Accounting

Filing Status & Income Chapter 2 # 32 Five types of filing statuses: 1. Single: person must not be married as of the last day of the year. 2. Married Filing Jointly: must be legally married at the last day of the year with marital status determined by the state. 3. Married Filing Separately: legally married at the last day of the year, but chose to file separately. In this case standard deduction can be only taken if both taxpayers agree to take it. 4. Head of Household: taxpayer most not be married at the last day of the year and must maintain a household for a qualifying dependent for more that half of the year. 5. Qualifying Widow(er) with Dependent Child: taxpayer who otherwise would be legible to file a joint return in the year the spouse died; must be unmarried, and paying more than half the cost of a household that was the principal place of residence of the taxpayer and child for the year. # 33 Claiming head of household filing status: a) Yes: taxpayer is not married at the last day of the year and maintains a household for a qualifying dependent child for than half of the year. b) Yes: taxpayer is not married and maintains a separate household for a qualifying dependent relative. c) No: although taxpayer is unmarried at the last day of the year she did not maintain a household (paid for more than half the cost of keeping up a home) for the tax year. d) No: although taxpayer is unmarried at the end of the year, she did not maintain a household for more than six months. # 34 A taxpayer can claim one exemption for himself and one for the spouse and may qualify for an additional exemption for each dependent. However, a taxpayer that can be claimed as dependent by another can’t claim a personal exemption for himself. # 38 If they didn’t get married at the last day of the year and filing as singles: Julio’s taxable income: $45,000 – Standard Deduction Single 5700 – 3650 Single Exemption = 35,650 – Amount of tax for 2009 is $5,094; Martina’s taxable income: $15,000 – 5700 – 3650 = 5,650 Amount of tax: $563.00 Combined tax if filed as singles: $5,657.00 If they were married at the last day of the year and filed jointly: Total taxable income: (60,000 – 11,400 – (3650x2) = 41,300 Amount of tax: $5,356 My advice is get married on December 31st and file as joint return as a married couple. This will save them at least $301 by my simple calculations. Chapter 3 # 35 a) $0 – the payment was received in January of next year therefore must be recognized in the year it was received b) $ 200 – the payment was presumed to be received before the end of the year (the property was received) c) $0 – no payment was received or constructively received (the property received in the next year) d) $1,400 - if the security deposit is to be used as the tenant's final month's rent, the money must be recorded as income when received, rather than when it is applied to the last month's rent e) $500 for the accountant; income can be realized in any form, in this case services. Services agreed to be exchanged assuming at the equal fair market value and accountant already received the services. # 36 The taxpayer should report income at maturity : if the bonds are redeemed or otherwise disposed of, whichever comes first. Also, the owner can choose to report the annual increase in face value as interest income on each year’s income tax return, which is more advantageous because tax rates increase throughout the years. # 42 I would recommend selling the stock. Taxation of Dividends: Taxable income (8,000 + 13,000 + 2,000) = 23,000 (less than lower limit of provisional income – no social security benefits are taxable); Taxable Income (before dividend) 10,000 Less lower bracket amount - $ 8,350 Income taxed at 15% - 1,650 Tax rate x15% Tax at higher bracket 247.50 Plus tax on first 8,350 – 835.00 Tax before dividend - $1,082.50 Tax on dividend (13,000 x15%) – 1,950 Total tax liability - $3,032.50 If sold shares who would pay no tax on capital gain of $10,000. According to the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) passed by Congress in May 2006, U.S. taxpayers in the two lowest tax brackets will pay no capital gains taxes on long-term investments sold in 2008, 2009 and 2010. Sean is in the 15% tax bracket, and in the future with reduction of dividend by 1,000 and increase in interest income his total income taxed before the dividend will be at little higher at (8,000 + 2,000 + 1,500) = $11,500; however, his tax on dividend will be lower. Appendix E (2009 IRS Tax Forms) Income items are shown on F 1040 items 7 through 22; F 1040A items 7 through 15; 1040EZ items 1-6; Form 4797, Schedule1, Schedule B, Schedule C, Schedule D, Schedule E.