CH3 Study Guide Tax 4011

CH3 Study Guide Tax 4011 - TOPIC 3 INDIVIDUAL TAXATION—AN...

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Unformatted text preview: TOPIC 3 INDIVIDUAL TAXATION—AN OVERVIEW Summary This chapter presents an overview of the components of the tax formula for individuals. Included is a discussion of the standard deduction and the qualifications for personal exemptions, including exemptions for dependents. Additionally, the filing status requirements are examined together with the role of the tax tables, tax rate schedules, and the self-employment tax. Outline 1. Components of the Tax Formula. A. Gross Income — Deductions for Adjusted Gross Income Adjusted Gross Income — Itemized Deductions or Standard Deduction ~ Personal Exemptions Taxable Income x Tax Rates Tax Liability — Tax Credits and Prepayments Tax Due or Refund B. Gross income refers to all income that is taxable and generally includes “all income from whatever source derived." C. Deductions refer to items that are allowed to be subtracted from gross income. There are two basic categories of deductions for individuals: 1. Deductions for adjusted gross income (AGI) generally consist of expenses incurred in a trade or business, losses from sales and exchanges of property, expenses attributable to rents and royalties, moving expenses, and contributions to certain retirement plans. 2. Itemized deductions consist of certain personal expenditures (e.g., medical ex— penses, personal taxes, interest, charitable contributions, casualty losses, etc.) that are specifically allowed as a deduction. D. Adjusted gross income segregates deductions that can be taken even though the taxpayer does not itemize (i.e., deductions for AGI) and also may limit the medical, charitable contributions, casualty loss, and miscellaneous itemized deductions when a taxpayer itemizes. E. Taxpayers who do not itemize are entitled to a standard deduction. The amount of the basic standard deduction is based on the filing status of the taxpayer and whether the taxpayer is a dependent. Additional standard deductions are allowed for age and blindness. Basic Standard Deduction Filing Status - 2011 Married, filing jointly, or surviving spouse . . . . . . . . . . . . . . . . . . . . . $11,600 Married, filing separately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,800 Head of household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,500 Single . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,800 IU II. r eaeral 'l'ax study Manual 1. For 2011, a dependent’s basic standard deduction is limited to the lesser of (1) the basic standard deduction for single taxpayers ($5,800); or (2) the greater of (a) $950, or (b) the dependent’s earned income plus $300. 2. Additional standard deductions for aged and blind: (a) For 2011, for an unmarried individual who is either age 65 or older or blind, the basic standard deduction is increased by $1,450 ($2,900 if both elderly and blind). (b) For 2011, for a married individual who is either age 65 or older or blind, the basic standard deduction is increased by $1,150 ($2,300 if both elderly and blind). (1) An individual is considered to be 65 years of age on the day preceding his/ her birthday. (2) An individual is considered to be blind if corrected visual acuity does not exceed 20/ 200 in the better eye, or the widest diameter of visual field does not exceed 20 degrees. (c) These additional standard deductions are only available for a taxpayer and the taxpayer’s spouse, not for dependents. 3. Taxpayers not allowed a standard deduction (who must itemize) include a married taxpayer filing a separate return if his or her spouse itemizes. F. Personal exemptions of $3,700 each (for 2011) are allowed for taxpayer, spouse, and dependents. The personal exemption amounts are phased out if taxable income exceeds certain levels and are adjusted for inflation. G. Six tax rate brackets apply for 2011: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent H. Tax credits are direct subtractions from the computed tax to arrive at the net amount of tax due or refund of tax. 1. Code Sec. 7701 defines taxpayer as any person subject to any internal revenue act. The term person includes an individual, a trust, estate, partnership, association, company, or corporation. Personal Exemptions. A. Exemptions of $3,700 each are allowed for the taxpayer, spouse, and dependents. 1. These are deducted from AGI in the computation of taxable income. 2. Not reduced by birth or death during year. B. Personal exemption for taxpayer; but no personal exemption for taxpayer if eligible to be claimed as a dependent on another taxpayer’s return. C. Personal exemption for spouse on joint return. 1. If separate return filed, taxpayer may claim spouse exemption only if spouse had no gross income and was not the dependent of another taxpayer. 2. No exemption for spouse if divorced or legally separated at end of year. D. Exemption for a dependent who is either a qualifiring child or a qualifing relative. A full exemption is allowed even if birth or death occurred during the year. To be a dependent, an individual must be a citizen, national, or resident of the U.S., or a resident of Canada or Mexico, and generally must not be married filing a joint return. 1. An individual must satisfy additional tests relating to relationship, age, abode, and support to be classified as a qualifying child. A qualifying child: (a) Must be the taxpayer’s child or a descendant of the taxpayer’s child, or the taxpayer‘s sibling (including half and step siblings) or a descendant of the taxpayer’s sibling. Taxpayer’s child includes son, daughter, stepson, or step daughter, or eligible foster child. A legally adopted child or an individual placed with the taxpayer for legal adoption is treated as a child of the taxpayer by blood. (b) Must be under age 19, or must be a full-time student for at least five months during the year and under age 24 as of the close of the year. The age test does not apply to a child who is permanently and totally disabled. Lulu-u u“**1uwvnuuux .lunuuvut Lu: uvv. v“. n . v (c) Must have the same principal place of abode as the taxpayer for more than half of the taxpayer’s tax year. (d) Must not have provided more than one-half of his or her own support during the calendar year in which the taxpayer‘s tax year begins. If the child is the taxpayer’s child and is a full-time student, amounts received as scholarships are not considered support. (e) Cannot be claimed as a dependent on more than one retum, even though the child satisfies the qualifying child tests for two or more taxpayers. If none of the taxpayers is the child’s parent, the child is a qualifying child for the taxpayer with the highest AGI. If only one of the taxpayers is the child’s parent, the child is a qualifying child for that parent. If two of the taxpayers are the child’s parents and they do not file a joint return together, the child is a dependent of the parent with whom the child resided for the longest period during the year. If equal time spent with each parent, the parent with the highest AGI is entitled to the exemption. 2. An individual must satisfy five additional tests to be classified as a qualifying relative. A qualifying relative: (a) Must not be a qualifying child (as defined above). (b) Relationship or household. Dependent must either be of specified relation- ship (closer than cousin), or live with taxpayer for entire year (except for temporary absences, or birth or death during year). (1) Related includes ancestors, descendents, brothers and sisters, uncles and aunts, half and step relationships, and in-laws. (2) Relationships established by marriage do not end with death or divorce. (c) Support. Taxpayer must furnish over one-half of support. Support includes food, clothing, FMV of lodging, medical, recreational, educational, and certain capital expenditures. Support excludes life insurance premiums, funeral ex- penses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income. ((1) Gross income. Dependent had less than $3,700 of gross income. Gross income does not include nontaxable income. E. A multiple support agreement can be used to satisfy the support test if (1) no one person fumishes more than 50 percent of a dependent’s support, and (2) those who collectively furnish more than 50 percent could have claimed the exemption except for the support test. Then any taxpayer (who meets the other requirements) can claim the dependent as an exemption provided: 1. The taxpayer fumishes more than 10 percent of the dependent’s support, and 2. Others fumishing more than 10 percent (and otherwise eligible) sign a written statement agreeing not to claim the exemption. F. A special rule applies to a child who receives over one-half of the child’s support from the child’s parents who are divorced or legally separated, or who lived apart at all times during the last 6 months of the year, if the child was in the custody of one or both parents for more than one-half of the year. 1. The child will be treated as the qualifying child or qualifying relative of the noncus- todial parent if any of the following requirements are satisfied: (a) The parents’ divorce or separation instrument provides that the noncustodial parent is entitled to the dependency exemption. (b) The custodial parent provides the IRS with a signed, written declaration waiving the child’s dependency exemption. (c) A pre-1985 divorce decree or written separation agreement entitles the noncus- todial parent to the exemption and that parent provides at least $600 for the child‘s support. 2. These special rules do not apply if over one-half of the support of the child is treated as having been received from a taxpayer under a multiple support agreement L'cucxax LaA otuuy luauu‘cu III. Filing Status and Requirements. A. Filing status. 1. Single taxpayers—unmarried at end of year and not qualified for another filing status. 2. Joint return—lowest rates; taxpayers must be married at year—end (or at death of spouse). (a) Spouses must have same taxable year. (b) Not available for U.S. citizen and nonresident alien spouse, unless they agree to be taxed on worldwide income. (0) Qualifying widow(er) with dependent child (surviving spouse) can use joint return rates for first two years after year of death of spouse if: (1) Dependent son, stepson, daughter, or stepdaughter must live in household with surviving spouse, (2) Surviving spouse pays over one-half of the cost of maintaining household for entire year, and (3) Deceased and surviving spouse were eligible to file joint return in year of death. 3. Married filing separately—higher rates; but may result in lower tax if both spouses have income and one spouse has large medical deductions. 4. Head of household—rates are between joint return and single taxpayer rates; applies to unmarried person (other than a qualifying widow(er) with dependent child) who provides more than 50% of costs of maintaining a household which, for more than one-half of the year, is the principal place of abode for: (a) A qualifiing child of the taxpayer (e.g., taxpayer’s children, siblings, step- siblings, and their descendents under age 19, or under age 24 and a student), but not if such qualifying child is married at the end of the taxable year and is not a dependent of the taxpayer because of filing a joint return, or was not a citizen, resident, or national of the U.S., nor a resident of Canada or Mexico, or (b) Relative (closer than cousin) for whom the taxpayer is entitled to a dependency exemption for the taxable year. (c) Parents need not live with taxpayer claiming head of household, but parents’ household must be maintained by taxpayer. (d) Can’t qualin for head of household status through use of multiple support agreement, or if taxpayer was a nonresident alien at any time during taxable year. (e) Unmarried requirement is satisfied if legally separated from spouse under a decree of separate maintenance, or if spouse was a nonresident alien at any time during taxable year. B. Return of a dependent. 1. The basic standard deduction of an individual who can be claimed as a dependent on another taxpayer’s return is limited to the lesser of (1) the basic standard deduction for single taxpayers ($5,800); or (2) the greater of (a) $950, or (b) the dependents earned income plus $300. Additionally, a dependent is not allowed a personal exemption on the dependent’s return. 2. The earned income of a child of any age, and the unearned income of a child 24 years of age or older as of the end of the taxable year is taxed at the child’s own marginal rates. 3. The unearned income in excess of $1,900 of a child under age 18 is generally taxed at the rates of the child’s parents. The amount taxed at the parents’ rates equals the child’s unearned income less the sum of (1) any penalty for early withdrawal of savings, (2) $950, and (3) the greater of $950 or the child’s itemized deductions directly connected with the production of unearned income. (a) This rule also applies to 18 year-old children, as well as 19 to 23 year-old children who are full-time students, if they do not provide at least half of their own support with earned income. l UPIL u—unuvnuum 1 “Mull-'7 111 U V Iv: V 1"" n— I (b) Uneamed income will be taxed at the parents’ rates regardless of the source of the assets creating the child’s unearned income so long as the child has at least one living parent as of the close of tax year and does not file a joint retum. (c) Directly connected itemized deductions are those expenses incurred to produce or collect unearned income, or maintain property that produces unearned income, such as custodian fees and investment advisory fees (these are deducti- ble as miscellaneous itemized deductions subject to a two percent of AGI floor). (d) If the parents’ rates are used, a child’s tax liability on unearned income over $1,900 is the child’s share of the increase in tax that would result from adding to the parents’ taxable income the unearned income of their children subject to this rule. (e) If the child’s parents are divorced, the custodial parent’s taxable income will be used in determining the child’s tax liability. (1) Parents may elect to include on their return the unearned income of their child under age 18 whose income consists solely of interest and dividends and is between $950 and $9,500. (1) The child does not have to file a tax retum for the year the election is made. (2) The electing parents must include the child’s gross income in excess of $1,900 on their retum, resulting in the taxation of that income at the parents’ highest marginal rate. The parents must also report additional tax liability equal to the lesser of (1) $95 or (2) 10 percent of the child’s income between $950 and $1,900. C. Filing requirements. 1. Return must generally be filed it gross income at least equals the sum of the taxpayer’s standard deduction plus personal exemptions allowable (e.g., $5,800 + $3,700 = $9,500 for single taxpayers in 2011). 2. The additional $1,450 or $1,150 standard deduction for old age is included in determining an individual’s filing requirement; the additional standard deductions for blindness and dependency exemptions are not included. (a) A $3,700 filing requirement applies to a married person filing a separate retum. (b) An individual who can be claimed as a dependency exemption by another taxpayer must file a return if the individual has (1) any unearned income, and total gross income exceeds the sum of $950 plus any additional standard deduction allowed for age and blindness, or (2) total gross income in excess of the individual’s standard deduction. (c) A self—employed individual must file if net earnings from self-employment are $400 or more. 3. Return must be filed by 15th day of fourth calendar month following close of taxable year. D. Tax tables contain precomputed tax liability based on taxable income and must generally be used by all taxpayers, except they cannot be used by: 1. Estates or trusts. 2. Taxpayers claiming an exclusion for foreign earned income. 3. Taxpayers filing a short-period retum. 4. Taxpayers whose taxable income is $100,000 or more. B. Tax rate schedules contain marginal rates from 10 percent to 35 percent that are applied to taxable income. F. Self-employment tax is imposed on individuals who work for themselves (e.g., sole proprietor, independent contractor, partner). For 2011, the full selfemployment tax (13.3 percent) is capped at $106,800, while the Medicare portion (2.9 percent) applies to all self-employment earnings. 1. Income from self-employment generally includes all items of business income less business deductions. It does not include personal interest, dividends, rents, capital gains and losses, and gains and losses on the disposition of business property. L'cuclal 1M omuy "annual . Wages subject to FICA tax are deducted from $106,800 in determining the amount of income subject to self-employment tax. . There is no tax if net earnings from self-employment income are less than $400. . A deduction equal to one-half of the normal selfemployment tax rate (7.65 percent for 2011) multiplied by the taxpayer’s self-employment income (without regard to this deduction) is allowed in computing the taxpayer’s net eamings from self- employment (a) This deemed deduction is allowed in computing the amount of net self-employ- ment earnings that is multiplied by the selfemployment tax rate (13.3 percent for 2011). (b) For 2011, self-emplOyed individuals can deduct 59.6% of applicable OASDl taxes and 50% of applicable medicare (HI) taxes in arriving at adjusted gross income. l UplC o—lnulvmuau 1 axauun—nu uverwew ‘0 Objective Questions True-False Indicate whether each statement is true or false. taxed using the marginal rates of the child’s parents. __ 1. An individual is considered to be 65 on the day preceding his or her 65th birthday. __ 2. A relative who is a taxpayer‘s dependent because of a multiple-support agreement cannot qualify the taxpayer for “head of household" filing status. _ 3. A nonresident alien cannot qualify as a “head of household.” __ 4. A married person filing a separate retum is taxed at higher rates than persons with the same taxable income in other filing categories. __ 5. A single individual for tax purposes is an unmarried person who does not qualify as head of household. __ 6. On a joint return, a spouse is liable for the tax on only his or her separate income. _ 7. A joint return may be filed even though one spouse has no income. __.__ 8. On a joint return, both spouses must have the same taxable year. __ 9. The unearned income in excess of $1,900 of a child under age 18 is generally __ 10. An individual taxpayer will be granted an automatic three-month extension to file ‘ a return if Form 4868 is filed on or before the due date of the return. _. 11. An 8950 filing requirement applies to a married person filing separately. __ 12. A self—employed individual must file a return if net earnings from self-employment are $400 or more. Multiple Choice Indicate the best answer for each of the following items. 1. Which relative does not have to live in the same household as the taxpayer claiming head of household filing status? a. Daughter b. Uncle c. Grandfather d. Mother e. Cousin 2. Mrs. Barnes was divorced on January 2, 2011. She had an unmarried son, age 15, living in her home for the entire 2011 year. It cost $12,000 to maintain Mrs. Barnes’s home for 2011, of which she furnished $8,000 and Billy Barnes (ex-husband) furnished $4,000 through support payments. Billy Barnes, however, provides more than one-half of the son’s total support and claims him as his dependent What is the most advantageous filing status for which Mrs. Barnes can quality? a. Married filing separately b. Single c. Surviving spouse d. Head of household 3. Which of the following items is normally not includible when determining the total support of a dependent? a. Education b. Clothing c. Life insurance premiums d. Recreation e. Dental care L”! 10. reaerai 'l‘ax Study Manual Sam Smith, a 40-year-old, is the sole support of his parents. His father is age 67 and is in good health. His mother is age 64 and is blind. How many exemptions may Sam claim? a. One b. Two c. Three d. Five . Which of the following may be claimed as a dependency exemption by John Smith? a. A 20—year—old son who earned $3,900 during the Christmas season but was unemployed the remainder of the year. He was supported by John Smith. b. A 10-year»old cousin living with John Smith’s parents but supported by John Smith. c. A seven-year—old orphan (not adopted by John Smith) who has lived in his home the entire year and has been supported by him. d. A 25-year-old married daughter who filed a joint return on which there was a tax liability with her husband. She is a student, had no income, and was supported by John Smith. Bob Bates was age 67 and his wife, Nancy, was age 64 when he died on May 3, 2010. Bob’s mother had lived in their home since 2009 and was wholly dependent upon them. Nancy continued to maintain the home after Bob’s death and to support her mother—in—law. For 2011, Nancy may claim the following number of exemptions: a. One b. Two c. Three d. Four Mr. and Mrs. Smith were both 67 years old in 2011 and had no dependents. Mr. Smith died during 2011. For 2011, Mrs. Smith may claim the following number of exemptions on a joint return: a. One b. Two c. Three d. Four If Mrs. Smith, identified in the preceding item, does not remarry, she may claim for 2012 the following number of exemptions: a. One b. TWO c. Three (:1. Four . The Fords are filing a joint return and have two sons, ages 8 and 23. The 23-year-old is a full- fime student at Loyola University, earned $4,500 during the year, and received a scholarship valued at $14,000. The Fords furnished $7,500 for his support. The Fords also contributed $6,000 to the support of Mrs. Ford’s mother, Mrs. Lincoln, who is age 66 and lives in her own house. Mrs. Lincoln’s personal income of $8,500, which includes social security benefits of $4,800, was expended in maintaining her home. The Fords should claim the following number of exemptions: a. Three b. Four c. Five d. Six Mr. and Mrs. James Long provided over one-half of the total support during 2011 of the following individuals: Mrs. Long’s mother, who has no gross income of her own and is a lifelong citizen and resident of Greece. Their son, age 18, who lives with the Longs and has gross income of $4,400. 11. 12. 13. AVE-‘1‘, mun-v...“ Awn‘uv-A a... v-y-..v.. Their daughter, age 26, who was married on December 30, 2011, has no gross income of her own and for 2011 files ajoint return on which there was a tax liability with her husband. Mrs. Long’s sister, age 17, who lives with the Longs and is a full-time student with gross income of $4,000. Their neighbor’s daughter, age 16, who has lived with them since March 2011 (while her parents are in Mexico) and has no gross income. Mr. and Mrs. Long file a joint return for 2011. The number of dependency exemptions they may claim is: a. One b. Two c. Three d. Four Sol and his brother Sam each provide 20 percent of their mother’s support Their mother, Elaine, lives alone and received the remaining 60 percent of her support from an unrelated friend. Under a multiple support agreement, Elaine’s dependency exemption may be claimed by— a. No one b. Sol c. Sam d. Either Sol orSam Sara Hance, who is single and lives alone in Idaho, has no income of her own and is supported in full by the following persons: Amount Percent of of Support Total Alma (an unrelated friend) . . . . . . . . . . . . . . . . . . . . . . . . . 8 4,800 48 % Ben (Sara’s brother) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,400 44 Carl (Sara's son) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800 8 $10,000 100 % Under a multiple support agreement, Sara’s dependency exemption can be claimed by: (AICPA) a. No one b. Alma c. Ben d. Carl The following information pertains to Jim Simon, a cash basis sole proprietor, for the year ended December 31, 2011: $120,000 Gross receipts from business . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income from personal investments . . . . . . . . . . . . . . . . . 800 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Other business operating expenses . . . . . . . . . . . . . . . . . . . . . . . 12,000 State business taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200 Federal self-employment tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,613 For the year ended December 31, 2011, how much should Jim report as net earnings from self- employment? a. $43,220 b. $46,800 c. $47,600 d. $48,000 — v . A yuhlul am 5.".ou 111mlqu 14. Nell Brown’s husband died in 2008. Nell did not remarry and continued to maintain a home for herself and her dependent infant child during 2009, 2010, and 2011, providing full support for herself and her child during these three years. For 2008, Nell properly filed a joint return. For 2011, Nell’s filing status is: (AICPA) a. Single b. Married filing joint return c. Head of household (1. Qualifying widow with dependent child 15. In Mona Lux’s 2011 income tax return, Mona validly claimed the $3,700 personal exemption for her dependent 17«year<)ld son, Brett Since Brett earned $7,000 in 2011 selling novelties at the college he attended full time, Brett was also required to file a 2011 income tax retum. How much should Brett claim as a personal exemption on his 2011 individual income tax return? (AICPA) a. $0 b. $900 c. $1,800 (1. $3,500 Tax Return Problem #1 —Form lO40EZ Kay Jones, a secretary, (who resides at 590 Oak Street, Genoa, Illinois 60135) is single and has no dependents. Her social security number is 486-456175. She received $24,150 in wages and had $2,010 of federal income tax withheld during 2010. Kay received interest income of $390 from her bank account and made $150 of contributions to charitable organizations during the year. Prepare Ms. J ones’s Form 1040EZ. Tax Return Problem #2—Form 21 20 Alice Sutton, who is single and lives alone, has no income of her own. During 2010, 40 percent of Alice’s support was previded by an unrelated friend; 35 percent was provided by Alice’s brother, Fred (#423-98—1765), who lives at 505 Lake Shore Drive, Chicago, Illinois; and 25 percent was provided by Alice’s sister, Mary (#498653127), who lives at 341 Second Street, Geneva, Illinois. Mary has agreed that Fred should receive the dependency exemption for Alice for 2010. Prepare the Form 2120 to be attached to Fred’s Form 1040. Tax Return Problem #3—Schedule SE Use the following information and Schedule SE to compute McPherson’s self-employment tax. Hal McPherson (social security #315—79—2468) had net earnings from his sole proprietorship of $74,000 for 2010. Hal also had a second job and received wages subject to FICA tax of $55,100. Tax Return Problem #4—Form 8615 John (social security #32145-6798) and Janet Brown have one child, Kevin, age 12. For 2010, Kevin (social security #206-15—9911) has $4,300 of interest income and $1,500 of earned income. He does not itemize deductions on the tax return that he is required to file. For 2010, the taxable income on the parents’ joint tax retum was $59,750, after deducting three exemptions (including one for Kevin). Use the above information to complete Form 8615, which will be attached to Kevin’s tax return. lUPlU o—uuuvsuual Lmuuu—mn UVCI VIEW — I Department of the Treasury—an Revenue Service Form Income Tax Return for Single and 1040Ez Joint Fliers With No Dependents (99) OMB No. 54541074 p Your rst name and Initial Last name Your social emrity number Name, R Address 'I‘ I a Joint rotum. spouse 5 rsl name and mitt . Last name spouse-3 social ,mmy numb... ssi 1 _I— . See separate c 2- a r - - r ‘ Make sure the SSN(s) instructions. 'E A above are correct. A A _ n Checking a box below will not Eurdential ‘I; change your tax or refund. cation Campaign (506 page 9) Check here if you, or your spouse if a joint return, want $3 to go to this fund . . D [I You El Stilt)use Income 1 Wages, salaries, and tips. This should be shown in box 1 of your Forrn(s) W-2. Attach your Form(s) W-2. 1 Attach Form(s) W-Z here. 2 Taxable interest. If the total is over $1,500, you cannot use Form lO40EZ. 2 Enclose, but do not attach, any 3 Unemployment compensation and Alaska Permanent Fund dividends (see age 11). 3 payment. 4 Add lines 1, 2, and 3. This is your adjusted gross income. 4 LESS; r 5 If someone can claim you (or your spouse if ajoint retum) as a dependent, check deduction mag? the applicable box(es) below and enter the amount from the worksheet on back. file Form 1040A or D You E] spouse :Zzol'iffiiz‘m Ifno one can claim you (or your spouse if a joint return), enter $9,350 if single; page 4‘8 $18,700 if married filing jointly. See back for explanation. 5 6 Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0—. This is your taxable income. V 6 7 Federal income tax withheld from Form(s) W-2 and 1099. 7 gagglitesnts’ 8 Making work pay credit (see worksheet on back). 8 and Ta): 98 Earned income credit (EIC) (see page 13). 9a b Nontaxable combat pay election. 91; 10 Add lines 7. 8, and 921. These are our total payments and credits. P 10 11 Tax. Use the amount on line 6 above to find your tax in the tax table on pages 27 through 35 of the instructions. Then, enter the tax from the table on this line. 11 Refund 123 If line 10 is larger than line 11, subtract line 11 from line 10. This is your refund. Hm “way If Form 8888 is attached, check here > [I 12a t b number mm n Type: III III 12b. 11c, 33411:; p d Account number x 1 Amount 13 If line 11 is larger than line 10, subtract line 10 from line 11. This is You Owe the amount you owe. For details on how to pay. see page 19. > 13 TM“, Party Do you want to allow another person to discuss this return with the IRS (see page 20)? I] Yes. Complete the following. D No Deslgnee Designed; Phone Personal identification name > no. > number (PIN) > m slgn Under penalties o’i perjury, I declare that I have examined this return. and to the best at my knowledge and ballet. It is true. correct. and accurately lists all amounts and sources at income I received during the tax year. Declaration of preparer (other than the taxpayer) is based Here on all inlonnation ol Which the preparer has any knowledge. Your signature Your occupation Daytime phone number Joint return? See page 6. Keep ‘ copy for Spouse's signature, ii a loint return, both must sign. Date Spouse's occupation your records. Pa“ D P'epa'e’ 3°“??? Inn's use only Firm‘saddress} For Disclosure. Privacy Act, and Paperwork Reduction Act Notice, see page 36. Cat, No. l 1329W Form 104052 (2010) nu 1‘ enter at 1 wt otuuy “1311113.! F... 2120 (Rev. October 2005) Department or the Treasury Internal Revenue Service Name(s) shown on return Multiple Support Declaration > Attach to Form 1040 or Form 1040A. OMB No. 1545—0074 Attachment Sequence No. 114 Your social security number I have a signed statement from each eligible person waiving his or her right to claim this person as a dependent for any tax year that began in the above calendar year. Eligible person's name meningitisgatazigjgaa'sa‘iré "i """""""""" " Address (number, stree apt. lly tat anleP node) Social security number Instructions What's New The rules for multiple support agreements still apply to claiming an exemption for a qualifying relative, but they no longer apply to claiming an exemption for a qualifying child. For the definitions of "qualifying relative" and "qualifying child," see your tax retum Instruction booklet. Purpose of Form Use Form 2120 to: 0 Identify each other eligible person (see below) who paid over 10% of the support of your qualifying relative whom you are claiman as a dependent. and 0 Indicate that you have a signed statement trom each other eligible person waiving his or her right to claim that person as a dependent. An eligible person Is someone who could have claimed a person as a dependent except that he or she did not pay over hall of that person's support. if there are more than four other eligible persons, attach a statement to your return with the required Information. Claiming a Qualifying Relative Generally, to claim a person as a qualifying relative, you must pay over half of that person's support. However, even if you did not meet this support test, you may be able to claim him or her as a dependent It all five of the following apply. 1. You and one or more other eligible personis) (see above) together paid over half of that person‘s support. 2. You paid over 10% of the support. 3. No one alone paid over half of that person’s support. 4. The other dependency tests are met. See Step 4, Is Your Qualifying Relative Your Dependent? In the Form 1040 or Form 1040A Instructions. 5. Each other eligible person who paid over 10% of the support agrees not to claim that person as a dependent by giving you a signed statement. See Signed Statement on this page. Note. To find out what is included In support, see Pub. 501, Exemptions, Standard Deduction, and Filing lnfonnation. Signed Statement You must have receivod, from each other eligible person listed above, a signed statement waiving his or her right to claim the person as a dependent for the calendar year indicated on this form. The statement must include: 0 The calendar year the waiver applies to. o The name of your qualifying relative the eligible person helped to support, and O The eligible person's name, address, and social security number. Do not file the signed statement with your return. But you must keep It for your records and be prepared to fumish it and any other iniormation necessary to show that you qualify to claim the person as your dependent. Additional Information See Pub. 501 for details. Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the lnlonnation. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not requer to provide the Information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its lnstnlctlons must be retained as long as their contents may become material In the administration of any lntemel Revenue law. Generally, tax returns and return information are confidential, as required by lntemal Revenue Code section 6103. The average time and expenses required to complete and file this form will vary depending on individual circumstances. For the estimated averages, see the Instnrctlons for your Income tax return. If you have suggestions for making this lorrn simpler, we would be happy to hear from you. See the Instructions for your Income tax return. Cat. No.11712F Form 2120 (Rev. 10-2005) Avrtvv -uu.--—... -__..-_ ___. - . . Schedule SE (Form 1040) 2010 Attachment Sequence No. 1 7 Page 2 Name of person with colt-employment income (as shown on Form 1040) Social security number of person with self-employment income > Section B—Long Schedule SE Self-Employment Tax Note. if your only income subject to self-employment tax is church employee income, see page SE-a for specific instructions. Also see page SE—1 for the definition of church employee income. a A if you are a minister, member of a religious order, or Christian Sci ce practitioner and you filed Form 4361. but you had $400 or more of other net eamings from self—employment. check here and continue with Part I . . . . . . > El 18 Net farm profit or (loss) from Schedule F, line 36. and farm partnerships, Schedule K-1 (Form 1065). box 14. code A. Note. Skip lines 1a and 1b if you use the farm optional method (see page SE—5) b if you received social security retirement or disability benefits. enter the amount of Conservation Reserve Program payments Included on Schedule F, line 6b, or listed on Schedule K—i (Form 1065), box 20, code Y 2 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065). box 14. code A (other than taming): and Schedule K-1 (Form 1065-B), box 9, code J1. Ministers and members of religious orders. see page SE—1 for types of income to report on this line. See page SE-4 for other Income to report. Note. Skip this line if you use the nonfarm optional method (see page SE—S) . . . . . . . . 3 Combine lines 1a, 1b, and 2. Subtract from that total the amount on Form 1040, line 29, or Form 1040NR. line 29, and enter the result (see page 85—3) . . . . . . . . . . . 43 If line 3 is more than zero, multiply line 3 by 92.35% (.9235). Otherwise, enter amount from line 3 Note. If line 4a is less than $400 due to Conservation Reserve Program payments on line to, see page SE-3. b if you elect one or both of the optional methods. enter the total of lines 15 and 17 here 0 Combine lines 4a and 4b. If less than $400. stop; you do not owe self~employment tax. Exception. if less than $400 and you had church employee Income, enter -0- and continue > 53 Enter your church employee income from Form W-2. See page SE-1 for definition of church employee income. . . . b Multiply line So by 92.35% (.9235). if less than $100. enter -0— . . . . . . . Addiinss40and5b...'.................... Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2010 . 8:! Total social security wages and tips (total of boxes 3 and 7 on Forrn(s) W-2) and railroad retirement (tier 1) compensation. If $106,800 or more, skip lines so through 10, and go to line 11 b Unreported tips subject to social security tax (from Form 4137, line 10) Wages subject to social security tax (from Form 8919, line 10) Addlinesaa,8b,and8c. 9 Subtract line ad from line 7. if zero or less, enter -0- here and on line 10 and go to line 11 10 Multiply the smaller of line 6 or line 9 by 12.4% (.124) . 11 Muitiplyline6by2.9% (.029) . . . . . . . . . . . . . . . . . . . 12 Self-employment tax. Add lines 10 and 11. Enter here and on Form 1040, line 56, or Form 1040MB, line 54 13 Deduction for when at soflemploymenttax Multiply line 12 by 50% (.50). Enter the result here and on Form 1040. line 21, or Form 1040NR, line 27 . Part II Optional Methods To Figure Net Earnings (see page SE-4) Farm Optional Method. You may use this method only if (a) your gross larrn income‘ was not more than $6,720, or (b) your net farm profits1 were less than $4,851. 14 Maximum income for optional methods . . . . . . . . . . . . . . . . 15 Enter the smaller of: two-thirds (2/2) of gross farm income' (not less than zero) or $4,480. Also includethlsamountonline4babove. . . . . . . . . . . . . . . . . . . Nonform Optional Method. You may use this method only if (a) your net nonfann profits' were less than $4,851 and also less than 72.189% of your gross nonfann income,‘ and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution. You may use this method no more than five times. 16 Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . 11 Enter the smaller of: two-thirds (1A) of gross nonfarm income‘ (not less than zero)or the amount on line 16. Also include this amount on line 4b above . . . . . ‘ From Sch. F, line 11. and Sch. K-1 (Form 1065). box 14, code B. “ From Sch. 0. line 31; Sch. C—EZ, line 3; Sch. K-1 (Form 1065), box 14. code 2 From Sch. F. line as. and Sch. K-1 (Form 1065), box 14. code A~mlnus the A: and Sch- K-l (Form 10659). box 9. code J1. amount you would have entered on line 1b had you not used the optional ‘From Sch. 0, line 7; Sch. 0E2. line 1; Sch. K-1 (Form 1065), box 14, code method. 0; and Sch. K‘1 (Form 1065—5), box 9. code J2. Schedule SE (Form 1040) 2010 an: no Tax for Certain Children Who Have Investment Income of More Than $1,900 > Attach only to the child's Form 1040, Form 1040A, or Form 1040NR. > See separate instructions. OMB No. 1545-0074 F... 8615 Chlld's name shown on return Child‘s eoclal security number Before you begin: If the child, the parent, or any of the parent's other chlldren for whom Form 8615 must be filed must use the Schedule D Tax Worksheet or has income from taming or fishing, see Pub. 929, Tax Rules for Children and Dependents. It explains how to figure the child's tax using the Schedule D Tax Worksheet or Schedule J (Form 1040). A Parent's name (first, initial. and last). Caution: See instructions belore completing. B Parent‘s social security number C Parent‘s filing status (check one): [I Single [I Married filing jointly [I Married filing separately [1 Head of household I] Qualifying widow(er) Part I child’s Net Investment Income 1 Enterthechlld's investment income(see instmctions) . . . . 2 If the child did not itemize deductions on Schedule A (Form 1040 or Form 1040MB), enter $1,900. Othewvlse, see instructions . . . . . . . . . . . . . . . . . . . . . 3 Subtract line 2 from line 1. If zero or less, stop; do not complete the rest of this form but do attach It to the child’s return . . . . . . . . . . . . . . . . . . . . . . 4 Enter the child’s taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR. line 41. If the child files Form 2555 or 255542, see the instructions . . . . . . . . 5 Enter the smaller of line 3 or line 4. If zero, stop; do not complete the rest of this lorrn but do attach itto the chlld's return . . . . . . . . . . . . Part II Tentative Tax Based on the Tax Rate of the Parent 6 Enter the parent’s taxable Income from Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6: Form 1040NR, line 41; or Form 1040NR-EZ, line 14. If zero or less, enter -0-. It the parent flles Form 2555 or 2555-EZ, see the instructions . , . . . . . . . . . . . . . . . 1 Enter the total. if any, from Forms 8615, line 5, of all other children of the parent named above. Do not include the amount from llne 5 above . 8 Addline55,6,and7(seeinstructions) . . . . . . . . . . . . . . , 9 Enter the tax on the amount on line 8 based on the parent’s filing status above (see instructions). If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or ScheduleJ(Fon'n 1040) is used to figure the tax, check here . . . . . . . . . b C] 10 Enter the parent’s tax from Form 1040, line 44; Form 1040A, line 28, minus any alternative minimum tax; Form 1040EZ. line 11; Form 1040NH. line 42: or Form 1040NFl-EZ. line 15. Do not include any tax from Form 4972 or 8814 or any tax from recapture of an education credit. If the parent files Form 2555 or 2555»EZ, see the instructions. If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) was used to figure the tax. check here . . . . . . . . . . . . . . . . . . . . . . b E] 11 Subtract line 10 from line 9 and enter the result. If line 7 is blank, also enter this amount on line 13 and go to Part III . . . . . . . . . . . . . . . . . . . . 12a Add lines 5 and 7 . . . . 12a b Divide llne 5 by line 12a. Enter the result as a decimal (rounded to at least three places) . 13 Multil llne 11 b line 12b . . . . . . . . . . . . . . . . . . . . . . . . Child’s Tax—If lines 4 and 5 above are the same, enter —0- on line 15 and o to line 1 14 Subtract line 5 from line 4 15 Enter the tax on the amount on line 14 based on the child's filing status (see instructions). if the Qualified Dividends and Capltal Gain Tax Worksheet. Schedule D Tax Worksheet, or Schedule J (Form 1040) is used to figure the tax, check here . . . . . . . . . V [:1 16 Addlines13and15 . . . . . . . . . . . . . . . . . . . . . . 17 Enter the tax on the amount on line 4 based on the child’s filing status (see Instructions). If the Qualified Dividends and Capital Gain Tax Worksheet. Schedule D Tax Worksheet, or ScheduleJ (Form 1040) is used to figure the tax, check here . . . . . . . . > El 18 Enter the larger of line 16 or line 17 here and on the child's Form 1040, llne 44; Form 1040A, line 28; or Form 1040NR, line 42. lf the child files Form 2555 or 2555-EZ. see the instructions For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 64113U Form 8615 (2010) Answers True-False 1. True. 2. True. 3. True. 4. True. 5. True. 6. False. 7. True. 8. True. 9. True. 10. False. 11. False. 12. True. Multiple Choice 1. d. 2. d. 3. c. 4. c. 5. c. 6. b. 7. b. 8. a. 9. b. 10. b. 11. a. 12. c. 13. a. 14. c. 15. a. Topic 5~1ncl1vmual Taxation—An Uverv1ew O I On a joint retum, both spouses generally are jointly and severally liable for any tax, interest, and penalties. An automatic extension is available for a four-month period. The filing requirement for a married taxpayer filing separately is $3,650 for 2010. Only a taxpayer’ 5 parents do not have to live with the taxpayer in order to enable the taxpayer to claim head of household filing status. Mrs. Bames’s unmarried son is a qualifying child and enables Mrs. Barnes to file as head of household. One exemption for Sam, one for his father, and one for his mother. No additional exemptions are available for age or blindness. Smith could not claim his son, because his son’s income was at least $3,700; his cousin, because the cousin did not live with John Smith; and his daughter, because she filed a joint return on which there was a tax liability. One exemption for Nancy and one for Nancy’s mother-in—law. One exemption each for Mr. and Mrs. Smith. One exemption for Mrs. Smith. One exemption each for Mr. and Mrs. Ford and each of their two sons. One exemption is allowed for their son. Mrs. Long’s mother does not qualify because she is neither a citizen nor a resident of the U.S. The daughter does not qualify because she filed a joint return on which there was a tax liability. Mrs. Long’s sister is a qualifying child not subject to the gross income requirement. The neighbor’s daughter does not qualify because she did not live with the Longs for the entire taxable year. Because more than half of Elaine’s support was furnished by a person who could not claim her as a dependent, no one may take the dependency exemption. Alma is not eligible to claim the exemption because she is unrelated and Sara did not live with her. Carl is not eligible because he did not contribute more than 10 percent. The dividend income from personal investments and the federal selfemployment tax actually paid are not included in the computation. $120,000 — ($60,000 + $12,000 + $1,200) — ($46,800 x 7.65% deemed deduction) = $43,220. The filing status of “qualifying widow” is available only for the first two years following the year of death of the widow’s spouse. No personal exemption is allowed on Brett’s return because Brett is a dependent of another taxpayer. 64 Federal Tax Study Manual Departmmt of the Tmsury—lnteml Revenue Service Form income Tax Return for Single and 1040Ez Jolnt Fliers With No Dependents (99) 2010 on N... l545—oo74 p Your first name and initial Last name Your social security number Name! 1‘ Kay Jones 486456175 gigggi " ' __J_l__ §ee separate (L: ome a fess number = - stree- you AMake sure the SSN(s) A '"WUCHWS- E 590 Oak Street above are correct. A ity, town or post a tea. state, a - I code. fyou have a orelgn a rose, see instructions. a Checkan a box below will not . . G . IL 601 35 gallium” : enoa change your tax or refund. ection Campaign Me page 9) Check here if you, or your spouse if a joint return, want 53 to go to this fund . . b I] You I: Spouse 1 Wages. salaries, and tips. This should be shown in box 1 of your Form(s) W-2. ncome Attach your Form(s) W-Z. 1 24,150 Attach Form(s) W-2 here. 2 Taxable interest. If the total is over $1,500, you cannot use Form 104052. 2 390 Enclose. but do . not attach, any 3 Uncm lo cut com - ' nsation and Alaska Permanent Fund divrdends (see ae 11). 3 payment. 4 Add lines 1, 2. and 3. This is your adjusted gross income. 4 24.540 irdgfofh r 5 If someone can claim you (or your spouse if a joint retum) as a dependent, check deduction if”? the applicable box(es) below and enter the amount from the worksheet on back. 1:4“ 0' D You I] Spouse You baffle?" If no one can claim you (or your spouse if a joint return). enter $9,350 if single; m: 4" $18,700 if married filing jointly. See back for explanation. r 5 9,350 6 Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0~. This is your taxable income. F 6 15.190 7 Federal income tax withheld from Fonn(s) W-2 and 1099. 7 2.010 gfieygtesnts’ 8 Making work pay credit (see worksheet on back). 8 400 and Ta); 9:: Earned income credit (EIC) (see page 13). 9a b Nontaxable combat pay election. 9b 10 Add lines 7, 8, and 93. These are our total ayments and credits. b 10 2.410 11 Tax. Use the amount on line 6 above to find your tax in the tax table on pages 27 through 35 of the instructions. Then, enter the tax from the table on this line. 1 1 1,859 Refund 128 If line 10 is larger than line 11. subtract line 11 from line 10. This is your refund. H.“ il dimfly If Form 8888 is attached, check here > D 12a 551 3933:5217”. > b Routing number ED321213] >c Type: D Checkins III s-vinss 12b. 12c. , d Account number I I _______.—..__.__________._.____— Amount 13 If line 11 is larger than line 10, subtract line 10 from line 11. This is you owe the amount you owe. For details on how to pay, see page 19. V 13 mm Party Do you want to allow another person to discuss thls return with the me (see page 20)? D Yes. Complete the following. No Designee Desiolee's Phone Personalidentification name > no. > mm am > CECE]: Under lt‘asof ' .ldeclarelhatlha rrllnedttl‘ retu , ndtothebestot know andbeliei,itlslrue. correct, and Slgn accuramlsis all awu‘nrg and sources 01 lncfrrglareoeived |(sturingnt‘h: tax year. Declaralirgx 01 new (olher than the taxpayer) '3 based "016 on all information of which the preparer has any knowledge. » 9 Your signature Your occupation Daytlme phone number $5M“ Kay Jones 3—9—10 he], a copy for Spouse‘s signature. if a joint return, both rmst sign. Date Spouse's occupation your records. P“ W D" P'epa'e' 3°" ‘17: 1°” a lrrn's “5° °"‘V For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 36. Cat. No. 11329W Fan-n 104052 (2010) Fm 2120 (Rev. October 2005) Department of the Treasury Internal Revenue Service Name(s) shown on retum Fred Sutton Multiple Support Declaration > Attach to Form 1040 or Form 1040A. OMB No. 1545—0074 Attachment Sequence Not 114 Your social security number 423 i 98 i 1765 During the calendar year ................................. .. , the eligible persons listed below each paid over 10% of the support of: Alice Sutton Name of your qualifying relative I have a signed statement from each eligible person waiving his or her right to claim this person as a dependent for any tax year that began in the above calendar year. Mary Sutton Eligible person's name 341 Second Street, Geneva, lL. 61035 Social security number Address (number street pt ty tate, and ZIP code) instructions What’s New The rules tor multiple support agreements still apply to claiming an exemption for a qualifying relative, but they no longer apply to claiman an exemption for a qualifying child. For the definitions of “qualifying relative" and "qualifying child." see your tax return instruction booklet. Purpose of Form Use Form 2120 to: 0 Identify each other eligible person (see below) who paid over 10% of the support of your qualifying relative whom you are claiming as a dependent. and 0 indicate that you have a signed statement from each other eligible person waiving his or her right to claim that person as a dependent. An eligible person is someone who could have claimed a person as a dependent except that he or she did not pay over half of that person's support. if there are more than four other eligible persons. attach a statement to your return with the required information. Claiming a Qualifying Relative Generally. to claim a person as a qualifying relative. you must pay over half of that person's support. However. even It you did not meet this support test, you may be able to claim him or her as a dependent if all five of the following apply. 1. You and one or more other eligible personls) (see above) together paid over half of that person’s support. 2. You paid over 10% of the support. 3. No one alone paid over half of that person's support. 4. The other dependency tests are met. See Step 4, Is Your Qualifying Relative Your Dependent? In the Form 1040 or Form 1040A Instructions. 5. Each other eligible person who paid over 10% of the support agrees not to claim that person as a dependent by giving you a signed statement. See Signed Statementon this page. Note. To find out what is included in support. see Pub. 501. Exemptions. Standard Deduction, and filing information. Signed Statement You must have received. from each other eligible person listed above. a signed statement waiving his or her right to claim the person as a dependent for the calendar year indicated on this form. The statement must include: o The calendar year the waiver applies to. o The name of your qualifying relative the eligible person helped to support. and 0 The eligible person's name. address. and social security number. Do not file the signed statement with your return. But you must keep it for your records and be prepared to furnish it and any other information necessary to show that you qualify to claim the person as your dependent. Additional Information See Pub. 501 for details. Paperwork Reduction Act Notice. We ask for the information on this form to carry out the internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Intemel Revenue law. Generally. tax rehims and return information are confidential. as required by internal Revenue Code section 6103. The average time and expenses required to complete and file this form Mil vary depending on individual circumstances. For the estimated averages. see the instructions for your income tax return. If you have suggestions for making this form simpler. we would be happy to hear from you. See the instructions for your income tax return. Cat.No.11712F Form 2120 (Rev. 10—2005) v . A uuvAw Aw: LII-ou "Luuum Schedule SE (Form 1040) 2010 Attachment Sequence No. ‘l 7 Page 2 Name of person with salt-employment income (as shown on Form 1 040) Social security number of person Hal McPherson with self-employment income > 315 79 2468 Section B—Long Schedule SE Self-Employment Tax Note. If your only income subject to self-employment tax is church employee income. see page SE—3 for specific instructions. Also see page SE-1 for the definition of church employee income. A it you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Partl . . . . . . > El 18 Net farm profit or (loss) lrom Schedule F, line 36, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A Note. Skip lines ia and to if you use the farm optional method (see page SE—5) b It you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line so, or listed on Schedule K-1 (Form 1065), box 20. code Y 2 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065), box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9, code J1. Ministers and members of religious orders, see page SE-1 for types of income to report on this line. See page SE—4 for other Income to report. Note. Skip this line it you use the nonfarm optional method (see page SE-5) . . . 3 Combine lines 1a, 1b, and 2. Subtract from that total the amount on Form 1040, line 29, or Form 1040MB, line 29, and enter the result (see page SE-a) . . . . . . . . . . . 4a if line 3 is more than zero, multiply line 3 by 92.35% (.9235). Otherwise, enter amount from line 3 Note. If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see page sea. b if you elect one or both of the optional methods. enter the total of lines 15 and 17 here c Combine lines 4a and 4!). If less than $400, stop; you do not owe self-employment tax. Exception. if less than $400 and you had church employee income, enter -0- and continue > 5a Enter your church employee income from Form W-2. See page SE-1 for definition of church employee income. . . . b Multiply line 5a by 92.35% (.9235). If less than $100, enter ~0- . . . . . . . . . . 6 Addllnes4cand5b........................ 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2010 . 88 Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. it $106,800 or more, skip lines 8b through 10, and go to line 11 Wages subject to social security tax (from Form 8919, line 10) Addlines8a.8b,and8c. 9 Subtract line ad from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 10 Multiply the smaller of line 6 or line 9 by 12.4% (.124) . 11 Multiplylineeby2.9%(.029) . . . . . . , . . . . . . . . . . . 12 Self-employment tax. Add lines 10 and 11. Enter here and on Form 1040, line 58, or Form 1040MB. line 54 13 Deduction tor one-halt ot sell-employth tax. Multiply line 12 by 50% (.50). Enter the result here and on Form 1040, line 27, or Form 1040NR, line 27 . Optional Methods To Figure Net Earnings (see page SE-4) Farm Optional Method. You may use this method only it (a) your gross farm income' was not more than $6,720. or (b) your net farm profitsI were less than $4.851. 14 Maximum income for optional methods . . . . . . . . . . . . . . . . . . 15 Enter the smaller of: two-thirds (2/3) of gross farm income‘ (not less than zero) or $4,480. Also includethis amountonline4b above. . . . . . . . . . . . . . . . . Nontarm Optional Method. You may use this method only if (a) your net nonfarm profits“ were less than $4,851 and also less than 72.189% of your gross nonfarm income.‘ and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution. You may use this method no more than five times. 16 Subtract line 15 from line 14. . . . . . . . . . . , . . . . . . 17 Enter the smaller of: two-thirds (2/3) of gross nonfan'n income‘ (not less than zero)or the amount on line 16. Also include this amount on line 4b above . 0.0 ‘ From Sch. F. line 11, and Sch. K-1 (Form 1065). box 14, code B. a From Sch. C, line 31; Sch. C-EZ. line 3; Sch. K-1 (Form 1065), box 14. code 1 From Sch. F, line 36, and Sch. K—1 (Form 1065), box 14, code A—mlnus the A: and Soh- K4 (Form 1055-9) 130* 9- 0066 MA amount you would have entered on line 1b had you not used the optional ‘From Sch. 0. line 7; Sch. C-EZ, line 1; Sch. K-1 (Form 1065), box 14. code method. C; and Sch. K-1 (Form 1065-8). box 9, code J2. Schedule SE (Form 1040) 2010 Avylv u mutuauuuu Alum-Jul- ALIA uvvn. v-vvv vv Tax for Certain Children Who Have Investment income of More Than $1,900 > Attach only to the child‘s Form 1040, Form 1040A, or Form 1040MB. > See separate instructions. OMB Nu. 1545-0074 Q©1O Attachment S uence No. 33 Child’s eocial security number . 208 15 9911 Form 5 Depenth oi the Treasury internal Revenue Service Child‘s name shown on return Kevin Brown Before you begin: if the child, the parent, or any of the parent’s other children for whom Form 8615 must be filed must use the Schedule D Tax Worksheet or has income from farming or fishing, see Pub. 929. Tax Rules for Children and Dependents. It explains how to figure the child's tax using the Schedule D Tax Worksheet or Schedule J (Form 1040). A Parent's name (first. Initial. and last). caution: See instrucdons before completing. B Parent’s social security number John Brown 321 45 679E C Parent‘s filing status (check one): C) Single Married filing Jointly El Married filing separately E] Head of household El Qualifying widow(er) Part l Child’s Net Investment income .A Enterthe child's investment income (see instructions) . . . . . . . . . . . . . . . 2 if the child did not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $1,900. Otherwise, see instructions . . . . . . . . . . . . . . . . . t . . . 1,900 3 Subtract line 2 from line 1. If zero or less, stop; do not complete the rest of this form but do attach it to the child’s return . . . 4 Enter the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. lithe child files Form 2555 or 2555-EZ, see the instructions . . . . 5 Enter the smaller of line 3 or line 4. If zero, stop; do not complete the rest of this form but do attach it to the child‘s return Part II Tentative Tax Based on the Tax Rate of the Parent 6 Enter the parent's taxable Income from Form 1040. line 43; Form 1040A. line 27; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NFi-EZ. line 14. if zero or less, enter -0-. lithe parent flies Form 2555 or 2555-EZ, see the instructions . . . . —m 7 Enter the total, if any, from Forms 8615, line 5, of all other children of the parent named above. Donotinoludetheamountfromlinesabove. . . . . . . . . . . . . . . . . . 7 Add lines 5, 6, and 7 (see instructions) 9 Enter the tax on the amount on line 8 based on the parent's filing status above (see instructions). If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet. or Schedule J (Form 1040) is used to figure the tax, check here . . . . . . . . . > [I l 10 Enter the parent's tax from Form 1040, line 44; Form 1040A. line 28, minus any alternative minimum tax; Form 104OEZ, line 11; Form 1040NR, line 42; or Form 1040NR-EZ, line 15. Do not Include any tax from Form 4972 or 8814 or any tax from recapture of an education credit. lithe parent files Form 2555 or 2555-EZ, see the instructions. if the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) was used to figure the tax, check here . . . . . . . > I] 11 Subtract line 10 from line 9 and enter the result. if line 7 is blank, also enter this amount on line 13and goto Part III . . . . . . . . . . . . . . . . . . . . . . . . . . 12a Add lines 5 and 7 . . . . . . . . . . . . . . . . . . 12a 2,400 b Divide line 5 byline 12a. Enter the result as a decimal (rounded to at least three places) . . . . m x 1. 000 13 Multil linei1b iine12b . . . . . . mm Part III Child's Tax—If lines 4 and 5 above are the'same, enter -0- on line 15 and o to line 16. 14 Subtract line5irom Iine4 . . . . . . . . . . . . . . . r 15 Enter the tax on the amount on line 14 based on the child’s filing status (see Instructions). if the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or ScheduleJ(Form1040)isusedtofigurethetax,checkhere. . . . . . . . . > El 16Addlines13and15.......................... 11 Enter the tax on the amount on line 4 based on the child's filing status (see Instructions). If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or ScheduleJ(Fomt 1040) is used to flgurethe tax, check here . . . . . > El 17 18 Enter the larger of line 16 or line 17 here and on the child’s Form 1040, line 44; Form 1040A, line 28; or Form 1040MB, line 42. lithe child files Form 2555 or 2555-EZ, see the instructions For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. s411au Form 8615 (2010) ...
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CH3 Study Guide Tax 4011 - TOPIC 3 INDIVIDUAL TAXATION—AN...

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