The framework for the application of the federal

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The framework for the application of the Federal income tax to individuals is the tax formula. Before determining taxable income, you must consider what items are included as taxable income and what items are allowable deductions. Once you determine the deductions, you need to decide if any are subject to statutory limitations. A major component of the tax formula is the standard deduction. The effect of the standard deduction is to exempt part of a taxpayer's income from Federal income tax liability. In lieu of claiming itemized deductions, taxpayers will use the standard deduction. The standard deduction for a taxpayer filing single is $12,000 for 2018. Salary Taxable . Compensation for services provided as an employee is taxable. Gift from parents Not taxable. Gifts are excluded from gross income. Therefore, the gift from Emily's parents is nontaxable. Alimony payment received Taxable. For payments required under divorce or separation instruments that are executed prior to January 1, 2019, the deduction for alimony payments is still allowed. As result, recipients of these alimony payments will include them in taxable income. Capital gain from stock investment, held for 7 months Taxable. In general, realized gains from the sale of investments are included in gross income. Therefore, the short-term gain is taxable. Interest income from bonds issued by Xerox Taxable. Except for state and local bonds, interest earned on bonds is included in gross income. Therefore, the interest is taxable. Amount lost in football office betting pool Not deductible. Gambling losses is an itemized deduction and only deductible to the extent of gambling winnings. Emily's gambling losses are not deductible because she does not have any gambling winnings. Contribution to a traditional IRA Deductible. The contribution to the IRA is fully deductible. Note: Based on her age, Emily may deduct up to $5,500 for her IRA contribution (assuming she is not subject to the IRA contribution limitation). The following information applies to Emily for 2018. Salary $85,000 Interest on bonds 1,100 Alimony received 6,000 Capital gain 2,000 IRA contribution (5,500) AGI $88,600
Standard deduction (12,000) Taxable income $76,600
Problem 3-25 (LO. 1, 8) The following information applies to Emily’s 2018 taxable income. Her filing status is single. Salary $85,000 Interest income from bonds issued by Xerox 1,100 Alimony payments received (divorce finalized in 2014) 6,000 Contribution to traditional IRA 5,500 Gift from parents 25,000 Capital gain from stock investment, held for 7 months 2,000 Amount lost in football office betting pool 500 Age 40 Emily has no gambling winnings this year. Click here to access the standard deduction table to use. Indicate whether the following items are taxable or nontaxable to Emily.
Alimony payments received Taxable Capital gain from stock investment, held for 7 months
Interest income from bonds issued by Xerox

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