PH2ky412

PH2ky412 - CHAPTER 2 Chapter 2 Topics-I. E. Tax Formula A....

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CHAPTER 2
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Chapter 2 Topics-- I. Tax Formula A. Income B. Deductions C. Standard Deductions D. Exemptions E. Child Credit II. Tax Determination III. Filing Status IV. Who Must File The basic income tax formula: Income from whatever source derived (IRC Sec 61) - exclusions Gross Income - deductions for AGI AGI -deductions from AGI (max{S.D., Itemized deductions}) -personal/dependency exemptions Taxable Income Gross Tax (use rate schedule/tax tables to compute tax) - credits (refundable/non-refundable) = refund or tax due The form 1040 will essentially follow this formula, adjusted for administrative convenience. i.e. there are various schedules, not all exclusions need be reported, etc.
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STANDARD DEDUCTIONS FILING STATUS 2009 2010 Single 5,700 5,700 Head of Household 8,350 8,400 Abandoned Spouse 8,350 8,400 Married/Joint 11,400 11,400 Surviving Spouse 11,400 11,400 Married/Separate 5,700 5.700 Additional Standard Deductions-- Single Married Age 65 or older 1,400 1,100 Blind 1,400 1,100 Standard Deductions for persons claimed by someone else as a dependent: 2010 S.D. = greater of: 1) 950 OR 2) earned income + 300 (not to exceed the regular S.D.) No standard deductions are allowed for: a. Married/separate returns if either spouse itemizes. b. Nonresident aliens. c. Partial year returns.
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EXEMPTIONS - GENERAL Two types of exemptions: Personal--taxpayer and spouse Dependency--all others 1. Amount = 3,650 for 2010 2. Dependents cannot claim exemptions for themselves. 3. Indexation--based on CPI for all urban consumers for prior 12 month period 9/1 to 8/31. DEPENDENCY EXEMPTIONS Requirements Qualifying Child Qualifying Relative Social Security Number X X Citizenship or Residency X X Joint Return X X No Dependents X X Relationship or Member X X Support X X Age X Abode X Gross Income X All of the above requirements must be met to qualify a person as a dependent.
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I. SOCIAL SECURITY NUMBER II. CITIZENSHIP OR RESIDENCY Dependent must be a U.S. citizen or national or be a resident of the U.S., Mexico, or Canada. III. JOINT RETURN Dependent cannot file a joint return with his/her spouse except to claim a tax refund. IV. NO DEPENDENTS Dependent cannot claim personal or dependency exemptions on his/her own return.
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V. RELATIONSHIP OR MEMBER OF THE HOUSEHOLD The dependent must be either a member of taxpayer's household or a qualifying relative. A “member of taxpayer’s household” and aunts, uncles, nieces, and nephews must live with the taxpayer the entire year. Qualifying Relatives-- VI. SUPPORT Qualifying child – Child cannot provide > 50% of own “support.” Qualifying relative – Claiming taxpayer must provide > 50% of a dependent's "support." Example 1 --Son is at college. Parents provide $16,000 of support (rent, tuition, etc.) for son. Son earns $17,000 during the summer and saves $14,000.
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Example 2 --A retired father resides with his daughter. Daughter provides support of $14,000 for father. Father has no earnings but uses $15,000 from savings for his own support. Example 3
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This note was uploaded on 10/03/2011 for the course ACCT 412 taught by Professor Crabtree during the Spring '11 term at UNL.

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PH2ky412 - CHAPTER 2 Chapter 2 Topics-I. E. Tax Formula A....

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