Chapter 4 Review Flashcards
What is “adjusted gross income”
AGI is the bottom line
List several items that are deductible from gross income in determining
adjusted gross income
Lines 23-35 above the line deducations to determine agi
• deductible contributions to pension and profit-sharing plans of
self-employed individuals
• deductible alimony payments
• deductible moving expenses
• contributions to medical savings accounts or health savings accounts
• deductible contributions to IRAs
• deductible interest payments made on qualified education loans
• penalties or other forfeitures resulting from premature withdrawals from
time savings accounts or deposits
What is the standard deduction and how is it used?
Standard deduction is the 2nd page 1040 or you could itemize. Standard deduction is based on your filing status for uneared income on a kid $950 is the standard deduction. If they have earned income there standard deduction is earned income $300 and up to the standard deduction. $3300 for a kid made $$3000 an more up to $5700 if they made more
Explain how the standard deduction available to a taxpayer who is the
dependent of another taxpayer is limited.
Dependents are not eligible to claim the regular standard deduction amounts on their
own tax returns. The special standard deduction amount allowable on a dependent’s
tax return is the greater of a specified dollar amount, or a smaller dollar amount plus
the dependent’s earned income for the year (but not more than the regular standard
deduction amount). The dollar amounts are indexed annually for inflation.
Explain the additional amounts that increase the standard deduction for aged
and blind taxpayers.
Age 65 or blind extra standard deduction
Explain when and how a taxpayer’s itemized deductions had been limited
or phased out when the taxpayer’s adjusted gross income exceeded a
certain level.
Whatever the phase out is your itemized deductions will be reduced by 3% of the amount above the threshold you can never lose more than 70% itemized deductions
What itemized deductions were not subject to the phaseout rule? [2]
Remember medical expenses greater than 7.5% investment interest expense, casualty and theft losses have to be greater than 10% AGI gambling losses only to the extent of winnings
c. When will selective itemized deductions again be subject to phase out?
2010- 12 eliminated but 2013 it will be back
a. How is the personal exemption amount determined each year?
Indexed for inflation
Does the fact that a taxpayer is the dependent of another for tax
purposes affect the availability of a personal exemption? Explain.
Yes
Explain how a dependency exemption is treated on a tax return
Just another personal exemption
Who may a taxpayer claim as a dependent for tax purposes?
Qualified child or qualified relative prob lives with you r 50% support
Describe the “tie-breakers” that determine what taxpayer is entitled to claim a
dependency exemption for an individual.
1st the parent is always the 1st choice then it is whoever has them more than half the time if everything is even who ever has the higher AGI
Explain how a taxpayer’s personal and dependency exemptions were
phased out when the taxpayer’s adjusted gross income exceeds a certain
level.When will personal and dependency exemptions again be subject to
phaseout ?
There is a phase out for every $2500 above your lose 2% all phases outs gone for 2010-2012
Explain how the phasing out of a deduction or tax credit can combine to
change the effective marginal tax rates of individual taxpayers.
In addition to the marginal rate of tax imposed by the Code, taxpayers lose deductions
(and/or credits) with each additional increment of income that results in phaseouts.
Therefore the actual effective tax rate on the increments of income that result in the
phaseout of tax benefits may be significantly higher than the statutory marginal rate.
