ACA1 Task 2
ACA1 Task 2
A. Filing Status: There are two choices of filing status available to this taxpayer couple, married filing separately and married filing jointly. For this taxpayer couple the recommended filing status is married filing jointly. The tax rates would be higher if they filed separately. Additionally, some deductions (e.g. tuition and student loan interest), credits (e.g. Earned Income Credit) and exclusions would not be allowed if they filed separately. Since they sold a personal residence during this tax year, they will be able to exclude up to $500,000 profit from the sales as joint filers rather than only up to $250,000 if filing separately. There will be 2 qualified personal exemptions and 3 exemptions for the 3 dependent children. All the children qualify as dependents because they are all under age 19 and the parents provide over half or all of their support . Spouse B’s mother cannot be claimed as a dependent because she provided for over half of her own support with contributions of $7,920 while her family calculates their contributions for her support to be $7,000.
A2a. Taxable and Non-Taxable Income: The IRS defines taxpayer income as all income, both taxable and non-taxable. Items that are considered taxable income for this couple are:
$142,000 for Spouse A from K-1 partnership income (business or self-employed income).
$2,000 Spouse A wages income from city park job.
$88,000 Spouse B wages income from electronics firm.
Total of Spouse A’s dividends from Company E qualifies as dividends for capital gains rate. Stock bought 11 years ago satisfies the holding period requirement of IRS.
($5,000) loss on day trading by Spouse B classified business activity .
Items considered to be non-taxable for this couple are:
$900 municipal bond interest ($5,000 at 9% semi-annual payments) is exempt per Section 103.
$2,400 Spouse B Child Support received is considered to be for child care and is not taxable (IRS Publication 525).
A. Filing Status: There are two choices of filing status available to this taxpayer couple, married filing separately and married filing jointly. For this taxpayer couple the recommended filing status is married filing jointly. The tax rates would be higher if they filed separately. Additionally, some deductions (e.g. tuition and student loan interest), credits (e.g. Earned Income Credit) and exclusions would not be allowed if they filed separately. Since they sold a personal residence during this tax year, they will be able to exclude up to $500,000 profit from the sales as joint filers rather than only up to $250,000 if filing separately. There will be 2 qualified personal exemptions and 3 exemptions for the 3 dependent children. All the children qualify as dependents because they are all under age 19 and the parents provide over half or all of their support . Spouse B’s mother cannot be claimed as a dependent because she provided for over half of her own support with contributions of $7,920 while her family calculates their contributions for her support to be $7,000.
A2a. Taxable and Non-Taxable Income: The IRS defines taxpayer income as all income, both taxable and non-taxable. Items that are considered taxable income for this couple are:
$142,000 for Spouse A from K-1 partnership income (business or self-employed income).
$2,000 Spouse A wages income from city park job.
$88,000 Spouse B wages income from electronics firm.
Total of Spouse A’s dividends from Company E qualifies as dividends for capital gains rate. Stock bought 11 years ago satisfies the holding period requirement of IRS.
($5,000) loss on day trading by Spouse B classified business activity .
Items considered to be non-taxable for this couple are:
$900 municipal bond interest ($5,000 at 9% semi-annual payments) is exempt per Section 103.
$2,400 Spouse B Child Support received is considered to be for child care and is not taxable (IRS Publication 525).
Bibliography: American Opportunity Tax Credit. (n.d.). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/uac/American-Opportunity-Tax-Credit IRS Publication 550 IRS.gov. (2014, 1 16). Retrieved 2 7, 2014, from IRS.gov: http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage IRS.gov Publication 501. (n.d.). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/publications/p501/ar02.html#en_US_2013_publink1000289305 Publication 501 Test to be a Qualifying Child Publication 504. (n.d.). Retrieved 2 7, 2014, from IRS: http://www.irs.gov/pub/irs-pdf/p504.pdf Publication 521 Publication 529. (n.d.). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/pub/irs-pdf/p529.pdf Publication 596 Publication 972. (n.d.). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/pub/irs-pdf/p972.pdf Retirement Plans Tax Topics. (2014, 2 5). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/taxtopics/tc554.html Tax Topics 429 Tax Topics 502. (n.d.). Retrieved 2 8, 2014, from IRS.gov: http://www.irs.gov/taxtopics/tc502.html