Chapter 1

Chapter 1 - 1 Chapter 1 Overview of the Tax Structure...

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© 2010 CCH. All Rights Reserved. Chapter 1 1 Chapter 1 Overview of the Tax Structure Highlights of 2010 Tax Changes In f ation adjustments amounts for the basic standard deduction in 2010: Single and married F ling separate (MFS) taxpayers, $5,700 (same as in 2009); Qualifying widow(er) and married F ling jointly (MFJ) taxpayers, $11,400 (same as in 2009); and Head of household (HOH), $8,400 (up from $8,350 in 2009). The additional standard deduction for age/blindness remained at $1,400 for unmarried taxpayers, and at $1,100 for married taxpayers. The additional standard deduction for real estate taxes paid on the taxpayer’s principal residence expired in 2009 and had not been renewed at the time the book went to press. The basic standard deduction for dependents remained at the lesser of (i) $950 or (ii) earned income + $300. The personal and dependency exemption remained at $3,650. In 2010, personal and dependency exemptions are not reduced for higher income taxpayers. Teaching Suggestions The focus of Chapter 1 should be the tax base formulas. For many students, this course will be their F rst 1. formal exposure to federal income taxation. To give them an overview, present the tax base formula for all taxpayers. Tell your students that with some computational exceptions, corporations and individual taxpayers all use the same formula to determine their tax base. Then, show how this formula leads to the expanded tax base formula for individual taxpayers. When you move from income to gross income (GI), provide an example of an exclusion (such as interest from municipal bonds). When you move from gross income (GI) to adjusted gross income (AGI), provide examples of these deductions. You might mention the IRA deduction and alimony deduction. When you get to AGI, it’s a good time to tell your students why AGI is important to individual taxpayers. Mention that a percentage of AGI is an upper limit on some deductions (such as charitable contributions). Also, indicate that a percentage of AGI is a threshold that must be exceeded before some items can be deducted (e.g., medical expenses, casualty and theft losses from personal use property and certain miscellaneous itemized deductions). Let your students know that there are two groups of deductions to use to get from AGI to taxable income (TI). Indicate that one group consists of either the standard deduction or itemized deductions, and the other group consists of personal and dependency exemptions. Present the general categories of itemized deductions and indicate why some taxpayers use the standard deduction rather than itemize deductions. Mention that, in most cases, everyone gets a personal exemption; for persons who qualify as a dependency exemption of another taxpayer, their personal exemption is zero. However, certain requirements must be met to claim a deduction for a dependent. Wind up your tax base formula discussion with some remarks about applying the proper tax rates to taxable
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Chapter 1 - 1 Chapter 1 Overview of the Tax Structure...

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