Tax Ch.3 Notes

3-1:

b. Income
g. Less: Exclusions
f. Gross Income
a. Less: Deductions for adjusted gross income
d. Adjusted gross income
h. Less: The greater of—
Total itemized deductions
or standard deduction
e. Less: Personal and dependency exemptions
c. Taxable Income

3-8:
In choosing between the standard deduction and itemizing deductions from AGI, what effect, if any, does each of the following variables have?

a. The age of the taxpayer(s). If over the age of 65, a person is allowed the additional standard deduction amount on his or her own return. b. The health (i.e., physical condition) of the taxpayer(s). If blind, a person is allowed the additional standard deduction amount on his or her own return. c. Whether the taxpayer(s) rent or own their personal residence. d. Taxpayer’s filing status (e.g., single; married, filing jointly). The standard deduction depends on the filing status of the taxpayer, and thus differs in amount for each type of filing status. e. Whether married taxpayers decide to file separate returns. A married individual filing a separate return must itemize deductions. f. The taxpayer’s uninsured personal residence that recently was destroyed by fire. Could be an itemized deduction under the casualty and theft losses section, if the loss exceeded 10%. You have to account for the increase in effective tax rate. g. The number of personal and dependency exemptions the taxpayer(s) can claim. A dependent’s basic standard deduction for 2013 is limited to the greater of $1000 or the sum of the individual’s earned income plus $350 exceeds the standard deduction.

3-12: She can be claimed as a dependent, but the standard deduction is limited to the greater of $1000 or the sum of the individuals earned income for the year plus $350. However, if the sum of the individual’s earned income plus $350 exceeds the standard deduction, which it does in this case, the standard deduction is limited to the appropriate amount.

3-19: To be a dependent, the individual must be a U.S. citizen, a U.S. resident, or a resident of Canada or Mexico for some part of the calendar year in which the taxpayer’s tax year begins. In this case, Mario’s parents and aunts would not be allowed to be claimed as dependents living in Guatemala, however, if Mario’s parents and aunts move to Mexico, they would then be able to be claimed as a dependent.

3-22 : If Fran uses a “married, filing separate” income tax return, she must itemize deductions if her husband has done so, the earned income credit and the credit for child and dependent care expenses can not be claimed, no deduction is allowed for interest paid on qualified education loans, and only $1500 of excess capital losses can be claimed.

3-23: The difference between the Tax Rate Schedules and the Tax Table exists because the tax for a particular income range in the Tax Table is based on the average tax for that range. Jayden may not, however, use the Tax Table method if he is an individual who files a short period return, if his income exceeds the maximum amount in the Tax Table, or if it is an estate or a trust. Seeing that the Tax Rate Schedules yield a better return for him, he is right in choosing the lower of the two.

3-37:

Their allowable deduction for each child would be $3,900 (3,900*3), and $3,900 for each parent (3900*2). Furthermore, because their income was in excess of $300000 you have to account for the increase in the effective tax
rate. Using the phaseout of exemptions equation, their excess amount is $22000. Take the $22000 and divide it by 2500 which gives you 8,800 rounded up to 9000. Multiply that by the 2% phaseout percentage to get 18%. Multiply the phaseout percentage by the total exemptions equals $3510 and subtract the exemption amount by the phaseout amount (19500-3510) to get a total of $15990 allowable exemption deduction.

3-38
a. Under a multiple support agreement, anyone who provides more than 10% of support for Wesley and Myrtle can claim an exemption as long as they are decedents of the related party. In this case the son, niece, and brother all qualify under the multiple support agreement, but the cousin the family friend do not. b. Yes, as long as it was included and agreed upon in the multiple support agreement. c. No one can claim it.