T12S-Chp-08-1-Taxation-of-Individuals-2012

T12S-Chp-08-1-Taxation-of-Individuals-2012 - Chapter...

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1 Chapter 8- Income Taxation of Individuals. Exemptions. Itemized Deductions, Credits Howard Godfrey, Ph.D., CPA UNC Charlotte Copyright © 2012, Dr. Howard Godfrey Edited February 28, 2012.
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Part-1. Exemptions – Personal, Dependency Part-2. Filing Status – Joint, Separate, Single, Head of Household Part-3. Deductions From AGI – Std. Deduction, Various itemized deduction Part-4. Limits – High income taxpayers’ deductions, Standard deduction for children, Kiddie tax Part-5. Tax Credits – Child Credit, Earned income credit, Dependent care, Higher Education Part-6. Filing requirements
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3 General Tax Formula-2011 Gross Income $110,000 Deductions For A.G.I. (10,000) Adjusted Gross Income (AGI) 100,000 Exemptions $3,700 (7,400) Regular Item. Ded. (13,000) Misc. Item. Ded. 5,000 Less 2% of AGI (2,000) Deductible Amount 3,000 Total Deductions From AGI (17,400) Taxable Income $82,600
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Gross income Less: Deductions for AGI Equals: Adj. Gross Income (AGI) Standard deduction or Itemized deductions Personal & dependency exemptions Equals: Taxable income Individual Income Tax Model
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Times: Tax rate Equals: Gross income tax liability Less: Tax credits Plus: Additions to tax Less: Tax prepayments Equals: Net tax due or tax refund Taxable income
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Mr. and Ms. Jones have combined salaries of $60,000. Their only expenditures affecting the tax return are state income taxes of $6,000, mortgage interest of $5,000 and real estate taxes amounting to $1,000. They have two small children whom they support, and file a joint return. What is their taxable income for
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Gross income $60,000 Deduct. for AGI Adj. Gross Income 60,000 Less: 1a. Itemized Ded. 1b. Standard Ded. Itemized or Std. Ded. 2. Exemptions Taxable Income Mr. and Ms. Jones
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Gross income $60,000 Deduct. for AGI Adj. Gross Income 60,000 Less: 1a. Itemized Ded. 12,000 1b. Standard Ded. 11,600 Itemized or Std. Ded. (12,000) 2. Exemptions 4 3,700 (14,800) Taxable Income $33,200 Mr. and Ms. Jones
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Introduction Limits-High-Income TP Pers & Dep. Exempt. Exempt. & St. Ded. Limits Dependency Req. for Dependents Filing Status Calculating Tax Liability Jointly Unearned Income-Child Separate Income Tax Credits Single Filing Requirements Head of Household Summary Ded. from AGI Appendix to Chapter 8 Standard Deduction Schedule EIC Itemized Deductions EIC Table-2010 8. Taxation of Individuals.
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Exemptions Personal Dependents
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Exemptions- Sec. 151, 152 Each taxpayer (who is not a dependent) is entitled to one personal exemption Exemption deduction is $3,700 for 2011 Additional exemptions allowed for each person who is considered a dependent Anyone who is claimed as a dependent cannot claim a personal exemption
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Requirements – all dependents. Sec. 152(b) Must meet these tests 1. You may not claim an exemption for yourself, if you are the dependent of another taxpayer 2. Citizenship test – U.S. or contiguous country 3. Joint Return. Married individual who files a joint return generally is not a dependent of another person
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Qualifying Child. Sec. 152(c) Must meet these tests 1. Residency test - live with taxpayer more than 6 months 2. Relationship test – child of taxpayer- or descendent of such child - brother, sister, stepbrother or stepsister of taxpayer, or descendant (of any of these
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T12S-Chp-08-1-Taxation-of-Individuals-2012 - Chapter...

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