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Globalization

Essay by   •  December 2, 2015  •  Essay  •  828 Words (4 Pages)  •  1,141 Views

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Quiz 2 – Individuals

Gross Income from whatever source

  • All income is subject to tax unless specifically listed by the tax code

Less: Exclusions

  • Specifically listed in the tax code and exempt by state
  • Examples:
  • Gifts
  • Interest on municipal bonds (government issued)
  • Inheritance
  • Life insurance proceeds
  • Settlement on account of physical injury
  • Child support

= Gross Income subject to tax (where the tax return begins)

Less: Deductions (reduction of taxable income)

  • “For AGI”  Better benefits; you never loose them
  • Examples:
  • Business expenses
  • ½ of the self-employment tax paid
  • Moving expenses
  • IRA and other retirement plan contributions (401k)
  • Alimony payments  payment to ex
  • Student loan
  • Interest (up to $25,000)
  • Trade or business expenses
  • College tuition and related expenses
  • HAS contributions
  • Penalties for early withdrawal from savings
  • Student loan interest
  • Excess capital losses

= Adjusted Gross Income (AGI)

Less: Standard deduction or Itemized

  • “From AGI”  Can loose them overtime
  • Standard deduction
  • $6,200 for a single person
  • $12,400 for married people
  • $9,100 for head of household
  • For over 65 or over or blind:
  • $1,550 for single
  • $1,200 for married
  • $1,550 for head of household
  • Itemized  Series of deductions that are given
  • Examples:
  • Mortgage interest on primary residence (incentive to buy real estate; 2 homes up to $1 million in debt)
  • Charitable contributions (has to be a public charity – not for profit; Ex. BC, hospitals, red cross)
  • State income tax or sales tax
  • Real estate taxes
  • Medical expenses > 10% of AGI
  • Casualty and theft > 10% of AGI

Less: Exemption

  • Worth $3,950 for every deduction you have
  • Personal exemption  Everyone gets one except dependents
  • Dependency  Someone supports you
  • Qualified Child
  • Relation (not cousins)
  • Residence (lives with you more than half year)
  • Age requirement (<19 or <24 for full-time student)
  • Cant be self supported (cant provide for more than half support themselves)
  • Qualifying relative
  • Relationship or live in your house for an entire year
  • Support (you have to provide more than half)
  • Gross income test (earn less than $3,950)

= Taxable Income

  • When you reach $300,000 you start to loose benefits

4 tax rate schedules: (determines on the last day of the taxable year)

  1. Single
  2. Marries Joint
  • Most couples do this
  • Advantageous
  • Surviving spouse
  • File jointly in the year of death and get exemption (only count dead as dependent in the year of death)
  • Can file jointly for 2 years after the death if you have a dependent child
  1. Marries Separate
  • Reason to file separate: you are liable for other’s tax return and may not trust them
  1. Head of household  single parent
  • Single (unmarried)
  • Maintain a home for ½ a year (prove ½ cost) for unmarried qualifying child or dependent family member
  • Parent doesn’t have to live there, but has to be dependent
  • Abandon spouse
  • If you’re abandoned more than 6 moths and have dependent, you can file as Hoh

Tiebreaker rules:

  • If only one of the taxpayers is the child’s parents, the parent claims the exemption
  • If both taxpayers are the child’s parents and they do not file a joint return, the parent with whom the child resided for the longest period of time during the tax year claims the exemption
  • If the child resides with both parents for the same period of time, the parent with the highest AGI claims the exemption
  • If none of the taxpayers are the child’s parents, the taxpayer with the highest AGI claims the exemption  

Kiddie tax

  • Applies to child <19 or <24 for full-time student who has unearned income of >$2,000
  • Unearned income = Investment income  Interest and dividends
  • Standard deduction and personal exception of an individual who can be claimed on another person’s tax return
  • Standard deduction:
  • $1,000
  • or $350 + earned income
  • When you’re dependent
  • Maximum $6,200 for a single person
  • Anything that exceeds $2,000 will be taxed at parents rate

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