75%(4)3 out of 4 people found this document helpful
This preview shows page 26 - 28 out of 46 pages.
k.A separate tax intended to close loopholes.What is the alternative minimum tax?Review Question 2.Mabel, single, just reached the age of 65 and was somewhatrelieved because she remembered hearing of the tax she would save as a 65-year-old sen-ior. What tax savings can Mabel expect?Perhaps none.The only benefit for being 65 years old is an additional standard deduction($1,350 for unmarried taxpayers for 2008). If Mabel itemizes her deductions rather thanclaiming the standard deduction, she receives no benefit. If she does not itemize, her standarddeduction for 2008 is $6,800 (the basic standard deduction of $5,450 plus the extra $1,350).Review Question 3.Dick and Jane just learned that they are expecting their firstchild. What tax benefits can they expect after Junior is born?3–26TAXABLE ENTITIES, TAX FORMULA, INTRODUCTION TO PROPERTY TRANSACTIONS
Many.First are the dependency exemption deduction ($3,500 for 2008) and the child taxcredit ($1,000 for 2008). In addition, Dick and Jane can look forward to a credit for anyjob-related child care expenses that they pay.Review Question 4.Are deductions of a sole proprietor deductiblefororfromadjusted gross income? (Hint: see lines 23 through 27 on Page 1 of Form 1040 andSchedule C in Appendix B of this book.)The trade or business expenses of a sole proprietor or someone who is self-employed aredeductible for A.G.I. Note that these are not shown as one of the deductions for A.G.I. onPage 1 of Form 1040. Instead, they are netted against the sole proprietor’s income onSchedule C, and this net profit is included in the taxpayer’s total income reported onPage 1 of Form 1040.ReviewQuestion5.A sole proprietor’s income generally is subject to self-employment tax. Is the deduction for one-half of the self-employment tax deducted for orfrom adjusted gross income? Is it reported on Schedule C or Form 1040?This is a deduction for A.G.I. and is reported as a deduction for A.G.I. on page 1 ofForm 1040 (and not Schedule C).INTRODUCTION TO PROPERTY TRANSACTIONSThe tax provisions governing property transactions play a very important part in our taxsystem. Obviously, their major purpose is to provide for the tax treatment of transactionsinvolving a sale, exchange, or other disposition of property. However, the basic rules cover-ing property transactions can also impact the tax liability in other indirect ways. For example,the amount of the deduction granted for a charitable contribution of property may depend onwhat the tax result would have been had the property been sold rather than donated. As thisexample suggests, a basic knowledge of the tax treatment of property transactions is helpfulin understanding other facets of taxation. For this reason, an overview of property transac-tions is presented here. Chapters 14, 15, 16, and 17 examine this subject in detail.