim her father as a qualifying relative. Her father Hastings would pass the gross income and relationship test, but may not pass the support test. Isabella could claim her father if no other person was providing over half the support for her father. If this were the case, Isabella could claim her father assuming that no one else was going to claim him as a qualifying relative as well. A form 2120 may be required to ensure that no one else attempts to claim Hastings as a qualified relative. 17. Married filing jointly is generally preferred to married filing separately because couples combine their income and deductions and agree to share joint and several liability for the resulting tax. Couples who file separately each report the income he or she received during the year and the deductions he or she paid on a tax return separate from their spouse. Tax rate schedules and standard deductions for married filing separately are generally half for those filing joint in order to eliminate any extra tax benefits. It may be wise to file separately for nontax
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/22/2011 for the course ACIS 3314 taught by Professor Hicks during the Spring '09 term at Virginia Tech.

Page1 / 6

Problem Set#3 - Daniel Paterson ACIS 3314 12:30 Chapter 4 1 Realized income is income generated in a transaction with a second party in which there

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online