Ch 2: Calculate Tax, High Incomes Flashcards
2013 tax brackets?
7 tax brackets get progressively higher with income
10%, 15, 25, 28, 33, 35, 39.6%
Individuals are required to use the tax table unless…
Income exceeds maximum income in table (currently $100K)
5 filing statuses?
1 married filing jointly 2 surviving spouse 3 head of household 4 single 5 married filing separately
Community property law
Allocates community income equally btw husband and
Wife regardless of which spouse earns the income
Non community property states
Income belongs to spouse who produces income
Results in higher tax rates
If congress adopted a truly proportional tax system, would it be necessary to have 4 different tax rate schedules?
No, all taxable income would be taxed at same rate
Joint return requirements
1 legally married or common law marriage on last day of
Tax year
2 must have same tax year end (except in death)
3 both must be citizens or residents
How do tax rates go up for married couples or go down?
Go up if both husband and wife make equal amounts of
High earnings
Go down if one spouse is a big earner and the other isn’t
Surviving spouse
Can file this status for 2 years after the year the spouse dies
4 Conditions to qualify as surviving spouse?
1 have not remarried in year where surviving spouse is
Claimed
2 be US citizen/resident
3 qualified to file joint return in year of death
4 have at least 1 son or daughter living at home during entire
Year and provide more than half their support
2 Benefits of surviving spouse filing status?
1 Entitles tax payer to lower joint return tax rate schedule
2 a higher joint return standard deduction in year spouse died
can include spouse exemption
4 Conditions to meet head of household filing status?
1 unmarried at end of tax year (exceptions apply to marriage
To nonresident aliens and abandoned spouses)
2 not be surviving spouse
3 be US citizen or resident
4 pay over half the costs of maintaining household where
Dependent lives for half the year
An individual can’t claim head of household status in…
Year their spouse died
2 exceptions to claim head of household?
1 in divorce, can claim head of household when qualifying
Child lives with tax payer more than half the year when child
Is not their dependent
2 can be head of household when maintain separate home
For parent
7 charges included in maintaining the household?
1 property taxes 2 mortgage interest 3 rent 4 utility charges 5 upkeep and repairs 6 property insurance 7 food consumed in house
7 common expenses not included in maintaining the house hold?
1 clothing 2 education 3 medical treatment 4 vacations 5 life insurance 6 transportation 7 value of services provided by tax payer
Single tax payer definition?
Unmarried individual who does not qualify as surviving
spouse or head of house hold
Tax rates progress more rapidly
Married filing separately
Married individuals that choose to file separate returns
Must use separate rate schedule
Leads to higher tax rates
3 disadvantages of married filing separately?
1 taxpayer may lose all or part of benefits of deduction for
Individual retirement accounts
2 lose child care credit
3 lose earned income credit
Abandoned spouse
Tax relief for otherwise paying married and separate
Abandoned spouse 3 requirements?
1 Taxpayer lived apart from spouse for last 6 Months of year
2 taxpayer pays over half costs of maintaining house and
Has son/daughter living there for over half the year
3 taxpayer is US citizen or resident
Under current law, what 3 rules curtail the advantages of shifting income to dependents?
1 dependents don’t receive personal exemption on own
returns
2 (2013) dependent’s standard deduction is reduced to
greater of $1,000 or dependent’s earned income + $350
3 tax on unearned income of child under age 18 (or 24)
Is figured by reference to parent’s tax rate if higher
Than child’s rate
