Outline_2B_Assignment_of_Income_Instructor - Outline 2B Who...

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Outline 2B Who is the taxpayer? February 13, 2011 Reading assignment: Nolo Press Pages 318 to 327 Chapter 3 pages 11 to 12 (Special limitations on Standard Deduction for Dependents); Chapter 3 pages 31-33 (Kiddie tax) Chapter 4: Sections 4.3, 4.5, 4.6, 4.7, 4.8 Chapter 6: Page 25-26; Expenditure for a taxpayer’s benefit Problems: Chapter 3: 9,22, 31,39, 40, 43, 44, 50 Chapter 4: 12, 13, 14, 15, 30a, 40, 43, 44 I. READ: TAX PLANNING: Pages 4-34 to 4-37 1) Non-taxable benefits are better than taxable income: Example: Home ownership, fringe benefits (health insurance, accidenc insurance, dependent care assistance, educational assistance, group term life insurance, employee retirement plans, lodging on the business premises, moving expense reimbursements, achievement awards, commuting benefits, employee discounts on goods or services, low cost fringe benefits, cafeteria plans) Question: You have $100,000 which you could use to buy bonds or to buy a home that you will live in. The bonds yield 5 percent per year and the house appreciates 5 percent per year. Which do you prefer? Question: Are fringe benefits deductible by the employer? 2) Long-term capital gains are better than ordinary income a. Ordinary losses are better than capital losses 3) Paying taxes later is better than paying taxes now (generally) See example 52 on page 4-37 a. E.G. Deferred compensation b. Like-kind exchanges 4) Shifting income: It is better to shift income to a taxpayer in a lower tax bracket (by gift, sale, or employment) See example 53 on page 4-38 a. Better to shift deductions to a higher tax bracket taxpayer Who is the taxpayer (who pays the tax?) QUESTION : Irwin earns salary of $2000 per week for 50 weeks during the year. He is single and has a five-year old child, Steve. Irwin tells his employer to pay him $1800 per week and to pay his son the other $200 per week. He files his tax return, reporting $90,000 salary on his tax return and $10,000 income on his son’s tax return. a) If the father is audited by the IRS will his tax be recalculated? How? a. Substance versus form b. Sham transaction 1
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b) How will the son’s income be re-determined? Assignment of Income from Personal Services * Income from personal services is taxable to the person who performs the services * Fruit and tree metaphor * Assigning income is not permitted, * Shifting income is permitted. Personal Exemption: * Individual claimed as dependent by another taxpayer does not receive a personal exemption. Standard Deduction of a Dependent The standard deduction for an individual claimed as a dependent of another taxpayer is limited to the greater of $950 or the individual’s earned income + $300 (but not to exceed the amount of the basic standard deduction for the taxpayer’s filing status). (see page 3-11 bottom) QUESTION : What is the taxable income of the child under each of the following cases: a) Tina, an unmarried dependent child, earns $2400 on a summer job. b)
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This note was uploaded on 11/07/2011 for the course ACCT 508 taught by Professor Frankel during the Spring '10 term at S.F. State.

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Outline_2B_Assignment_of_Income_Instructor - Outline 2B Who...

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