Chapter 3 Notes Flashcards
Tax Formula
Income-exclusions=Gross Income - Deductions for AGI = AGI - greater of total itemized deductions or standard deduction
Deductions for AGI
Business expenses 50% of self employed unreimbursed moving expenses IRA's fees for college Health savings accounts early withdrawal fees int on student loans capital loss alimony
People must itemize if
- spouse is filing separately and is itemizing
- alien
- Someone filing a return for less than twelve months
Dependent Standard Deduction
Greater of 950 or their earned income plus 300
Personal Exemptions
exemptions allowed for the tax payer and the spouse
Qualifying Relative Test
- Relationship - cousin, relatives, unrelated party if they have lived with them the whole year
- Gross Income < 3800
- Provide more than half of their support
- US Citizen
- Can’t file a joint return with someone else
Tax Formula
Income-exclusions=Gross Income - Deductions for AGI = AGI - greater of total itemized deductions or standard deduction
Deductions for AGI
Business expenses 50% of self employed unreimbursed moving expenses IRA's fees for college Health savings accounts early withdrawal fees int on student loans capital loss alimony
Deductions for AGI
Business expenses 50% of self employed unreimbursed moving expenses IRA's fees for college Health savings accounts early withdrawal fees int on student loans capital loss alimony
People must itemize if
- spouse is filing separately and is itemizing
- alien
- Someone filing a return for less than twelve months
Dependent Standard Deduction
Greater of 950 or their earned income plus 300
Personal Exemptions
exemptions allowed for the tax payer and the spouse
Qualifying Child Test
- Relationship - child, adopted, stepchild, brother, sister, etc.
- Abode - lived with you more than half a year
- Age -< 19 or < 24 if a full time student
- Support - dependent can’t provide more than half of their own support.
- US citizen
- Can’t file a joint return with someone else
Joint Return Test
If a dependent is married and files a joint tax return with their spouse the taxpayer claiming that dependent doesn’t get the exemption
Child Tax Credit
Allows 1000 for each dependent under 17
Abandoned Spouse Rule
Married people can file separately as the head of household if
- Don’f file jointly
- Taxpayer paid more than half of house exp
- Spouse didn’t live there for more than 6 months
- Home is the resident of dependents
Singles filing limit
if income exceeds 9750(3800+5950)
Dependents must file if
Gross income exceeds the standard deduction
Surviving Spouse Rule
Apply for two years following the death of one spouse, if
the surviving spouse maintains a household for a dependent child. The child must
be a son, stepson, daughter, or stepdaughter who qualifies as a dependent of the
taxpayer.
Head of Household
To qualify for head-of-household rates, a taxpayer must
1.pay more than half the
cost of maintaining a household as his or her home.
2. The household must also be
the principal home of a dependent.
3. The dependent must live in the taxpayer’s house hold for more than half a year
Tax Day
15th of april
Examples of Credits
Earned income credit,credit for child and dependent expenses, foreign tax credit, child tax credit
Net Worth
Assets - Liabilities
For AGI deductions
Business expenses
Investment Expenses
Misc Exp
Itemized Deductions
Medical - < 7.5%
Interest
Casualty Losses - 10 % of AGI
Charitable Cont - 50% of AGI
Personal Deductions
Misc - Unreimbursed
Tax Credit
Reduces your tax liability
Deductions
Reduce AGI
Innocent Spouse
When a spouse files separately even if they lived for part of the year with their spouse. Absolves the innocent spouse from tax liability of a spouses that is doing illegal acts
Kiddie Tax
Dependent child < 19 or 24 full time student, any unearned income over 1900 is taxed at the highest rate.
Effective Tax Rate
Average Rate
Marginal Tax Rate
Rate on your last dollar of income
