1 Income Tax Fundamentals

Question 1

Tax Formula

Answer 1

Income (broadly conceived)

– exclusions from gross income

= Gross income

– deductions for adjusted gross income

= AGI

– max(Std. Deduction, Total itemized)

= Taxable Income

Question 2

Exclusions from Gross Income

Answer 2

• Personal and Welfare items
  
  • Injury/sickness (104)
  • Insurance reimb. living exp (123)
  • Foster care reimb (131)
• Employer provided benefits
  
  • Fringe
  • Military
  • Foreign earned income
• Certain Investments
• Benefits for elderly
• Other
  
  • Bankruptcy discharge (108)
  • Ed. savings bonds (135)
  • Sale of personal residence ($250K/$500K)

Question 3

Who is a dependent: Relationship test

Answer 3

Qual. child: taxpayer’s child, stepchild, foster child, brother, stepbrother, sister, stepsister, or a descendent of any of the previously listed

Qual. relative: not a qualifying child AND

either

• taxpayer relative, including parent, in-law, niece, nephew, aunt, or uncle,

or

• unrelated but resided in the taxpayer’s principal home during the tax year

Question 4

Who is a dependent: Income test

Answer 4

Qual. child: N/A

Qualifying relative:

• Gross income must be less than the standard deduction amount for a single person
• nontaxable income, such as Social Security benefits, when used as support by the individual, counts toward the support threshold

Question 5

Who is a dependent: Residence test

Answer 5

Qual. child: lived with more than 1/2 year

Qual. relative: Parent does not have to live w/taxpayer

Question 6

Who is a dependent: Age test

Answer 6

Qual. child: either

• under 19 at tax year-end
• full-time student and under 24
• totally and permanently disabled any time during year

Qual. relative:

Question 7

Who is a dependent: Support test

Answer 7

Qual. child: Dependent must not have provided more than 50% of own support (not counting scholarships)

Qual. relative: Taxpayer must have provided more than 50% of support

Question 8

Who is a dependent: Dependents test

Answer 8

Individual cannot claim any other individual as a dependent

Question 9

Who is a dependent: Filing test

Answer 9

May not have filed a joint return for the tax year (unless only to obtain a refund of tax withheld)

Question 10

Who is a dependent: Citizenship

Answer 10

Generally must also be a U.S. citizen, U.S. national, or resident of the United States, Canada, or Mexico.

Question 11

HOH Qualifying persons: Have to be claimed as a dependent?

Answer 11

Single child: No

Married child: Yes¹

Other relative: Yes

Parents: Yes

¹Qualifies as dependent unless child’s spouse claims as dependent

Question 12

HOH Qualifying persons: Live in Home 1/2 year?

Answer 12

Single child: Yes

Married child: Yes

Other relative: Yes

Parents: No²

²Taxpayer pays more than half the cost of parent’s home or elder care

Question 13

Income Level Required to File: Single

Answer 13

Under 65: $12,400

65 +: $14,050

Question 14

Income Level Required to File: MFJ

Answer 14

Both under 65: $24,800

One under 65: $26,100

Both 65+: $27,400

Question 15

Income Level Required to File: MFS

Answer 15

$12,400

Question 16

Income Level Required to File: HOH

Answer 16

Under 65: $18,650

65+: 20,300

Question 17

Income Level Required to File: Qual. Widow(er)

Answer 17

Under 65: $24,800

65+: $26,100

Question 18

Child tax credit MAGI phaseouts

Answer 18

Credit reduced $50 for each $1,000 above threshold

Thresholds:

MFJ: $400,000

S, MFS, or HOH: $200,000