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2-1
Tax 310
Chapter 2: Determination
of Tax
2-2
Equals:
Gross
Income
Less:
Deductions
for AGI
Taxable
Income
Less:
Personal
Exemptions
Less:
Itemized
Deductions
or Standard
Ded.
Equals: AGI
Tax Liability
Calculated
Per Table
Minus:
Credits and
Prepayment
s
Equals:
Net Tax
Payable or
Refund
Total
Income
2-3
Total Income
Any income from whatever source
derived.
Includes both taxable and non-taxable
income.
Does NOT include return of capital (basis)
of property sold.
Example: Bob sells a piece of property for
$1,000. He has a cost basis of $700. Bob
will include $300, not $1,000 into total
income.
2-4
Exclusions
Gifts
Life
Insurance
Welfare
Certain
Scholarship
s
Certain
Pmts for
Injury
Certain
Employee
Benefits
Certain
Foreign
Income
Tax-Exempt
Interest
Series EE
Bond
Interest
Leasehold
Improveme
nts
Meritorious
Achieveme
nt Awards
Certain
Divorce
Payments
Gain from
Sale of
Home
Roth IRA
Distribution
s
COD
SS Benefits
2-5
Business
Gross Inc.
Gains from
Property
Sales
Interest
Rents
Royalties
Dividends
Alimony
Annuities
Life
Insurance
Proceeds
Pensions
COD
Income
Pship
Income
IRD
Trust/Estate
Income
2-6
e.g.,
AGI
=
THE
LINE
insurance.
exemptions,
greater of:
itemized
deductions or
standard
deduction.
2-7
Reimbursed
EE
Expenses
Loss from
Property
Sales
Rent/Royalty
Deductions
LT and Inc.
Beneficiary
Property
Ded.
Retirement
Plan Contrib.
Penalties
from Savings
Accts
S-E Taxes
S-E Health
Insurance
Premiums
Alimony
Moving Exp.
Certain Jury
Duty Pay
Certain
Environment
al
Expenditures
Interest on
Student
Loans
2-8
Repayments
of
Unemploym
ent
Compensatio
n
Medical
Savings
Account
Contribution
s
2-9
Itemized
Deductio
ns
Medical Expenses
Taxes Property, Real Estate,
S&L
Charitable Contributions
Casualty Losses
Mortgage Interest
Miscellaneous Deduction
Standard
Deduction
s
2-10
Mortgage Interest.
Charitable Contributions (limited).
Property, State/Local, and Real Estate
Taxes.
Investment Interest (limited).
2-11
2-12
Standard Deductions
Standard Deduction Amounts
The 2016 standard deduction amounts will
be as follows:
Single or married filing separately: $6,300
Married filing jointly: $12,600
Head of household: $9,300
The additional standard deduction for people
who have reached age 65 (or who are blind)
is $1,250 for married taxpayers or $1,550 for
unmarried taxpayers.
2-14
Return <12
months due
to change in
acctg
period.
Married
filing
separately
where
spouse
itemizes
Nonresident
Alien
2-16
AND
Is
individua
la
qualifyin
g child?
TIER 2 REQUIREMENTS
MUST MEET ALL 4
CRITERIA:
1. Relationship test
2. Age test
3. Abode test
4. Support test
OR
2-20
2-26
Multiple Support
Agreements
If group provides > 50% support but no one
person provides > 50%, then the eligible
members can designate one person.
Eligible members must agree in writing.
Claimant must complete a Multiple Support
Declaration (Form 2120).
MSD trumps tie-breaker rules.
TP who can claim under qualifying child
rules cant transfer to another TP who can
claim under the dependents rules.
2-27
2-28
Parental Release
Generally, exemption is awarded to
custodial parent.
Exception non custodial parent can
claim exemption if other parent signs
Form 8332.
2-29
Paym
ents
with
Exten
sion
Exce
ss
SS
Tax
Est.
Tax
Pmt
s
Over
pmt
of
PY
Tax
2-30
Nonrefundable Credits
Adopt
ion
Exp.
Cr.
R&E
Credi
ts
Busin
ess
Energ
y
Credi
t
Educat
ion
Credits
Child
or
Depe
ndent
Care
Credi
t
Cr.
for
the
Elderl
y and
Disab
led
Forei
gn
Tax
Credi
t
2-31
Child Credits - 24
Can claim $1,000 credit for each qualifying
child. Partially refundable.
Qualifying child = same definition as for
dependency exemption except < 17 years.
The phase out threshold is $55,000 for married
couples filing separately; $75,000 for single,
head of household, and qualifying widow or
widower filers; and $110,000 for married couples
filing jointly. For each $1,000 of income above
the threshold, your availablechild tax creditis
reduced by $50.
2-32
Is
taxpayer
married as
of last day
of the tax
year?
Is taxpayer
an
abandoned
spouse?YE
S
Is
taxpayer
a US
citizen?
NO
NO
Married
filing
separately
OR
Married
filing
jointly
YE
S
Pays over YE
S
cost of
household
?
SINGLE
NO
Did
NO taxpayers
spouse die
during tax
YE
year? S
Next
NO
Head of
Househo
ld
NO
Will taxpayer
SINGLE
claim
someone else YES
as a
dependent? 2-33
Did
taxpayers
spouse die
during tax
year? YE
S
Did taxpayer
remarry by
end of tax
year?
NO
Married
filing
separately
OR
Married
filing
jointly
2-34
If not
remarried, can
claim MFJ.
Year
2
Cannot be
remarried by
end of Year 2.
Can claim
exemption for
self and
deceased
spouse.
Must be a US
citizen or
resident.
Must have a
dependent
living at home
with TP paying
over
expenses of
home.
Cant claim
exemption for
deceased
spouse.
2-35
2-38
2-40
Shifting
Income
Maximizi
ng
Itemized
Deductio
ns
MFJ vs.
MJS
Splitting
Income
2-42
2-43
Due Dates
Individuals April 15
Corporations and S Corporations
15th day of the 3rd month after close
of tax year.
If due date falls on weekend or
national holiday, due date is moved
to the first business day following.
2-45
2-46
Types of Individual
Returns
1040
1040
EZ
1040
A
2-47
Form1040EZ
Generally, youre a1040EZif all of the following are true:
Your filing status is single or married filing jointly.
You dont claim dependents.
Your taxable income is less than $100,000 .
Your taxable interest is $1,500 or less.
You dont claim adjustments to income, likestudent loan interest
deduction or an IRA deduction.
The only credit you claim is theEarned Income Tax Credit.
You, and your spouse, if filing a joint return, were under age 65 and not blind
at the end of 2013. If you were born before Jan. 1, 1949, youre considered to
be age 65 and cant use Form 1040EZ.
More
With the 1040EZ, youcantitemizetax deductions, and you cant have
income from self-employment, alimony, dividends or capital gains.
Also, you cant claim credits or deductions, with the exception of the Earned
Income Credit (EIC). So you cant claim charitable donations, mortgage interest
paid, credits for child and dependent-care expenses or education credits. Note:
the amount of the EIC that you may be able to claim may be larger if you use a
1040A or 1040 in some circumstances.
2-48
Form1040A
Your taxable incomemust be less than $100,000to use the 1040A. Your income
can come only from these sources:
Wages, salaries, and tips
Interest and dividends
Capital gain distributions
Taxable scholarship and fellowship grants
Pensions, annuities, and IRAs
Unemployment compensation
Taxable Social Security and railroad retirement benefits
Alaska Permanent Fund dividends
The only adjustments to income you can claim are the IRA deduction and the
student-loan interest deduction and you can also claim educator expenses and
the tuition and fees deduction.
The only credits you can claim on the 1040A are:
Child tax credit
Education credits
Earned Income Credit (EIC)
Credit for child and dependent-care expenses
Credit for the elderly or the disabled
Retirement savings contributions credit
Youcantitemize deductions, which means you cant deduct charitable donations
or mortgage interest paid. Also, youcantclaim an AMT adjustment on stock
acquired from exercising an incentive stock option.
2-49
10
99
-G
W-2
10
99
IN
T
10
99
-R
10
99
-B
2-50